Investment analysis report on internationally competing firms
Students will be organized randomly into small groups (typically 6), and will prepare an investment analysis of companies from one industrial sector where the companies are from different countries. Selection of firms/sector is on a first come first serve basis. The exercise requires a comparative analysis of the quality of the financial statements of the firms, and assessment of their performance and prospects and pricing the companies shares using financial statements and the models presented in class.
Report could include the following sections:
1. Retrospective analysis
a) Introduce each company, perform an analysis of business activities and business strategy. Identify peer group and perform industry analysis. You must describe the business model and the firm's competitive advantages/disadvantages.
b) Present 3 to 5 years of key financials (e.g. sales, operating income, net income, Total assets, Total liabilities, Operating cash Flows).
c) Present a multiples analysis (e.g. P/E, P/B, P/S, P/CF).
d) Compare the companies' performance over the last few years. Also compare with larger peer group. Determine if companies have been creating/destroying economic value and how.
e) Perform a cash flow analysis.
f) Assess the firm's stock market performance over the last few years.
Tabulate and submit the above work with brief comments.
2. Valuation, recommendation, report and presentation
a) Using the techniques discussed in the lectures prepare forecasts of the crucial financial variables including the cost of capital. Where possible contrast your forecasts with any publicly available information.
b) Using the residual income/economic value models compute a value for the current share value and contrast this with the current share price. Justify inputs to model (initial balance sheet numbers, dividend payout estimate and expected rate of return).
c) Prepare a concise investment analysis report - six to ten pages single-spaced. (When assessed the grader will ignore any appendices unless they are looking for support for data or assumptions included in the report when the absence of such support would count against the mark.
Assessment and Purposes of the Exercise
The assessor will check the supporting data and reasoning in appendices only to the extent that they are comprehensively referenced and necessary to support the core report. The purposes of the exercise are:
1. To test understanding of financial statements and ability to assess quality of the information;
2. To test understanding of fundamental analysis;
3. To test ability to make recommendations based on detailed analytical analysis;
4. To test ability to deliver a concise report and executive summary.
5. To tests students' ability to work in teams.
The first submission is not graded but used to ensure students are making good progress and provide an opportunity for feedback. However there is a 5-point penalty for any group that fails to hand in a serious submission at this point.