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Project 1 

Please  read the attached documents and follow all  directions. This is a group project. I am assigned to NUMBER 5. 

I have provided all information that will help you complete the assignment.

The COMPANY IS APPLE VS MICROSOFT

i HAVE ALSO ATTACHED A SPREADSHEET SO YOU CAN ISE IT TO CALCULATE THE DIFFERENT RATIOS. ALL YOU DO IS INPUT THE NUMBERS FOR EXAMPALE IF THEY ARE ASKING HOW TO CALCULATE “ROE” GO TO RETAINED EARNING PUT THE NUMBERS IN TO GET THE CORRECT CALCULATION. 

ALSO IF YOU CLICK ON THE FORMULAS TAB AND THEN CLICK ON PRECENDENTS IT WILL SHOW YOU WHICH CELLS ARE USED TO GET THAT RATIO. ” PAY ATTENTION TO THE ARROWS AND FUNCTIONS FORMULAS.

FINC 330 Project Descriptions

Research Project Part 1

This project is closely aligned with the Course Outcomes and Finance Program Objectives.  Completion of this project can be used as part of a portfolio to show potential employers the student is skilled at performing company valuations and financial statement analysis and can be included on the student’s resume.

Ratio Analysis

OBJECTIVE

You are to assume you have been recently hired by The Company and have been assigned to a team that reports to the CEO of THE COMPANY (SELECTED BY INSTRUCTOR). The head of your team is the CFO who is concerned about THE COMPANY’s current financial performance and comparison against major competitors in the industry and the impact that may have on the firm’s stock price. The CFO would like your team to provide insights that will help them to project future financial performance. Specifically, the primary question to answer is: will THE COMPANY be financially viable over the next two to three years, and which steps should be done to improve its financial stability?

THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.

Alternatively, you can request approval of another publicly traded company. This request must be submitted before the end of the first week of the course. The request must include

· identification of the company by ticker symbol and name

· a reasonable and appropriate explanation of why you want to examine the alternative company

· the source of the analyst’s report that will be used in the analysis (which must be submitted to me)

· acknowledgement by you that all of the specific elements of the assignment (see below) will be prepared by you and included in the final research project report

SUGGESTED WEBSITES

www.morningstar.com – To find the information for your company you need to type the stock symbol in the Quotes window to get into the company’s page.

www.marketwatch.com  -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.

www.Finviz.com – To find the information for your company you need click on Screener on the top of the screen, type the stock symbol in the Ticker window to get into the company’s page., and click on the company in the list.

www.money.cnn.com  -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.

www.finance.yahoo.com – To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.

www.nyse.com – Click on Data, then click on Stocks (under Quotes), and type the name of the company or the stock symbol in the window “Keyword or symbol” to get into the company’s page.

www.nasdaq.com – To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.

Company’s websites

YOUR SPECIFIC ASSIGNMENT

Using the information from the websites the students will develop evaluation of the financial performance for THE COMPANY (SELECTED BY INSTRUCTOR). (The evaluation portion will total 85% of the assignment grade)  

-1—Background and Industry (one short paragraph). 

-2— Common size analysis (15% of the project grade). You can find the common size financial statements for the company for the last 3-5 years on www.morningstar.com. Type the stock symbol in the Quotes window to get into the company’s page. Scroll down and click on All Financial Data. Switch View from “$” to “%”.

Create a table that contains the most significant common size financial performance results for the last 3-5 years for THE COMPANY and for the last year for the major competitor. Present the table with this information in your report.

Write about 1-2 pages of the analysis of the financial conditions, its stability, and trends.

-3— Trend analysis (15% of the project grade)

Analyze the financial trends over 5 years of Revenue, net income, and any other of the most significant financial performance results of your choice. To present your findings, you will use the table(s) and/or graphs. You can use the bar graphs provided by www.morningstar.com. Or create your own ones.

Write about 1-2 pages of the report of the results that you received. What important information does this analysis provide?

