As the new financial manager of your company, the CEO has asked your team to provide a brief analysis of the company’s performance to present at the upcoming board of directors meeting. The CEO has asked that you assess the company’s performance against your company’s industry. Thus, to do this, you will need to use ratio analysis or other techniques to determine areas in which the company is doing well, as well as areas that management should look at.
Here are the steps for the project: 1. Select your teammate. Each team should be made up of two members.
2. Determine which company you will analyze for the project. Your selection may be subject to your professor’s approval. The company that you select will likely be used for all four team projects. As such, be sure that the company has debt on its balance sheet, as this will be a requirement for future projects.
3. Go to the website for your company and download the 10-K report for the most recent year.
4. Perform your ratio analysis on your company: a. A good place to start would be to perform a complete DuPont analysis of the company. The DuPont analysis might provide guidance as to what particular areas of the company should be examined next and what ratios should be calculated. Be sure to include ratios that cover the following areas:
i. Profitability ii. Debt Management iii. Liquidity iv. Asset Management v. Market Value
b. In addition to the DuPont analysis ratios, be sure to present and discuss at least six relevant ratios that your team feels may best assess the company’s performance. c. Using an online database, such as bizstats.com or a similar database, capture the ratio averages for your company’s industry to evaluate your company’s performance. d. Provide an analysis that compares your company’s ratios to the industry standards. There is no need to explain the purpose of the ratios. Rather, be sure to provide an interpretation of the results. This may entail some research from news sources on the company’s recent performance.
e. Prepare a PowerPoint presentation that summarizes the comparison of your company’s ratios against the industry ratios, as well as your analysis. APA standards are to be followed for all portions of this presentation, including but not limited to proper references and citations.
f. Using Webex or Voicethread, prepare an oral presentation that presents your PowerPoint presentation. Each team member must participate in this presentation.
Finance
9. In 2003, several investment banking firms were fined $1.4 billion for ethics abuses related to the underwriting process. Will this be a deterrent for ethical lapses?
7. Describe the meaning of a state of nature, and explain how this concept is used to provide expected measures of return and risk.
finance
Once again, your team is the key financial management team for your company. The company’s CEO is now looking to expand its operations by investing in new property, plant, and equipment. In order to effectively evaluate the project’s effectiveness, you have been asked to determine the firm’s weighted average cost of capital. To determine the cost of capital, here is what you have been asked to do.
1. Go to Yahoo Finance (http://finance.yahoo.com) and capture the income statement information for the company you selected. (Be sure that your company has debt on their balance sheet. This will be required in your project.) a. Enter your company’s name or ticker symbol. Your company’s information should appear. b. Click on the Financials tab, and select the income statement option. Three years’ worth of income statements should appear. Copy and paste this data into a spreadsheet. c. Repeat step b. above for the balance sheets of the company. d. Click on “Historical Prices.” Capture the closing price of the stock as of the balance sheet date for the three fiscal years used in steps b and c above. 2. Calculate the Weighted Average Cost of Capital (WACC) for the company:
a. Cost of Debt i. Determine the market value of the firm’s debt issues. Be sure to review the firm’s 10-K. Also, the website http://finra-markets.morningstar.com/BondCenter may be of assistance. ii. You will need to calculate the firm’s composite YTM on its bonds. This can be achieved by calculating a weighted-average YTM for its bond issues. iii. After calculating the YTM for the bond issues, calculate the firm’s after-tax cost of debt. If the firm’s marginal tax rate cannot be identified in its 10-K, assume that the tax rate will be 35%.
b. Cost of Equity i. Calculate the firm’s cost of equity using the capital asset pricing model (CAPM). The formula for the CAPM is ri = rf + βi × (RMkt – rf). ii. Assume the risk-free rate (rf) is the current rate of 10-year U.S. Treasury Bonds. iii. Calculate the market rate (RMkt) by calculating the market return on the Standard & Poor’s 500 for the past 2 calendar years. iv. The beta for the firm can be obtained from Yahoo! Finance.
c. Calculate the WACC i. Determine the market capitalization of the firm’s common equity and preferred equity, if any. ii. Determine the firm’s capital structure based on the market value of the firm’s equity and debt. The market value of the firm’s debt can be obtained from the Morningstar website, listed in the Cost of Debt section above. iii. Calculate the WACC. As you recall, the formula for WACC is rWACC = E ÷ (E + D) rE + D ÷ (E + D) rD (1 – TC). Deliverable
Prepare a narrated PowerPoint presentation using VoiceThread or WebEx that shows the steps you performed to calculate the WACC for your firm. Feel free to embed your Excel spreadsheets in the presentation to demonstrate your calculations. Be sure to discuss how the values were obtained or derived to arrive at your WACC result. Finally, be sure to discuss any strengths or limitations in the calculations you performed, and discuss your analysis about the overall validity of your results. Both members of the team must be part of the narration in the presentation.
Grading Rubric
Possible Points Criteria and Point Range
Calculation of Cost of Debt
12 0-3 4-6 7-9 10-12 Incorrect data or no debt data provided.
Incorrect cost of debt calculations Questionable data used. Some errors in calculations presented. Data is mostly accurate. Correct calculations performed. Accurate debt data collected and correct cost of debt calculations made.
Calculation of Cost of Equity
12 0-3 4-6 7-9 10-12 Incorrect data or no equity data provided.
Incorrect cost of equity calculations Questionable data used. Some errors in calculations presented. Data is mostly accurate. Correct calculations performed. Accurate equity data collected and correct cost of debt calculations made.
WACC Calculation
8 0-2 3-4 5-6 7-8 All elements of the WACC calculation are incorrect, or calculation not performed. Two errors noted in the calculation relating to either cost of debt, cost of equity, or capital structure. One error noted in the calculation relating to either cost of debt, cost of equity, or capital structure. WACC Calculation utilizes appropriate cost of debt and equity and capital structure to arrive at a solid result.
Form
8 0-2 3-4 5-6 7-8 Poor writing and presentation skills, or no presentation provided. Several problems noted in regard to writing and presentation skills. Writing and presentation done well with a few minor errors Virtually no errors in writing or presentation.