FINC 430
ASSIGNMENT #1 (Due at the end of Week 3)
Prepare Ratio and Cash Flow Analysis for current and prior years using eVal Model
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.
Evaluation: The Assignment #1 is 20%% of final course grade.
No more than 20% of the text of the project should be made up of quotes.
For this assignment, use the company ASSIGNED BY INSTRUCTOR for all three class assignments. IBM As a Company
Students will use the eVal Financial Forecasting Model for this assignment.
(See: http://www.lundholmandsloan.com).
Students will be using Database file provided for this model.
The actual Excel eVal model completed for the company assigned for the project must be submitted with the assignment.
PLEASE READ THE ENTIRE FILE BEFORE STARTING WORKING ON THE PROJECT.
STEP 1: You should start with the collecting information and data about the company.
This information will be used in all three written assignment for this class.
You will need to read and investigate:
a) Form 10-K the annual report filed by most companies. It is the most important SEC filing and your starting point for analyzing a company. (https://www.sec.gov/edgar). Click on Company Filings on the left side of the screen, type stock symbol in the Fast Search window.
b) Quarterly (Form 10-Q) and Current (Form 8-K) reports (if available)
c) Investigate the Companys Web site. Most companies have an investor relations section on their website providing financial information about the company.
d) Read the press release section in the company website. Company press releases often provide more timely information than periodic SEC filings.
e) Find the most recent annual report to shareholders on the company Web site.
f) Read financial press (www.finance.yahoo.com , https://www.reuters.com , www.morningstar.com , www.msn.money.com). Find the articles about the company.
g) Check regional newspapers, Seeking Alpha, Yahoo, Motley Fool for the articles, blogs, and message boards about the company.
STEP 2: Gather and read macroeconomic and industry information and data.
You will need to check global and domestic economies trends. The operations of most companies are concentrated in a particular country and the economic situation of the country is a main factor of profitability. A good understanding of the industry and macroeconomic situation is also useful for explaining the past performance and creating a reliable forecast of future sales and profits. You will be using your findings in all four written assignments in this course.
Suggested websites:
www.economy.com
www.briefing.com
https://www.govinfo.gov/app/collection/econi
www.hoovers.com/industry-analysis.html
https://www.fidelity.com
STEP 3: Input the information into the eVal Excel Model.
We will be using the Database for this model. The link to the file with the Database is posted in Assignment #1 module in LEO classroom.
‘Copy’ the yellow data block for the assigned company, ‘Paste Special-Values’ into the designated area at the bottom of the ‘Financial Statements’ worksheet. To get into the correct place to input the data, you need to click on the spreadsheet Financial Statements, and click on the link Jump to Raw Data Input on the top of the screen. Or you can scroll down to the line 80. Please make sure that the years appear correctly in line 84 (Fiscal Year End). Fix the years if necessary.
It is suggested that the user enter the company name, the number of shares outstanding, and the dates (Fiscal Year End dates) manually. The actual financial statement data can then be cut and pasted.
Please also note that the Data base is currently available for 2019. For some companies the data for 2020 is already available. We will consider that the current year is 2019 if the data for 2020 is not yet available. For the companies where data for 2020 is already available, please use the year of 2020 as the current year.
YOUR SPECIFIC ASSIGNMENT IS:
1. Introduction (The paper should begin with a short introduction (explains the purpose of the paper and provides an overview of the contents that follow) (5% of the project grade)
2. Ratio analysis (30% of the project grade)
Complete current and prior years ratio analysis of the assigned company. When ready to examine ratios, move to the Ratio Analysis worksheet (see tab at bottom of worksheet).
You will be using ratios calculated by eVal model for 2019 (2020 if data is available) and prior years. Please click on the spreadsheet titled Ratio Analysis and analyze ratio results on this page. This must include comparison of ratios for current year with their levels in prior years (called time-series analysis) and comparative analysis (cross-sectional or industry). In the Assignment #1, we are not analyzing forecasting ratios that automatically (as default) appear in the model.
