This project is divided into three parts. Part A involves analyzing the financial statements and performance of a firm. Part B requires an analysis of the risk-return profile for the stock. Part C involves a write-up of your analysis from the perspective of a potential shareholder or an investor. The most important part of this project is stock valuation by calculating and using Fundamental Factors. Some rules: 1) This project will be done on a group basis (each group will turn in one project). All members of the group are expected to contribute to the project. Remember that at the end of the semester, you will review your peers. Do not assume the stock is currently constant growth stock. 2) Each group will be assigned a company to be analyzed. 3) The project is due at the start of class on November 25, 2013 . Take this deadline seriously : no late projects will be accepted for any reason (i.e., don’t go to print it out 20 minutes before it’s due; print it out the day before!). Part A: • From September 2, 2013 through November 6, 2013, please keep track of any news articles that appear in The Wall Street Journal that may directly or indirectly relate to your company. Company specific announcements (such as a divided cut) are also import to keep track of. Maintain a portfolio of such new announcements – they will be extremely useful for you when you write your report. • From September 2, 2013 through November 6, 2013, record the daily prices of the company assigned to you on a spreadsheet (e.g., Excel). Also keep track of the amount and timing of any dividend payments. On the same spreadsheet, keep track of the daily value of the S & P 500 index. This information will be required for Part B of the project. 11
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1.1.1.1. Use Disclosure Corporate Snapshots (available in the library via the Web databases) or something similar to retrieve the latest two financial statements (i.e., the last two years’ statements) for your company. 1.1.1.2. For each year, compute profitability ratios for the firm. 1.1.1.3. Use the calculation above to write a brief summary on how the firm has performed over the past two years and how you expect it to perform over the next few years. This half page summary will constitute half of your executive summary. Part B: 1.1.1.3.1. Obtain the beta for your firm’s stock from Value Line or a similar source. 1.1.1.3.2. From your spreadsheet containing prices for your stock and the value for the S & P 500 index, calculate a series (usually 90 days) of daily returns for both the 1.1.1.3.3. Estimate the beta of the firm by visualized graph and by running the following regression: R i = α + B i R m Where, R i = daily returns on stock R m B i = stock’s beta 1.1.1.3.4. Get the beta from the value line and compare it with the beta that you have calculated. Then, using the average of two betas estimate the required return on the stock. Make assumptions as necessary but be sure to justify those
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