Question;Financial;Project;FIN;515;Fall;2014;175;Total Points;This project requires that you apply;knowledge obtained during the semester.;It allows you to analyze a company using the analytical methods;discussed in class in the respective chapters listed below and apply that;analysis. You will work together in;groups of approximately five students to a group. From this exercise you should learn how to;develop a comprehensive approach for making a financial analysis of a publicly;traded company.;The project is unlike problems found;in a textbook in that there is no ?exact? answer. Much of your analysis requires that you make;assumptions about the firm and its prospects.;This will allow you to experience how analysts evaluate companies. In addition, since you are an outsider to the;firm, you often must try to infer management?s intention from its actions. I do not expect your output to be ?perfect?;since assumptions used will vary.;Rather, I expect that you will;produce an analysis that is logical and free from obvious mistakes. The project requires a written narrative that;will bring together the spreadsheet analysis from parts 1-3 in developing a;final output. Feel free to add;references of other research to support your argument if necessary, but if so;you must properly identify them (APA 5th or 6th edition).;The project is worth 175 points, but;will be due in part at various times in the semester (see Financial Project;Outline). For example, Parts 1, 2, and 3;will be due soon after we cover the material in class. Your final analysis will;be due near the end of the semester (see Final Analysis and Oral Presentation;outline below). This final analysis will;include a written and oral analysis that uses each of these three spreadsheet;parts in supporting your analysis / conclusion.;On Blackboard your group will be;assigned the company that you will evaluate. Most firms will be medium to larger sized;companies (not necessarily just multinationals) in that they are more likely to;have higher trading volume and data will be more readily available for;analysis. Each group will research a;different company. No group will have;the same company as another group.;You have latitude in deciding how to;approach this problem but you must use tools available from the text and notes and;present a logical argument for analyzing each area of your company that is;identified in parts one, two, and three to follow. To do well on the project, make sure to;follow these instructions.;Once members are assigned to each;group, then the members should select among themselves a lead person that will;submit each assignment for that group. All students are encouraged to interact with;the instructor with questions, etc. but submission for each part of the project;needs to be by one person from each group.;Financial Project Outline;1.;Financial Analysis: Complete a;basic financial statement analysis (Chapters 2 and 3 Analysis of Financial;Statements ? Excel template provided) = 20 points;Due Monday, Sept 22, 2014;by 11:59 PM CST;2.;Risk and Return: Collect data for;firm and indexes and calculate risk based on valuation measures. (Chapter 6;Risk & Return ? Excel template provided) = 20 points;Due Monday, Oct;20, 2014 by 11:59 PM CST;3.;Stock Valuation. (Chapter 7;Stocks ? Excel template provided) = 20 points;Due Monday, Nov 17, 2014;by 11:59 PM CST;4.;Final analysis of Financial;Project = 40 points;Due Friday, Nov 21, 2014;by 11:59 PM CST;5.;Self and Peer evaluation = 50;points;Due Friday, Nov 21, 2014;by 11:59 PM CST;6.;Oral presentation of findings =;25 points;Due Friday, Nov 21, 2014;by 11:59 PM CST;1.;Financial STATEMENT Analysis (Use Financial Analysis spreadsheet;template);Perform a financial statement analysis;of your firm. Use chapters 2 and 3 of;your text as a guide. Open the Financial Analysis spreadsheet template and;input balance sheet and income statement data for your company. It is required that you complete all highlighted;areas of the spreadsheet. At a minimum;you are to use three years of data but you are encouraged to use five years of;data. The spreadsheet also contains a;common size analysis and percent change analysis. With common size analysis all income;statement items are divided by sales and all balance sheet items are divided by;total assets. Also, review your firm?s;statement of cash flows, with a brief discussion of their major sources and;uses of funds. Refer to Financial Analysis Tool Kit for illustration. Note: industry ratios are not very often;expressed in historical terms. Thus, you need to use at a minimum the latest;three years of industry data but strive for five years of data.;Yahoo Finance and Google Finance;are two very good sources of data at no cost.;For a more complete database;RefUSA (now called One Source: Global Business Browser) is a better source with;ten years of financial statements available on many publicly traded;companies. It is called "One Source: Global Business;Browser". You can find this by going to the "Business and Economics;Libguide at:http://libguides.jsu.edu/business;For example, if you do search for;say "Ford Motor" (without the quotations) you will get a