Company Analysis
Grading Guidelines
The Final Company Analysis Project is worth 30% of your final grade in the course. The paper is graded on a 100-point scale. The following describes the breakdown of points available:
25 points for ORGANIZATION
This is a long and complicated paper, so it is essential that you are organized in your presentation of the information. Please be sure to present each item in the order suggested by the outline and have clear headings and sub-headings to make it easy to follow. Also, it is important to organize the paper in a way that prevents the reader from having to flip back and forth from one section to another to follow the discussion (e.g., ensure that each ratio/calculation is discussed immediately after it is presented, rather than having a separate table elsewhere in the report.
25 points for ANALYSIS
To receive the full amount of points for this category, be sure to provide thorough discussion of your analysis process and an explanation of what the ration/calculation means. It is important to demonstrate that you have a good understanding of why each calculation was done, and what information can be learned from it. Also, in this section I remove points for any situation where I feel that the analysis presented is not the students’ original work (i.e., taken from another source without attribution.) While you can certainly refer to other analysts’ work regarding your company, please be sure to conduct your own analyses and draw your own conclusions throughout the paper.
25 points for THOROUGHNESS
In order to receive the full amount of points available for this portion of the paper, you must include every item listed on the general outline provided at the beginning of the course. Points will be removed if any item is missing from the analysis.
25 points for CONTENT
In this category, I am assessing the extent to which the entire report provides a complete analysis of the company, utilizing the steps we practiced throughout the course. Do you tie it all together with connecting themes and findings? Or, is it just a list of the various calculations with a sentence or two in between explaining each. A successful paper will present a congruous and thorough analysis of the company with insightful and thoughtful commentary throughout.
Project Outline
The most recent data should be used in your analyses (i.e., data from the most recently-filed Form 10-K). For all calculations, show each formula used as well as the numbers used in the formula. Explain any assumptions made and provide justifications for your assumptions. Cite any sources used other than the company’s SEC filings. The following is an outline for your individual project:
I. Governance and Communication Analysis
a. Analyst Call
i. Listen to a recording of an analyst call (AKA earnings call or quarterly conference call) for your company. Listen to about 15-20 minutes of the call and write a summary of your observations, including any questions that you might have wanted to ask the CEO/CFO, etc.
b. Answer and discuss the importance of the following:
i. Who is the company’s current CEO? Is he or she also the Chair of the Board?
ii. Who serves on the board’s Audit Committee? How many members are Financial Experts? What experience qualifies them for that designation?
iii. What was the CEO paid last year? What portion of his or her total pay was in the form of bonus? In the form of stock-based awards? What performance measures were used to determine the CEO’s pay?
iv. Who or what entity holds the highest percentage of the company’s stock? Are most of the beneficial owners reported individuals or institutions?
v. How many common shares are outstanding? Is there more than one class of common stock outstanding? If so how many votes do each share of each class get?
c. Discuss your opinion regarding the effectiveness of the governance and communication of the company.
II. Industry and Strategy Analysis
a. Industry Analyses
i. Porter’s Five Forces
1. Rivalry among existing firms
2. Threat of new entrants
3. Threat of substitutes
4. Buyer power
5. Supplier power
ii. Value Chain Analysis
1. Industry Value Chain
2. Focus of your company
b. Company Strategy Analysis
i. Is your company following a Low Cost Leader or a Product/Service Differentiation Strategy?
ii. How should this impact their financials?
III. Accounting and Financial Analysis
a. Recasted Income Statement (3 years)
b. Recasted Balance Sheet(3 years)
c. Common Size Income Statement(3 years)
d. DuPont Analysis (1 year)
e. Profitability Analysis(3 years)
i. Profit Margin
ii. Return on Assets
iii. Return on Equity
iv. Accounts Receivable Turnover
v. Inventory Turnover
vi. Accounts Payable Turnover
vii. Fixed Assets Turnover
f. Risk Analysis (3 years)
i. Current Ratio
ii. Quick Ratio
iii. Cash Ratio
iv. Liabilities-to-Equity Ratio
v. Debt-to-Equity Ratio
vi. Interest Coverage (Earnings Basis)
vii. Dividend Payout Ratio
viii. Sustainable Growth Rate
IV. Forecasting
a. Calculate projected operating profit for the company for the next five years based on forecasted income statements.
b. Explain the process and assumptions used to make the forecasts for each line item of the forecasted income statements.
V. Cost of Capital
a. Use the CAPM to compute the required rate of return on equity capital for the company.
b. Determine the cost of debt (if any) and the cost of preferred stock (if any)
c. Compute the weighted average cost of capital for the company as of the start of the next fiscal year.
d. Discuss how this would be used to estimate the value of the company
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