You should evaluate the changes in ratios in the context of changes in the underlying business operations and strategy of the first. You will be using the information that you collected about the company (Step 1, described above), and demonstrate your knowledge of macroeconomic and industry conditions (Step 2, described above).
The analysis needs to examine strengths and weaknesses revealed by the data. Remember, in a written ratio analysis the actual ratio data need to be included in the written analysis in addition to presentation in any accompanying tables or figures (graphs).
Please review Supplemental Users Guide pages 1-6, posted in this module and in Week 1 Assigned Learning Materials. The same file is posted in Assignment #1 area in Content.
The analysis needs to include all ratios for the current and prior years presented in Ratio Analysis spreadsheet of eVal model:
Growth rate
Profitability (ROA. ROA non-recurring, Return on Net Operating Assets)
Basic DuPont model
Advanced DuPont model
Profit Margins
Turnover ratios
Analysis of Leverage Long-Term Capital Structure
Analysis of Leverage Short-Term Liquidity
3. Cash Flow Analysis (30% of the project grade)
Complete current and prior years cash flow analysis of the assigned company. When ready to analyze cash flows, move to the Cash flow analysis worksheet.
The analysis should include:
Cash flow from Operations
Cash Flow from Investing
Cash Flow Financing
Free Cash Flow to Common Equity
Free Cash Flow to all Investors
Again, in the Assignment #1, we are not analyzing forecasting cash flows that automatically (as default) appear in the model. You should evaluate cash flows in the context of changes in the underlying business operations and strategy of the first. You will be using the information that you collected about the company (Step 1, described above), and demonstrate your knowledge of macroeconomic and industry conditions (Step 2, described above).
The analysis needs to examine strengths and weaknesses revealed by the data. Remember, in a written ratio analysis the actual cash flow data need to be included in the written analysis in addition to presentation in any accompanying tables or figures (graphs).
4. Develop specific conclusions, with supporting rationale, as to whether the assigned company’s recent ratio and cash flow results and trends are of sufficient financial strength, and will be sustainable over the next two to three years? (about 1 page) (10% of the project grade).
5. Reflection the students should write a paragraph in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace. (10% of the project grade)
Organization, Presentation, Spelling, punctuation, and grammar totally are 15% of the assignment grade.
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Writing Instructions
The written report should be about 5-7 pages (more is OK!) in length plus the title page, double spaced, and should employ APA style and format for reference citations. Supporting data (e.g., figures, tables, etc.) can be included in the main body of the written report or submitted in the appendix after the written portion of the report. References should be submitted in an appendix after the written portion of the paper.
Please avoid using of personal pronouns; avoid of referring to company as they, their, or them.
Written projects:
The sub-headings used in the paper should be:
1. Introduction (The paper should begin with a short introduction (explains the purpose of the paper and provides an overview of the contents that follow)
2. Growth rate
3. Profitability (ROA. ROA non-recurring, Return on Net Operating Assets)
4. Basic DuPont model
5. Advance DuPont model
5. Profit Margins
6. Turnover ratios
7. Analysis of Leverage Long-Term Capital Structure
8. Analysis of Leverage Short-Term Liquidity
9. Cash flow from Operations
10. Cash Flow from Investing
11. Cash Flow Financing
12. Free Cash Flow to Common Equity
13. Free Cash Flow to all Investors
14. Conclusions
15. Reflection
Completeness of analysis: The analysis must demonstrate a solid understanding of ratio and cash flow analysis. All ratio and cash flow results and conclusions need to be thoroughly explained.
Organization: The paper should be well-organized and follow a logical pattern of analysis.
Presentation: Papers should meet professional business standards and meet APA formatting requirements. No more than 20% of the text of the project should be made up of quotes.
.
Spelling, punctuation, and grammar: There should be few errors in grammar and punctuation. All sentences must be complete and well-structured.
Submission:
You must submit two files into the assignment folder:
1) The completed paper is to be submitted to the Assignments folder Ratio and Cash Flow Analysis location designated for the assignment. The paper must be in Word format otherwise no credit is earned for the assignment.
2) The Excel file with eVal model completed for your company.
company IBM
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