This project is an exercise in the fundamental analysis of a firm using ratio analysis. You are expected to complete calculations, answer questions addressing the outcomes of your calculations, and gi
Ratio Analysis Project
This project is an exercise in the fundamental analysis of a firm using ratio analysis. You are expected to complete calculations, answer questions addressing the outcomes of your calculations, and give a written analysis of your assessment of the assigned company’s performance across several areas where information is based on data found in the firm’s financial statements. Your written report will be submitted as the Project Report for this ratio analysis project.
Each student will have three companies: your main assigned company (i.e., the main co.), the secondary company (i.e., the peer co.), and a third internationally headquartered peer company (i.e., the intl co.). The primary focus of your report is your main company. This may differ from student to student. There will be penalties for analyses that do not match your assignment.
Required: I am requiring you to use Bloomberg terminals for specific data items (noted in specific instructions). For the financial statements, you may use either Yahoo! Finance or Bloomberg terminals, but must specify in your written report which you used.
Optional: You may use additional sources as you see fit to make your report more unique, interesting, or relevant. These must be clearly included in a Sources list at the end of your project report.
Assignment Specifics: Do not answer these as if they are homework questions. They are only numbered to show you the points available and to give you guidance to meet expected analysis requirements. Information relevant to the questions should be incorporated within the written report.
(150 pts) Using the 2017 financial statements and the 2015 financial statements for your main company, investigate the financial condition of the firm in terms of the five common financial ratio areas (see Table 3.5 in text). Include a table or graph that shows how the company has performed in these areas over this period. In which ratio area(s), if any, is the firm doing well? Explain. (Trend analysis)
(150 pts) Using the 2017 financial statements for your main company, your peer company, and your international company. Compare the financial condition of these firms. Clearly indicate any areas where your main company has outperformed its peers. What considerations, if any, would you make in comparing the US-headquartered main company with the international peer? (Peer analysis)
(200 pts) Using the 2017 and 2015 financial statements for your main company, compute the three components of the Du Pont Identity (as shown in equation 3.23 in section 3.3 of the text). Based on your computations, discuss the impact of each component on the company’s 2017 return on equity. For example, which factor do you see as having the greatest influence in the change in return on equity over this two-year period? Using the Bloomberg terminals, examine operating margin, asset turnover, and the leverage ratio. Without doing any calculations (just looking over the patterns in these items), what patterns do you observe in these three over the longer period displayed in Bloomberg? Is it consistent with what your earlier Du Pont analysis showed? Discuss. (Du Pont analysis)
(100 pts) While financial statement information is commonly used to compute ratios that allow us to assess performance, this information is also used in modeling the probability of bankruptcy or financial distress. One common model that includes financial statement data is the Altman Z score. Publicly traded companies with a value less than 2.675 are considered in financial distress and, if less than 1.81, considered to be facing an increased likelihood of bankruptcy within one year. Using the Bloomberg terminals, find the Altman Z score for your main company. What is the Altman Z score for the company? Is the company in financial distress or facing a high probability of bankruptcy based on the score? (Bankruptcy/distress analysis)
(200 pts) Upon completion of all the above analyses, write up a project report that includes your answers to the above questions as well as any other information that you believe is interesting or helpful in providing your assessment of the main’s company’s financial condition. This paper should be written with grammatical quality expected of at least a second-year undergraduate student. The points here may also include organization and completeness of the assignment including a list of sources used. (Written project report)
(200 points) Relative rating of your project report will place you in one of four buckets: top, middle1, middle2, or bottom. Top bucket papers get from 151 to 200 points. Middle1 papers get from 101 to 150 points. Middle2 papers get from 51 to 100 points. Bottom papers get from 0 to 50 points. (Relative valuation)
Bloomberg pointers:
Mr. Micheni is available (at his convenience, not yours) and has been granted permission to help you very liberally in guiding you to finding the right data in all financial sources or in giving advice. However, he does not work for you so please be courteous of his time and efforts to guide you. He may recommend workshops that can help you with tables or charts, rather than give individual tutorials.
Companies can be found by typing the name of the company in the Bloomberg browser line and selecting the appropriate name from the list. For international companies, select the company name with US Equity indicated after it’s ticker symbol.
Financial statements can be found in Bloomberg using the FA function and going to the tabs marked B/S (for balance sheet) and I/S (for income statement). The DuPont Analysis in Bloomberg is also under this same function. Go to the tab for Ratios where you will see an additional tab for DuPont Analysis.
The Altman Z score can be found in Bloomberg by using the AZS function.
Additional Instructions:
Consistent with the university academic integrity policy, your submission MUST be your original work. If any evidence of plagiarism is found, the project grade will be zero.
There is no page limit for the Project Report. The length of the report depends on the work needed in completing each of the components of the project. The written information must be complete enough to demonstrate that the assignment specifics have been met.
Show your works/calculation where the task is to compute. You can do all the calculations in Excel if you want. If you use Excel, you must attach the excel file with the main project word/pdf document.
One additional purpose of this project is to introduce you to additional financial resources and to train you on finding and analyzing data. This means I am here to help. Do not wait until the last minute to get started. I am available to answer questions, but not major questions on the day of the submission deadline. Although I will not review (i.e., grade) your paper before the submission, you can get guidance on the quality during office hours or if there is additional time at the end of class.
Grading rubric: See assignment specifics for the grading of Item 6 on the assignment.
Questions to ask yourself | Unacceptable to low quality (Earns less than 60% of points available) | Acceptable (Earns 60 – 79% of points available) | Very good to high quality (earns 80 – 100% of points available) | |
Items 1 – 4 Analysis Items | Have I answered all the questions? Have I addressed any bolded content? | Most of the calculations are incorrect or missing; Most of the analysis (i.e., discussion or interpretation) is incorrect or missing; Most of the information is provided in an unclear, disorganized manner; No obvious personal insight to purpose of the analysis. | Many calculations are correct and included; A good deal of the analysis (i.e., discussion or interpretation) is correct and complete; Most of the information is provided in a very clear and organized manner; Limited personal insight has been included regarding the purpose of the analysis. | All calculations are correct and included; The analysis (i.e., discussion or interpretation) is correct and complete; The information is provided in a very clear and organized manner; Personal insight has been included regarding the purpose of the analysis. |
Item 5 Writing Criteria Grammar & reading quality; Originality; Organization & Completeness (not elsewhere considered) | Did I use the grammar and spell check functions of the software? Did I mechanically answer questions, or have I thought about why this analysis, ratio, or evidence is important? Have I read the paper aloud? Do I have a reasonable introduction (indicating purpose/type of report)? Do I have a reasonable conclusion (indicating an overall summary of assessment of main company)? ‘Reasonable’ indicates evidence has been or will be presented within the project paper to support my conclusion or meet my introduction. Have I made optimal use of any section titles? | Obvious grammatical errors that spellcheck or a reading would have eliminated; Only exactly what has been asked for (or even less) given; Unreasonable or missing introduction; Unreasonable or missing conclusion/summary; Additional sources referred to, but all citations missing or incomplete | Limited grammatical errors; Limited originality; Introduction present, but incomplete or other problem; Conclusion/summary present, but incomplete or other problem; Additional sources referred to, but some citations missing or incomplete | Fewer than 3 grammatical errors; Some insightful comments or evaluations of outcomes; Clear introduction; Well thought out summary; All additional sources cited |
4