Stock Analysis Report

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Finance 431

 

Stock Analysis Report

 

You are to write a detailed analysis of the company of your choice, focusing on the firm’s stock investment potential. You may choose any company that is publicly traded on a US exchange for your analysis, but you may not choose a bank, brokerage firm, or insurance company.    This analysis should contain at least 10 pages of written analysis along with several pages of charts, graphs, and financial statements.  You will need to obtain the 2016 year end financial statements from the company’s web site.  You are also required to find at least 5 articles from independent sources focusing on the company’s future prospects and potential as an investment.  The tone of your analysis must be objective, remember you do NOT work for the company.  Plagiarizing from the company web page or any other source will result in an F in the course and a visit to Student Judicial Affairs. According to Section A2 of the ODU Honor Code, plagiarism is “intentionally or knowingly representing the words or ideas of another as one’s own without properly acknowledging their source.  Examples of plagiarism include but are not limited to, the following: submitting a research paper obtained from a commercial research service, the Internet, or from another student as if it were original work; making simple changes to borrowed material while leaving the organization, content or phraseology intact; or copying material from a source, supplying proper documentation, but leaving out quotation marks.”  I have had numerous students fail the course because of plagiarism, don’t be one of them!!!!  You will be submitting the written portion of the paper to Blackboard’s Safeassign so that plagiarism can be checked.  You will hand in a hard copy of your paper to me for grading, including all tables, charts and spreadsheets.  Please have someone you trust proof read your paper, as spelling and grammar DO count.  The analysis must include a bibliography in good form.  The paper must be made up of the following four parts:

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  1. Background (This entire section should not exceed 3 typed pages) (25 points)
  2. Company History (two sentences maximum)
  3. Management
  4. Primary lines of business.

Chart the percentage contribution of each line of business to company sales and profits if available.

  1. International business

Chart the percentage sales and profit contribution of the firm’s business in foreign countries.  If available, indicate the areas of the world (i.e. Europe) where the company has sales.

  1. Regulatory environment for the firm and its industry.
  2. Significant economic developments and their effect on the firm and its industry.
  3. Relevant technological developments.
  4. The price of commodities used by the company, if important. (Examples: sugar, chocolate, steel, oil, wheat, corn, etc.) Provide specific prices for the commodity (ies) for the period you are analyzing and how the price change affected the company’s results.
  5. Primary competitors.
  6. Prospects for the firm’s industry.
  7. Prospects for your firm’s future profitability and stock performance.
  8. The firm’s debt rating.
  9. Current news stories about your company that are important and focus on the company’s potential as an investment. Please summarize each article. Articles from the Wall Street Journal and other business publications are much preferable to company press releases.  The Factiva web page provides a good source of articles.  To access it, go to www.lib.odu.edu, click on Databases, click on the letter F, then click on Factiva.

 

  1. Financial Analysis (25 points) (At least 2 pages of written analysis)
  2. Common-sized Financial Statements

Common- size the firm’s year end balance sheet and income statement 2015 and 2016 using a spreadsheet computer program. (This is your homework assignment for Chapter 14) Make all items on the balance sheet a percentage of total assets.  Make all items on the income statement a percentage of total sales. Prepare a trend analysis by calculating percentage increases and decreases in each balance sheet and income statement item.  Please see the statements for Monarch Brewing posted on Blackboard for some guidance.  I want your spreadsheet to look exactly like the company’s yearend statements.  Note any significant year-to-year changes and explain them.  Your common-sized financial statements and ratios will be emailed to me after we have finished our discussion of Chapter 14.  The date will be announced in class.  You will receive a homework grade for the correct preparation of these statements.  You will then include the corrected statements with your analysis when you hand in your paper.  Your analysis should include a discussion of all items on the balance sheet and income statement that had a percentage change different than the percentage change in sales.  You should provide a reason for each change which you will find from your research.

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  1. Ratio Analysis (25 points) (At least 2 pages of written analysis)

Calculate the following ratios using the computer spreadsheet program you used to common-size the financial statements for at least two years.  Discuss each ratio and note any significant year-to-year changes and explain them.  Find industry ratios* and compare your company ratios to the industry averages.

  1. Profit Margin (Net Income/Sales)
  2. Current Ratio (Current Assets / Current Liabilities)
  3. Return on Equity (Net Income/Total Equity)
  4. Total Debt to Equity Ratio (Total Debt/Total Equity)
  5. Earnings per Share (Industry ratios are irrelevant for EPS, please do not include in your analysis)
  6. Dividend Pay Out Ratio (Dividends per share / EPS)
  7. Price Earnings Ratio (Price per Share/EPS) (Find, do not calculate PE.)

 

  • Year –to-Date Results (5 points)

Discuss the sales and net income for the period since the year end.  If your firm’s yearend is December 31, you will discuss the three months ended March 31.  If your firm’s yearend is June 30, you will discuss the nine months ended March 31.  If your firm’s yearend is September 30, you will discuss the six months ending on March 31.  If your company has a year end of January 31, you do not need to discuss year-to-date results.  You do not need to do a spreadsheet for these results.

 

 

  1. Technical Analysis (10 points)

Chart your company’s stock price and chart the S & P 500 Index for the period from January 17 to April 14.  Use Excel to construct your chart. If you do not use Excel for your chart you will receive no credit for this section.   Discuss the firm’s stock price movements particularly as they relate to the S & P 500 Index. Include in your analysis a discussion of the firm’s beta. (Find, do not calculate beta, available at www.reuters.com)

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  1. Recommendations (10 points)

Would you recommend the purchase of this stock? Why or why not? Provide at least 5 good reasons.

 

 

*Industry ratios: go to www.reuters.com, click on markets, click on stocks, choose a company and enter its ticker symbol, click on ratios.