Assignment: CORPORATE PROJECT GUIDELINES
1. History of the company featuring its major entrepreneurs(s). What did they do that was different and lead to success. This part should be at least half the total.
2. Company background: products, subsidiaries, markets, competitors & dividend history
My company is APPLE
Strictly follow the instructions above
Don't miss any part :write everything listed above
A. Overview
(1) U.S.-based company; paid a dividend for at least the last 5 years; not a bank or insurance company; attach B/S, I/S & C/F used; include references (not textbook); use 4 years for trends; show how/from/where all numbers are derived.
(2) Write the report as though you were giving a presentation to a group of financial analysts that are considering investing in the company and know financial analysis. Lack of analysis will result in lost points. The annual report & 10K will give you such information. For the industry comparison, find at least 3 competitors and calculate your own industry average. Round to one decimal point.
PART 1 (7- 10 pages)
1. History of the company featuring its major entrepreneurs(s). What did they do that was different and lead to success. This part should be at least half the total.
2. Company background: products, subsidiaries, markets, competitors & dividend history
PART 2
1. Current accounts: current ratio; trends; compare to industry.
2. Profitability analysis: BEP ratio; average growth in EPS; trends; compare to industry.
3. Return analysis: Net Income, ROA, ROE ratios; trends; compare to industry.
4. Cash flow analysis: positive cash flow from operations? How are new expenditures being financed? Mention major inflows and outflows.
For full credit, include at least 3 specifics about the company and what happened over the past couple of years and was reflected in the ratios. Don't make the report about how to calculate the ratios or a generic report without some flavor. Such information can be found in the annual report or 10-K.
PART 3
1 Beta: take the total $ return (dividends and stock price change) over past 5 years; use the S&P 500 total return of TBD%* and compare the returns- is the beta reasonable?
2. Intrinsic stock price: take average growth (g) in dividends for past 5 years; use CAPM for required return (market rate of TBD%** & risk fee rate of TBD%); Gordon Model for expected return; DCF for intrinsic price- compare to current market price; compare expected & required rate of return.
3. Leverage: total debt to total assets ratio; credit rating; trends; compare to industry.
4. Cost of financing (see Section 3.4) Debt, tax rate, equity: compare 3 methods; find weighted average cost of capital
5. Stock market valuation/price: MVA; % of institutional ownership & mention 5 biggest holders; P/E- trends; compare to industry; PEG ratio (explain meaning); projected stock price = next year's estimated P/E X estimated EPS; analysts' recommendations; your conclusion: good buy or good-bye!
Additional Information
3.1 Beta
- Look up beta on a web site
- Take the change in stock price for last 5 years (use current price) and add dividends paid
- Divide the $ amount above by the starting stock price which gives you a % change
- Multiply the beta times the S&P 500 return
- Compare the %'s and comment on the results
3.2 Intrinsic stock price
- Use Gordon Model to get the expected price based on dividends
- Compare to current stock price
- If g >r, the formula does not work; explain your work- it is okay
- Expected = Gordon- use the current stock price
- Required = CAPM
- Compare with Expected to Required (compute even if g>r)
- Make sure you use the dividends paid annually, not quarterly
3.4 Cost of debt- four ways to determine
- Given in annual report
- Do a weighted average of the major pieces of debt found in the annual report or 10K
- Find YTM of current bonds
- Total interest divided by long-term debt
Cost of equity- three methods
- CAPM
- Gordon
- Bond Yield+
Tax rate
- Given in annual report
- Taxes on income statement divided by earnings before taxes
Weights
- Make sure total % = 100% for WACC calculation
- If you use LT debt only, adjust the total liabilities and equity number
* S&P total return for 5 years (with dividends reinvested)
** S&P return for the last 12 months.