-4— Financial ratio analysis. (20% of the project grade)

In this part of the project you will complete ratio analysis of THE COMPANY. Please remember that you are the financial analyst of THE COMPANY and should prepare the report to be read by the chairman (CEO) of THE COMPANY. The ratio analysis should be completed from the point of view of THE COMPANY’s the management.

The chairman of THE COMPANY is especially concerned about the following groups of ratios:

· Liquidity (current ratio, quick ratio, and net working capital-to-sales ratio)

· Operating performance ratio (Days of Sales in Inventory, Days of Sales in Receivables), turnovers

· Profitability ratios (Gross Profit Margin, Operating Profit Margin, Net Profit Margin)

· Return on Investment ratios: (Basic Earning Power ratio, ROA, ROE)

You can find financial ratios for the company for the last 3-5 years in the Internet or calculate them. If you use published ratios you must indicate that and cite their source.

a) Present the ratios as the table(s) in your project. Create graphs for some ratios on your choice over three years to show trends.

b) Write 2 pages (or more) of analysis of the ratio results that you found. In your analysis you should answer the following questions:

· How liquid is the company?

· Is management generating a substantial profit on the company’s assets?

· If the management of the company would like to improve the company’s financial performance, what should the management of THE COMPANY do?

-5- Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (15% of the project grade).

a. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis. Present the ratios as the table(s) in your project.

b. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis. Present the ratios as the table(s) in your project.

c. Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?

d. Compare the ratios of you company to the peer competitor. If the management of the company would like to improve their return on equity, what should the management of the company do? 

Write about 1 page of analysis to answer the questions (c) and (d).

-6- Develop a specific recommendation, with supporting rationale, as to whether the assigned company’s recent trends and results in financial performance is of sufficient financial strength, will THE COMPANY be financially sustainable over the next two to three years, and which steps should be done to improve its financial stability? (about 1 page) (15% of the project grade).

-7- Reflection – each group member should write their own experience (3-4 sentences) and what they learned by doing this assignment and how they think they could apply what they learned in the workplace. (5% of the project grade)

PRESENTATION OF PAPER AND WRITING (15%) of the project grade):

-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary. Each section of the paper must begin with sub-headings. Please use the sub-headings included in the assignment (4% of the project grade)

Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper (3% of the project grade)

Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)

Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade)

For a Financial Analyst, there is nothing more boring and tedious than pages of plain text. Therefore, I

suggest utilizing what I call “visual aids” by either finding them online or creating them yourself in Excel.

For every important ratio/number (or category: i.e. Leverage, Liquidity, Profitability, etc, etc), create a

“visual aid” (chart/table/graph..see above example). You’ll want to cut/paste the Balance Sheet, CF

Statement and Income Statement as well. Try to include as many Industry Averages (or competitor data

if you can’t find Ind Avgs) as you can. Displaying multiple years’ worth of data will allow you to spot

trends. Then (in your text) point out any significant trends and any anomalies you see and attempt to

find an explanation. For example, why did Pepsi’s P/E ratio fall substantially during 2019 (see chart

above)? Something like this would be worthy of a little more research.

You should try to use visual aids generously and text only to explain any anomalies in the trends &

comparisons. Please do NOT tell me what I can plainly see (i.e. Balance Sheet/Income Statement

amounts that are clearly posted in your visual aid). Again, Financial Analysts will look for trends,

anomalies and deviations from Industry Averages or Competitors. Find these, then explain them

(where applicable, of course).

Remember, liberally use charts, tables, graphs, etc. (what I call visual aids) to display your findings. In

your text, discuss the numbers as they relate to:

1) Trends

2) Comparisons to Industry Averages/Competitors

3) Anomalies

If you follow this general approach for all your papers, you’ll be fine.

