Financial Analysis Exercise
Instructions -
Note: In ACCT 215-Financial Accounting, you were introduced to the trade-off between risk and return on investments. Specifically, higher expected returns are associated with higher levels of risk, which was defined as uncertainty about the return that will be earned. In finance risk is measured by the volatility of returns. In Chapter 9 of our textbook in this course you are introduced to a more precise measure of a stock's volatility: specifically, the standard deviation of an asset's returns.
1. Select ONE of the four companies provided by your professor for analysis.
2. Go to the Yahoo!Finance Web site.
3. Enter the stock ticker symbol or name of the company you wish to analyze in the input field next to Get Quotes at the top of the page and click Get Quotes to open the stock's overview/main page.
4. Review the price graph provided on the overview page. Click on 6m or 1y at the bottom of the chart to get prices on the stock for the past 6 months or one year, respectively. For either the 6-month chart or the one-year chart, click on the Compare tab at the top of the chart and check the box(es) for one or more of the indices (S&P 500, Nasdaq, and Dow Jones Industrial Average) and click on Draw to generate comparisons of the price movements of the stock with those of one or more of these indices.
5. Write a paragraph discussing ONE stock's price performance relative to that of the market as a whole, e.g., the S&P 500, over the past several months. Your comments are to include statements as to whether the stock's price seems to move up and down with the market or against it, and whether it moves more or less vigorously than the market.
6. Go back to the overview page for the company you have selected and click on Key Statistics under the heading "Company" on the left-hand side of the page. On the "Key Statistics" page under "Financial Highlights" review the stated profit margin for the past or trailing 12 months (ttm).
Note: The profit margin or net profit margin is also known as the return on sales (ROS), that is, net income (profits) as a percent of sales. See Chapter 3 of the textbook for a discussion.
7. Go back again to the overview page for the company you have selected and click on Income Statement under the heading "Financials" on the left-hand side of the page. On the "Income Statement" page look at the profitability for the previous three years.
8. Write a paragraph discussing how profitable the company has been recently. Your paragraph is to include a description of the trend in sales and profitability for the last three years.
9. Under the heading "Analyst Coverage" on the left-hand side of the overview page click on Analyst Opinion. On the Analyst Opinion page there is a section entitled "Recommendation Summary" that averages this and last weeks' opinions of professional analysts about the stock on a scale that ranges from 1.0 (Strong Buy) to 5.0 (Sell). Sell means the analysts don't like the stock's prospects and advise investors to sell if they own the stock and otherwise to not invest in it. A strong buy means just the opposite: buy the stock because analysts expect it to make money for investors. In the section entitled "Upgrades & Downgrades History" you can review chronologically recent changes in professional analysts' recommendations about the stock.
10. Under the heading "Analyst Coverage" on the left-hand side of the page click on Analyst Estimates to get estimates of the firm's future earnings, revenues, and growth.
Note: We will return to these growth estimates in Assignment 4-2: Financial Analyst Exercise III
11. Write a paragraph explaining what the professional analysts are saying about investing in the stock. Is there a clear recommendation? Your responses are to demonstrate that you have reviewed the sections: Analyst Opinion and Analyst Estimates.
12. Write 1-2 paragraphs in response to the following questions:
Note: In ACCT 215 - Financial Accounting, you were introduced to the trade-off between risk and return on investments. Specifically, higher expected returns are associated with higher levels of risk, which was defined as uncertainty about the return that will be earned. In finance risk is measured by the volatility of returns. In Chapter 9 of our textbook in this course you are introduced to a more precise measure of a stock's volatility: specifically, the standard deviation of an asset's returns.
- What was the stock's most recent closing price? (Provide the date.)
- Is the price moving up or down (See percent change in parentheses on the overview/main page for the stock)?
- Look again at the six-month or one-year "Price Chart" graph. Does the stock seem volatile to you? Think in terms of the range of price movement over the last several months as a percent of an average of the high and low prices.
13. Combine the paragraphs you have written into one paper.