Evaluating your company likely future financial performance

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Reference no: EM132185064

PART I Find your company’s most current yearly ratios and compare them to their past year’s ratios. Only two years of data is required; however, if you want to include more due to a significant event this is okay. Introduction: Why are ratios useful? What are the five major categories of ratios? Remember you might not have all five ratio categories or maybe some ratios might not matter. Liquidity: Look at the current and quick financial or liquidity ratios. Are they “good” for your company? How would they be used by management to run the business, investors for valuation purposes, and bankers for lending purposes? Is your quick ratio important or not? Asset Management: Look at your organizations Days Sales Outstanding (DSO) inventory turnover and total asset turnover. What are your impressions? Does your organization even have inventory? Debt: Look at your company’s debt position. This includes leverage ratios, etc. Some companies may not have these ratios if they have no debt. What can you conclude from these ratios? It is suggested that you look at total debt and TIE. Total debt is your total liabilities divided by your total assets. Is your organization seasonal, could a slowdown in the economy hurt? Profitability: Look at your corporation’s most current operating ratios (Profit margin ratios, ROA, and ROE). What can you say about these ratios or one in particular? Compare the ratio(s) to the previous year. Market Value: Look at the most recent P/E and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Du Pont Analysis: Discuss the Du Pont analysis for the past two years just using ROA. Has net profit and asset turnover gone up or down? What has ROA done? Altman Z-Score: Calculate your companies’ Altman Z-Score. Is the company solvent or do they have a high chance for failure? Free Cash Flow (FCF): Calculate your firm’s FCF from the most recent yearly data. Do not forget to use the statement of cash flows to find depreciation and capital expenditures. Morningstar.com gives the latest FCF. Has it gone up or down?


Economic Factors: Give a brief statement about the fundamental future growth of your company. What are some qualitative factors that you, as the analyst should consider when evaluating your company's likely future financial performance? How much would the Federal Reserve’s function affect your firm? Is business risk a concern for your organization?


Bond Rating and Debt Percentage: Find your firm’s most recent bond rating. Who gave the rating? Is it investment grade? What is the debt percentage in the capital structure? What is the Yield to Maturity (YTM) for a long term bond for sale? This information can be found in the “Bonds” section of Morningstar.com, on Yahoo Finance, or Mergent (Sullivan University). If your company has no debt, just state such


Capital Asset Price Model (CAPM): Briefly discuss CAPM from the standpoint of investors and managers. Now calculate your firm’s CAPM. It is recommended that you use treasury security as the risk free rate - you pick which one (It would probably be best to use the 5 or 10 year Treasury note). Beta can be either calculated or you can use one from the internet (provide reference). Yahoo finance lists the most current beta under “key statistics.” As for the risk for the market, search the most recent. Usually it is around 5% to 6%.


Weighted Average Cost of Capital (WACC): Find the most recent capital structure. With your best effort, calculate the WACC. Use the YTM found in the bond rating section for cost of debt. Do not forget to account for taxes. It is suggested that you use a 35% tax bracket. Use your CAPM for the cost of stock. You can use Morningstar for the weight of the capital structure.

Overview: Provide a summary and overview of your company. What are the firm’s major weaknesses and strengths? Given what you see with just these numbers, would you invest money in this company?

Reference no: EM132185064

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