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Price/Earnings Ratio Price/Book Ratio Earnings Per Share Dividends Per Share

Market Ratios

2017 2018 2019 2019 (Pepsi Co)

Grading Philosophy re Written Assignments (Discussions, Papers, etc) Generally speaking (not as a firm policy, but as my usual modus operandi) re written assignments, I will issue an initial grade on your first submission. I will make comments in a different color font, usually red. Then I will allow for your edited re-submission, so that you may possibly earn more points. Your edits should be in another color font or highlighted somehow (so I can easily locate them). I will then re- grade, based on your edits. Again, this is not a policy that I do every time, rather it is a nicety that I extend much of the time.

Current: Current Assets

Current Liabilities

Quick (Acid-test): Current Assets (less inventories)

Current Liabilities

Debt-to-Equity: Total Debt (Liabilities)

Owners (Shareholders) Equity

Debt-to-Assets: Total Debt (Liabilities)

Total Assets

Interest Coverage: Earnings before EBIT

Times interest earned Interest Expense

Receivables Turnover: Annual Net Credit Sales

Receivables

Receivable Turnover in Days (RTD): 365

Average collection period Receivables Turnover

Inventory Turnover: COGS

Inventory

Inventory Turnover in Days (ITD): 365

Inventory Turnover

The number of times receivables

have been converted into cash

during the year.

Average # of days until receivables

are collected.

How much of the firms assets are

financed with debt.

COVERAGE RATIOS

Creditors (bondholders, lenders) like this to be low to provide a cushion

against losses, etc. Conversely, investors (shareholders), while seeing

increased risk in a high ratio, also like the higher ROE given the smaller

amount of equity.

An average vs. ending balance may be more appropriate to use for

inventory. COGS takes place over a time period vs. the static quality of

the balance sheet item (inventory).

How many times during the year was

our stock of inventory sold?

Average # of days inventory is held

before sold.

Ability to cover interest charges. Also

indicative of capacity to take on new debt.

Very important to creditors. Caveat: Does

not consider principal.

ACTIVITY RATIOS

Often better to use an average balance for receivables, given growth

and/or seasonal sales.

Ability to meet current debts with

current assets. Current: Usually 1

year or normal ops cycle.

LIQUIDITY RATIOS

Better, more conservative measure

of liquidity than above.

LEVERAGE RATIOS

Debt financing relative to Equity

financing. * From an equity investors perspective, Preferred

Stock can represent debt vs.equity for the purposes

of calculating this ratio.

Payables Turnover: Annual Credit Purchases

Accounts Payable

Payables Turnover in Days (PTD): 365 Average age of Accounts Payable

Payables Turnover

Total Asset Turnover: Net Sales

Total Assets

Net Profit Margin: Net Profit after Taxes

Net Sales

Return on Investment (ROI): Net Profit after Taxes

Return on Assets (ROA) Total Assets

Return on Equity (ROE): Net Profit after Taxes

Owners (Shareholders) Equity

How well the company is earning money

for its owners. Very important to

current/potential investors.

An average vs. ending balance may be more appropriate to use for AP.

Credit purchases take place over a time period vs. the static quality of

the balance sheet item (inventory).

How efficiently do our assets

generate sales? Again, an average vs. ending balance may be more appropriate to use

for assets. Sales (Income Statement item) take place over a time

period vs. the static quality of the balance sheet item (assets).

PROFITABILITY RATIOS

Again, an average vs. ending balance may be more appropriate to use

for assets. Profit (Income Statement item) take place over a time

period vs. the static quality of the balance sheet item (assets).

How well do our assets generate

profit?

Net Income per dollar of sales. The

profitability of our sales.

UMUC provided business insight

1. Go to the resource center select Library

a. 

2. Under “Research Guides” select “Business and Management”

a. 

3. Select “Hoovers” under the research guides

a. 

4. In the search bar select “companies” and type in your company name

a. 

5. Select your company name from the options listed below once you hit the search icon

a. 

6. Next step CLICK AWAY AND ENJOY!!

a. 

