Students are supposed to form a team. Each team has 4 to 5 students and will analyze a firm’s financial statements, stock price, bond valuation, WACC, and valuation. Using CRSP, CompuStat, or yahoofinance.com, each team has to do analyses and prepare for final report and its presentation.
1. Financial statement analysis
Using information in Compustat or yahoofinance.com, you have to analyze;
1) Balance sheet and income statement during the last three years.
2) Ratio analysis during the last three years.
3) Free cash flow of the firm during the last two years.
2. Bond valuation
1) Discuss overall yield curve – bond market.
2) Using “Composite Bond Rates” at http://finance.yahoo.com/bonds/composite_bond_rates, generate yield curves for US Treasury Bond, Municipal Bonds and Corporate Bonds. Here for Municipal Bonds and Corporate Bonds, you need to generate yield curves on AAA, AA and A.
Then explain overall bond market.
3) Find and summarize the firm’s bond information at http://finance.yahoo.com/
4) Comparing to competitors, analyze and summarize whether or not the firm pays higher costs and why it happens.
3. Stock valuation
1) After downloading weekly stock prices of the selected firm and at least two competitors during the last one year, estimate correlations among them.
2) After downloading any weekly market index (e.g NASDAQ, S&P 500, etc) during the last one year, then estimate the beta of the selected firm.
3) Estimate an expected return of the selected firm, using CAPM (Capital Asset Pricing Model). Then evaluate its stock price with Dividend models (You may need your own assumptions for dividend payments).
4) How do you think about current stock price of the selected firm? Undervalued or overvalued?
Later you will learn about the relationship between weights of portfolio and risk of the portfolio in the upper level class.
4. WACC
Calculate your selected firm’s and competitors’ WACCs. Compare and evaluate them.