Financial Analysis Project Project summary
Students will use MS Excel to conduct a relatively thorough final analysis of a firm. Students will obtain relevant data, conduct financial forecasts and what-if analysis on those forecasts. Additionally, students will perform valuation of the firm's common stock and determine if they are worthy of purchase.
Project Objectives and Assessment Items
This project is intended to employ the finance and MS Excel concepts covered in the course. As a group project, various objectives of the finance curriculum are addressed. Assessment outcomes addressed are:
1. Utilize contemporary finance theory and practical strategies to maximize firm value.
2. Analyze financial statements and qualitative data of profit maximizing firms for corporate decision-making.
3. Apply quantitative techniques to complex financial problems.
4. Utilize standard technologies to provide solutions to financial problems
5. Demonstrate analytical skills and technological expertise while developing and presenting business information.
6. Create substantial and/or multiple presentations using text, graphics, and animation.
7. Utilize business presentation software to effectively portray ideas in a structured presentation format Project Components
1. For the firm selected, do the following: (various chapters)
1. Obtain the last 4 years of financial statements: balance sheet, income statement, and statement of owner's equity. Import these items into an Excel workbook. Remember that this data will be recalled later in this project for analysis. The intent is not for you to manually enter these data, but to import, then format them.
2. Produce a common-size income statement and balance sheet for the same year.
3. Using chapter 5 of the Mayes and Shank text as a guide, construct pro-forma balance sheets and income statements for the next three years using the percent of sales method of forecasting. Use actual sales (revenue) data from previous 4 years to estimate sales using the linear trend function.
4. What are DFN for each year? How is it accounted for in the balance sheets? Be certain to use the techniques described in chapter 5.
1 Dated: January 8, 2016
e. Using Excel data tables, perform sensitivity analysis on sales growth and discretionary funds needed.
f. Summarize the results of e. for your firm. Show this relationship graphically.
2. Estimate your firm's WACC: (Information comes from various chapters of your text)
1. Estimate your firm's beta coefficient by using 5 years of quarterly data for your firm and the S&P 500 index, found on Yahoo! Finance.
2. Using the most current estimate of the 20-year T-Bond as the proxy for the risk- free interest, estimate the firm's cost of common equity.
3. Use the bond screener in Yahoo! Finance to find the firm's cost of debt. Obtain the firm's marginal tax rate and use it to find the firm's after-tax cost of debt.
4. If applicable, obtain the price of preferred stock and use the dividend to calculate the firm's cost of preferred stock.
5. Use all of the above information and the firm's market capital structure to determine the firm's WACC.
3. Use actual and pro forma statements to construct financial ratios for your firm. Compare these to the current industry averages. Most of these industry ratios can be found on the FINRA website. Comment on the firm's prognosis. (use chapter 4 as a guide)
4. Using the free cash flow model of stock valuation, compute the price per share of the firm's common stock. (Use chapter 8 as a guide).
5. Compare the actual market price to the intrinsic value that you have calculated above.
Selecting a firm:
Make certain that you have access to all financial information of the firm. The firm must have outstanding common stock, outstanding bonds, and you have access to all their financial information with relatively little transactions cost. This will be incumbent upon the group to find this out immediately and have it be a basis upon firm selection. Failure to do this will result in lower project grade and the professor will not share this burden at the last minute.
Please show all work, assumptions and identify all sources used. This project will be graded on:
- (1/2) Use Financial theory,
- (1/2) Use of Excel:
oIs the model developed efficiently using input fields, etc. o Are the worksheets formatted neatly and effectively,
o Are models accurate?
Sources
Below are some suggested reference sources for your project. However, feel free to use other resources as required:
Your company's annual report
Security Exchange Commission
https://finra-markets.morningstar.com/MarketData/CompanyInfo/default.jsp https://finance.yahoo.com/