IS BS

Sales250,000ASSETS
less COGS(90,000)20122013
Gross Profit160,000Current Assets
Other Op Revenue5,000
Cash1,2001,400
Total Revenue165,000Temporary Investments
Inventories
Selling & Dist ExpenseAccounts receivable
Advertising(5,000)Prepaid expenses
PR(2,000)Other
Website(7,500)
Total Current Assets1,2001,400
Gen & Admin Expense
Electricity(1,500)Fixed Assets
Insurance(1,000)
Rent(30,000)Property, land and equipment
Payroll(46,500)Leasehold improvements
Equity and other long-term investments
Depreciation(10,000)Intangible assets
Less accumulated depreciation (Negative Value)– 300– 195
Financial Expenses
Bad Debts(1,500)Total Assets– 300– 195
Total Expenses(105,000)Other Assets
EBIT60,000Deferred income tax
Interest Expense(4,500)Charity/Goodwill
EBT55,500Other
Taxes @ 21%(11,655)
EAT43,845Total Other Assets
Cash Dividends40,000TOTAL ASSETS9001,205
Increase in Retained Earnings3,845
LIABILITIES AND OWNER’S EQUITY
Current Liabilities
Accounts payable350
Accrued wages and salaries
Accrued compensation600
Short-term loans
Income taxes payable
Unearned revenue300
Current portion of long-term debt
Total Current Liabilities900350
Long-Term Liabilities
Long-term debt
Other long-term debt
Total Long-Term Liabilities
Oner’s Equity
Owner’s investment350
Accumulated retained earnings
Other
Total Owner’s Equity350
TOTAL LIABILITIES AND OWNER’S EQUITY900700
FINANCIAL RATIOS
Working Capital (Current Assets – Current Liabilities)3001,050
Current Ration (Current Assets / Current Liabilities)1.334.00
Quick Ratio ((Current Assets – Inventories) / Current Liabilities)1.334.00
Debt-to-Equity Ratio (Total Liabilities / Shareholders Equity)– 01.00
Long Term Debt-to-Equity Ratio (Long Term Debt / Shareholders Equity)– 0– 0

Practice Excercise 1.3

Alpha Project:$(000s)
Year 0– $300 no discount=($300.00)
Year 1$100(1/1.10) or $100*(1.10)^-1=$90.91
Year 2$100(1/1.10)(1/1.10) or $100*(1.10)^-2=$82.64
Year 3$400(1/1.10)(1/1.10)(1/1.10) or 100*(1.10)^-3=$300.53
Discounted net value=$174.08
Omega Project:$(000s)
Year 0– $300 no discount=($300.00)
Year 1$300(1/1.10)=$272.73
Year 2$150(1/1.10)(1/1.10)=$123.97
Year 3$50(1/1.10)(1/1.10)(1/1.10)=$37.57
Discounted net value=$134.26

HW1B (DuPont)

Bridge, Inc. has a total asset turnover of 0.90 and a net profit margin of 4.28 percent. The total assets to equity ratio for the firm is 1.6. Calculate Vintage’s return on equity.
ROE = net profit margin X total asset turnover X total assets to equity ratio = 6.16%
TATNPMA/EROE
0.94.281.66.1632

