Advanced Financial Analysis and Forecasting
Memo Assignment: Written Submission
Write a business memo addressed to Michael Barnes, Chief Investment Officer at the Glass House Investment Fund. The purpose of your memo is to provide the results of the financial analysis of your pharmaceutical company (Eli Lilly), concluding with your opinion on the sustainability of the current business model and performance of the company in the future. You may use the outline developed as a guide to organizing the memo.
Be sure to include exhibits to which you refer within the text. Copy and paste the exhibits from your Excel files directly into the Word document as PDF objects in the appendices at the end of the text (do not embed into the text of the memo itself).
Limit the length of your memo between four and five pages. Use 12 point font; single space; extra space between paragraphs; cambria or times new roman font style; left justify text; put memo heading on a separate cover page. You may add as many pages of exhibits to the appendix as needed, but be sure that you refer to all of them at some point in your text.
Guidelines
1. Examine everything: report what is important
a. Define your purpose
i. Assess the sustainability of the business model and performance (can they provide an adequate return to investors?)
b. Define your context:
i. Understand industry economic dynamics
ii. Understand the company specific business model
1. Operating: day to day structure
2. Financial; sources of capital
2. Balance sheet analysis: structure
a. Asset organization
i. Connect to the business model
b. Debt/equity structure
i. Connect to financial model
3. Balance sheet analysis: trend (horizontal view)
a. Connect to the business model
b. Assets then debt/equity
4. Income statement analysis
a. Sales volume and trend
b. Profit structure and trends
i. Extraordinary items
5. Ratios: focus on the key ratios
a. DuPont
i. Profitability
ii. Turnover
iii. Leverage
b. Profitability
c. Efficiency
d. Leverage
6. Connections
a. Profitability connected to turnover?
b. Investment strategy connected to sales volume (turnover)>>> ROA?
c. Profitability and leverage?
7. Conclusions
a. Sustainable strengths
b. Challenges/opportunities to improve
c. Land mines
d. Time bombs.