list of;companies. The main one should be listed first. Click on it.;You will see a selection list of information on the left hand side. Under;Financials" you will see "Income Statements". Next;click on Income Statements. You will see this year?s (or the most current;year) along with three other past years for comparison. You can expand;this out to 10 years if you wish. The current or most recent year;comparison can be found by clicking on the Industry NAICS on the Summary page;of the Company Information. Look for the RMA link on the left side of the;Industry page. There is actually the most current year along with three;years back of RMA Industry ratios. If you need years further back you;will need to come into the Library and check the paper copies. "The;RMA Annual Statement Studies" can be found in the Reference Section of the;4th floor of the Library. The call number is HF5681R2B6;2.;Risk and Return(Use Risk and Return spreadsheet;template);To gather needed data, see the;tabs in the provided spreadsheet within the Financial Project folder under;assignments. You are provided with a;template Excel file which calculates the following for the firm you are;assigned;-;Regression;(includes stock and index return, risk free rate, beta coefficient, standard;deviation, and coefficient of variation);-;Stock;indices;-;Company;stock prices;Steps in making risk and return analysis;a);Open;the template file and then save it under a new name.;b);Next;from the data you gathered from the Internet, copy your firm?s closing stock;prices for the appropriate month and year into the template file in the column;?Company Stock Price.?;c);Now;find the closing data for the index you are using (try searching Yahoo;Morningstar, etc. to find the value of the appropriate index that relates to;your stock) and copy and paste into the column ?Index value.? The;worksheet will automatically calculate the stock and index monthly returns and;will calculate the monthly standard deviation, and coefficient of variation;below the columns of returns. This time;line of data goes back five (5) years.;d);To;calculate the beta for the firm you must use the regression function of Excel.;After copying the new data into the spreadsheet, click on Tools and then on;Data Analysis. A list of analysis alternative should appear. Go down the list;and click on Regression (this will highlight Regression) and then click on OK. (Note - you might have to add ?Data Analysis?;to your version of Excel. Go to file;options, add in, and select Data Analysis.;Then hit Go). A window should;appear for the regression analysis technique. The template was saved with;everything preset so all you should have to do is click on OK. A warning will;pop up indicating that if you continue you will overwrite prior information.;This is what you want to do so click on OK. At this point Excel will return you;to where you were in the spreadsheet before you started the regression analysis;process. The results of the regression analysis will be printed at the bottom;of the worksheet. If the regression does not automatically include your data;you will need to list the stock returns as the y variable and the index returns;as the x variable for the output range. The analysis needs to go from Jun 2009 to Jun 2014. This;data should be available from Morningstar, Edgar, Google, Yahoo, and others. Before saving the worksheet, change the title;line at the top of the worksheet to indicate the name of the firm you are;analyzing and the index used in this calculation. Make sure to put your group number.;There are six indexes listed;under a tab in your Excel spreadsheet.;Choose three to use in analyzing your stock. You must create a worksheet (and calculate;beta) for your company with each of the three indices you choose to use (e.g.;Dow Jones, S&P500, and NASDAQ) as a representative for the market in which;your stock trades. Thus, you are;comparing how sensitive the stock price of your company is relative to each of;the indices that you choose. This might;be a good area of discussion when you write your final analysis. Also calculate a beta for the NASDAQ;Composite relative to the S&P500 by using the template and putting the;NASDAQ values in under ?Stock price? and the S&P500 values under ?Index;value.?;Go to www.yahoo.com. Click on;Finance (http://finance.yahoo.com/). Enter your company?s stock symbol and;click Get. Then click on Profile. Click;Key Statistics and then Key Statistics Help at the bottom of the Yahoo!Company;Profile page and look up beta to determine how they calculate the beta they;report. The key statistics are a;different variation of the report generated via data gathered in;Morningstar. You will need to be aware;of how beta is calculated when analyzing risk in the section to follow.;Answer the questions highlighted;in yellow at the end of the regression analysis.;3. STOCK;VALUATION (Use Stock Valuation spreadsheet template);Use the constant growth model and;supernormal growth model to obtain stock values for your company. Determine the discount rates (expected;returns) using the CAPM model (Hint: you?ve already calculated the firms? betas;in the Risk and Return