HW1A Fin State

HW 1B Return on InvestmentHW 1C Operating PerfromanceHW 1D Liquidity Ratios
Balance Sheet December 31, 20XXReturn on AssetsBasic Earning PowerReturn on Common EquityAvg Day’s COGSDays of Sales in InventoryAvg Credit Sales/DayDays of Sales in RecCurrent RatioAcid-Test (Quick) RatioNet Work Cap/Sales Ratio
0.21900.37910.3080-7671.2329-65.178610,958.9027.382.941.320.15
Cash and marketable securities$100,000Accounts payable $200,000HW 1A Financial Statements
Accounts receivable$300,000Notes payable$50,000EBITGross ProfitIBT (EBT)NICurrent AssetsShareholders EquityNet Work CapOp After-Tax CF
Inventories$500,000Accrued expenses$60,000800,0001,200,000770,000462,000$910,000$1,500,000$600,000592,000
Prepaid expenses$10,000Total current liabilities$310,000
Total current assets$910,000Long-term debt$300,000HW 1D Profitability RatiosHW 1E Activity RatiosHW 1E Leverage Ratios
Gross fixed assets$1,600,000Par value and paid-in-capital$200,000Gross Profit MarginOp Profit MarginNet Profit MarginInventory TurnoverAR TurnoverTotal Asset TurnoverFixed Asset TurnoverDebt/AssetsDebt/EquityTimes Interest Earned
Less: accumulated depreciation$400,000Retained Earnings$1,300,0000.30000.20000.11555.600013.33331.89573.33333333330.28910.406726.6667
Net fixed assets $1,200,000Common Equity1,500,000
Total assets$2,110,000Total liabilities and owner’s equity$2,110,000
Income Statement, Year of 20XX
Net sales (all credit)4,000,000
Less: Cost of goods sold(2,800,000)
Gross Profit1,200,000
Selling and administrative expenses(300,000)
Depreciation expense(100,000)
EBIT800,000
Interest expense(30,000)
Earnings before taxes770,000
Income taxes(308,000)
Net income 462,000

HW 1F Market Value Ratios

1
All Star Corp.’s stock price at the end of last year was $61.71. The company’s earnings per share for the last year were $10.56.  Calculate company’s P/E ratio.
P/E ratio = Price per share/Earnings per share =$61.71/ $10.56 = 5.84
PriceEPS
61.7110.56
P/E Ratio
5.84
2
Symphony Corp.’s stock price at the end of last year was $55.18, and the company’s book value per share was $25.33.  Calculate market/book ratio.
Round the answer to two decimal places.
PriceEPSBVPS
Market/Book55.1825.33
2.178
3
Last year, Holland Tulip Inc. paid 59.51 million in common stock dividends. The company has 24.43 million shares outstanding. Calculate the firm’s dividends per share ratio.
DPS = Common dividends paid/Number of Shares outstanding  = $59.51 million /24.43 million shares outstanding  = $2.44
Com Div PdShares Out
Div/Share59.5124.43
2.44
4
Serenade Corp.’s cash flow last year was $114.58 million. The company has 53.08 million shares outstanding.  What is the firm’s cash flow per share ratio?
CFShares Out
CF/Share114.5853.08
2.16
5
Yellow Iris Corp.’s net income last year was $359.13 million. The company has 49.90 million shares outstanding. What is the firm’s EPS?
EPS = Net income/Number of shares outstanding =$359.13 million/49.90 million shares outstanding = $7.20
NIShares Out
EPS359.1349.9
7.20
6
Rose Water Corp.’s net income last year was $330.01 million. The company has 69.45 million shares outstanding. The company’s stock price at the end of last year was $49.66. What is the firm’s P/E ratio?
P/E ratio = Price per share/Earnings per share
PriceNIShares Out
EPS49.66330.0169.45
10.45
7
Cardamom Corp.’s total common equity is $322.54 million. The company has 176.11 million shares outstanding. What is the firm’s book value per share?
BVPS = Common equity/Number of Shares outstanding =$322.54 million/176.11 million shares outstanding = $1.83
CEShares Out
BVPS322.54176.11
1.83
8
Black Dahlia Corp.’s stock price at the end of last year was $43.03. Black Dahlia Corp.’s total common equity is $117.42 million. The company has 8.44 million shares outstanding. What is the firm’s market-to-book ratio?
Market/book ratio (M/B) = Price per share/BVPS
BVPSStock PriceCEShares Out
13.9143.03117.428.44
M/B
3.09
3.09
9
Crab Feast Corp.’s cash flow last year was $100.14 million. The company has 7.57 million shares outstanding. Crab Feast Corp.’s stock price at the end of last year was $64.55.  What is the firm’s price-to-cash flow ratio?
Price-to-cash flow ratio = Price per share /Cash flow per share
CF/ShStock PriceCFShares Out
13.228533685664.55100.147.57
P/CF
4.87960
4.87960