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Financial Analysis Project

FIN362, Fall 2009 Purpose


The Financial Analysis Project is designed to provide guidance and experience in the financial analysis of a company. Each student is assigned a company for this project, and this company is the basis for all reports. The project consists of ten progress reports, and then a final, comprehensive report. The final report is a compilation of the ten progress reports, with additional information. Students are encouraged to improve the content from the progress reports after receiving instructor feedback, so that the comprehensive report reflects edits and revisions that improve upon the previously submitted reports.

Grading
Students will be graded on each of the ten progress reports, as well as on the final report. The Financial Analysis Project is 45 percent of the course grade; the progress reports comprise 25 percent of the course grades, whereas the final report comprises 20 percent of the course grade.

General information
(1) All reports must report references, including the data sources. (2) Graphs must be embedded in the written report as Microsoft Excel charts. (3) All graphs must have source information with the graph itself, in addition to its listing in the references. (4) All tables/data/graphs in the reports must be supported by a submitted Microsoft Excel workbook. However, only one workbook may be submitted with a report, so be sure to include all related worksheets within the submitted workbook. (5) The guidelines for written work are 100-word or 200-word summaries. These are strict maximums, though you may have a summary that is below these limits. (6) Please be sure to check the syllabus and Blackboard for report deadlines. (7) If you are selected to present your report, you must use PowerPoint in your presentation.

1. Background and business overview


1.1.Description of line(s) of business
1.1.1. Operational segments 1.1.2. Geographic segments Report 1.1 1. 100-word summary of operational segments 2. 100-word summary of geographic segments 3. Supporting graphs describing operational segments and geographic segments over time.

1.2.Description of industry
1.2.1. Competitiveness 1.2.2. Major competitors (U.S. and Global) 1.2.3. Market share of companies Report 1.2 1. 200-word summary of the degree of competitiveness in the industry 2. List of major competitors, with data in terms of unit sales and/or dollar sales 3. Market share: current and over time

1.3.Forward looking
1.3.1. 1.3.2. 1.3.3. 1.3.4. Trends in unit and/or dollar sales Trends in earnings Comparative and/or competitive advantage Recent company events that affect current and future performance

Report 1.3 1. 100-summary of the trends in sales and earnings, and how these trends relate to the economy. 2. A 200-word summary of the comparative and/or competitive advantages of the company and the industry; that is, what are the sources of economic profit? 3. Supporting graphs for sales and earnings trends 4. Supporting graphs for relationship of company sales and earnings change with those of the economy 5. Brief description of company events that affect performance.

2. Financial statement analysis


2.1. Selection of most appropriate ratios to apply Report 2.1 List and justify your choice of the appropriate ratios to use in evaluating this company.

2.2.Ratio analysis of major categories


2.2.1. Liquidity 2.2.2. Activity 2.2.3. Profitability 2.2.4. Leverage 2.2.5. Return 2.2.5.1. DuPont analysis: 3 factor 2.2.5.2. DuPont analysis: 5 factor Report 2.2 1. 100-word summary (each) of the position of the company with respect to each of the following dimensions: liquidity, activity, profitability, leverage, and return. 2. Provide one graph for each dimension, with at least two ratios for each dimension/graph. 3. Graphs depicting your DuPont analysis over the past ten years. 4. 200-word summary of the primary factors influencing the trends in the return ratios over the past ten years, based on your DuPont analysis.

2.3.Cash flow analysis


2.3.1. Statement of cash flows analysis 2.3.2. Free cash flow Report 2.3 1. 100-word summary of the sources and uses of cash flows for the company over the past ten years. 2. Graph of cash flows from operations, financing, and investing for the past ten years. 3. Graph of the estimates of free cash flow for each of the past ten years.

2.4.Common size analysis


2.4.1. Vertical 2.4.2. Horizontal Report 2.4 1. Summary of analysis of changes in investment and financing over the past ten years, based on the common size analysis. 2. Graphs of the vertical common size analysis of the companys balance sheet over the past ten years; one graph for the assets, one graph for the liabilities and equity. 3. Graphs of the horizontal common size analysis of the companys balance sheet over the past ten years; one graph for the assets, one graph for the liabilities and equity.

2.5.Shareholder ratios
2.5.1. Earnings 2.5.2. Dividends 2.5.3. Value Report 2.5 1. Graph of basic and diluted earnings per share, before and after extraordinary/special/discontinued items for the past ten years. 2. 100-word characterization of the companys dividend policy. 3. Graph with both dividend payout and dividends per share over the past ten years (2-vertical axis graphing).

3. Valuation
3.1.Discounted cash flow
3.1.1. Dividend valuation model 3.1.2. Free cash flow model 3.1.3. Residual income Report 3.1 1. Forecast future cash flows using each of the three models. 2. Value the equity of the company using each of these models. 3. 200-word explanation of which, if any, of the models is best suited in valuing this company.

3.2.Multiples
3.2.1. P/E 3.2.2. P/S 3.2.3. P/B Report 3.2 1. Graph of the P/B, P/E and P/S multiples of the company, the industry, and major competitors over the past ten years. 2. Table of estimated value of the company using the multiples, based on industry averages and major competitors.

4. Advice
4.1. Recent and current market valuation 4.2. Comparison of market valuation with estimates of value Comprehensive report 1. A 20-40 page report on your company that includes all information in Reports 1.1 through 3.2 (with appropriate edits/adjustments/corrections that you have made since turning in these reports), plus your advice regarding the companys current valuations. You are strongly encouraged to connect the information in these reports in to a cohesive report, complete with transitions. 2. All graphs referred to in the report must be embedded within the report as Excel Charts, and all data used in any graphs or tables in the report must be provided in the accompanying Microsoft Excel workbook. 3. The report must include all references, including sources of data.