part of the project). For this project assume the risk free rate is;3.5% and the market risk premium is 7.5%. Use analyst?s earnings forecasts from a;reputable source (e.g. Yahoo, Zacks or Value Line,. Etrade, etc.) to determine;expected growth rates. (You may use the simplifying assumption that the;dividend payout ratio will remain constant. This means that the expected growth rate for;earnings will equal the expected growth rate for dividends.) For the constant growth model, use the 5-year;forecasted earnings growth rate as your proxy for the dividend growth rate. For the supernormal growth model, use the;projected growth rate for current and next fiscal year earnings to estimate;your growth rates for years one and two and then use the 5-year historical;earnings growth rate for the constant growth rate. In the event, the 5-year historical earnings;growth rate is higher than required rate of return on the stock, review the;various growth rates in your ratio analysis and choose a rate that is lower;than the required return. Be sure to;list the source of the expected growth rate. After computing the values, compare them to;the recent price of the stock and indicate whether your calculations suggest;that the company is under-valued or over-valued. Also, provide a brief;discussion regarding your confidence in using these models to value;?real-world? companies.;4.;FINAL ANALYSIS OF RESEARCH;Your analysis must address these;three parts (financial statement analysis, risk and return, and stock;valuation) individually but should not consider each in isolation. For example, from your trend and / or cross;section analysis of financial statements are you able to identify why the stock;price is behaving favorably or negatively?;Is the firm reinvesting much of its earnings or paying out as dividends?;Feel free to use chapter 14 that we will cover after the project is due to;think about distributions if you decide to add something in this area. Cost of capital has several applications;across this project ? cost of stock as a component of WACC and relationship;between cost and price of stock, and risk and the price of stock, for example. These are just a few suggestions that you;might consider, but the author provides other examples in the text as well.;More specific and detailed;information about what is exactly expected for your final report will be posted;within a few weeks.;At a minimum at this time think about the ?big picture? of how the;performance of the company looks to a current investor or a prospective;investor. Your analysis from the three templates needs to be supplemented to;enhance readability by tables, graphs, and figures that show how each of these;concepts is interrelated.;5.;SELF AND PEER EVALUATION;It is my contention that a graduate;student needs to experience situations that simulate typical working;conditions. This may be the absence of;choice when deciding with whom you will work on a project or what your assigned;role might be. Employers usually make those decisions and an employee has;little if any input in such decisions.;However, it is also my contention;that while a graduate student will benefit from interaction that might be;present in a work environment, it is unfair to the student to place him or her;in a potential situation where members of a group may not equally produce an;expected level of effort. Thus, a rubric;for evaluating yourself and members of your group will be provided within the;Financial Project folder under assignments.;For now, as you proceed through each;part of the assignment remember that at the end of the project you will;evaluate yourself and others from your group will anonymously evaluate;you. Self and peer evaluation;represents 50 points out of 175 points for the project so students have a;strong incentive to put forth the effort that is expected by other group;members. Once assigned into groups I do not plan to change the composition;of the group members, but at any point if there is a problem then make sure you;contact me.;6.;ORAL PRESENTATION OF FINDINGS;Your final analysis will need to be;reported verbally via Discussion Board in Blackboard. I will develop a link at an appropriate time;for loading your reports. All students;will be able to view your oral presentation.;Think of this as an extension of the written report in part four, where;you verbally explain the results. This;may be where you video yourself discussing the project or, perhaps better;where you use screenshot software (Camstudio is one example) to create an audio;of you discussing powerpoint slides, tables, graphs, figures, etc. that makes;up your final analysis.;I will provide more specific;instruction as we progress through the semester, but you might find it best to;select one person to develop the presentation and audio / video. Keep in mind that all group members need to;participate across the entire project and that you will be evaluating;yourself and other group members for part five of this project.;Selected areas reprinted in;part with permission from Dr. Charles Hodges, University of West Georgia;Carrollton, GA.
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