Construct common size financial statements and calculate financial ratios.

1) Brief industry and company description. Graph last 5 years revenue growth rates (%), net profit growth rates (%), EBIT or EBITDA profit margins (%), net profit margins (%), dividend (if any) growth and stock price trends. Read the recent earnings call transcript (you can also listen to it) and write summery of business strategy and new growth initiatives to estimate how this company will grow next 5 years. Estimate capital expenditure plans the company has for next several years, based on what management said in the earnings call transcript and/or based on recent historical trend.
2) Construct common size financial statements and calculate financial ratios. Make comparisons to the industry or peers in the industry and analyze company’s financial standing. Please include DuPont analysis (a table with ratios which are used in DuPont identity and compare to industry or a peer).
3) Based on the item 1 and 2 analysis, please construct Base Case scenario of 5 year pro-forma statements (based on the projected growth rates of the sales, profit margin projections, capital expenditures and other estimates and assumptions from common size statements) in order to estimate cash flows from assets (CFFA). After 5 years assume constant long-term growth rate of CFFA. The template is posted in Week 11 folder.
4) Create two more scenarios of CFFA cash flows with pro-forma statements (Best and Worst cases). For Best case use higher revenue and earnings growth rates (1-2% more) , for the Worst case use lower revenue and earnings growth rates (1-2% lower than the base case). (you can create copies of the base case worksheet and modify revenue and earnings growth rates for best and worst cases in separate worksheets).
5) Estimate required rate of return on equity with CAPM. Calculate CAPM beta using R program.
6) What is a book value of total debt?
7) Estimate Yield to Maturities of its two largest bond issues and use average of them in WACC calculation in the next step. One of the sources: cbonds.com, use free registration to access quotes.
8) Estimate WACC (weighted average cost of capital) for the company. You will use this in one of the methods of valuation. Use historical Tax rate of the company.
9) Calculate CFFA based valuations with WACC for all three scenarios.
10) Calculate per share stock price of the company for all three scenarios.
11) Find F-score of the company (the method is described in Piotroski ‘s article posted in Week 12 folder on Sakai), and discuss what it means for the company.
12) Determine your stock price RANGE AND TARGET (using three different scenarios above) and calculate your expected return given current market prices. Use the form of summary results (posted in Sakai). Rate your stock given your team’s expectation of the market return (YOUR TEAM’S EXPECTATION). Include major assumptions on the same page. Summarize your valuation of the stock in terms of the range of intrinsic values and alphas in half a page discussion.

Part 2
Each student in the team will Interview one other student within the team and write 300 word section covering 3 interview questions and answers. Please think of 3 questions to ask in this interview regarding individual’s: sources of motivations, or passions to pursue certain professional career goals (in business, politics or otherwise), what aspects or areas of business are you passionate about, how this course may be helpful for those objectives, and how do you plan to develop your skills further to achieve your professional goals.

Central methods of risk-return trade offs (cost benefit analysis of investments and valuations) have more general conceptual applications in medicine, politics and personal decisions as well. Each course contributes in various ways to advance your level of expertise. Include your name and the person you interviewed.

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