Preparation:
Select a U.S. public company and obtain electronically the annual financial statement information (e.g. from 10-K filings) for that company for the most recent five fiscal years (minimum). While it is not necessary for you to print these financial statements, you may find it helpful to print certain sections to assist in responding to the questions (e.g. the four financial statements, certain footnotes, business summary, segment information, MD&A, etc.). It would be beneficial for you to select a company with which you have some level of understanding and for which the required financial data required to complete this group project is available for at least five years. I encourage you to read all the requirements before finalizing your company selection, so you can be confident you will be able to fulfill all of the requirements in a capable manner with the company you are choosing.
Requirements:
1.
(a) Which company did you choose?
(b) Provide a brief introduction to your company, which should include the following elements:
(1) presenting its background/history;
(2) describing its primary line(s) of business;
(3) identifying the industry in which it operates and providing a brief overview of the industry;
(4) listing some of its closest competitors and providing basic financial data to offer some perspective into these companies' operations; and
(5) explaining some of the key economic, demographic, cultural, and/or political trends that present both opportunities and threats for your selected company in the years ahead.
2. Prepare the following financial statement schedules:
a. Summary balance sheet information for a minimum of five years for your company and at least one competitor. Include common size ratios as part of this schedule in an appropriate format.
b. Summary income statement information for a minimum of five years for your chosen company and at least one competitor. Include year-over-year and cumulative average growth rates for each income statement line item in an appropriate format as well as appropriate common size ratios for each year of information provided.
Please be sure to include appropriate headers for each of the statements, and take care to preserve formatting to ensure the financial statements are easily readable. Relative to each of the financial statements, provide a succinct written evaluation of the company's change in financial position (or performance) over the years presented (e.g. time-series) and relative to the selected competitor(s) (e.g., cross-sectional).
3. Calculate the following ratios based on the financial statement information provided in Section Two for a minimum of five years and comparable ratios for at least one competitor (note: you may need to obtain additional "beginning balance" F/S data to calculate certain ratios including an "average"):
a. Profitability ratios (six total): return on assets, return on common equity, profit margin, gross profit margin, free cash flow on common equity, free cash flow over sales
b. Activity ratios (six total): asset turnover, inventory turnover, accounts receivable turnover, days inventory held, days sales outstanding (A/R)
c. Short-Term Liquidity (two total): current ratio, quick ratio
d. Long-Term Liquidity (two total): long-term debt-to-assets, operating cash flow to total liabilities, interest coverage
For each of the above ratio categories (e.g. profitability ratios, activity ratios, etc.), provide a succinct, but professionaly, written summary evaluating the company's financial position (or performance) in the current year as compared to the previous years (time-series) and relative to the selected competitor(s) performance (cross-sectional).
4. Using the financial statement trends you highlighted above and additional financial information from the most recent 10-K as necessary, forecast the company's earnings (income statement) for a minimum of three years. In addition, forecast operating cash flows, free cash flows, total assets and book value (assets - liabilities) for each of the three forecasted years.
Hint: using disaggregated segment and/or product line information will allow for more accurate forecasting. Provide a brief written summary, which outlines your forecasting assumptions.
5. Using the forecasts completed in the preceding section, estimate the company's valuation using the discounted cash flows (DCF) approach. As a second valuation approach, use an appropriate P/E multiplier to estimate the future share prices of the company based on each of the three years' forecasted earnings from Section Four. Provide a brief written statement explaining why you chose the corresponding P/E ratio(s) and discount rate(s) used in these valuation analyses. In addition, provide a recommendation (buy, hold, sell) based on the calculated equity valuation.
Attachment:- Assignment.rar