Prepare Ratio and Cash Flow Analysis for current and prior years using eVal Model

FINC 430 – ASSIGNMENT #1 Due June 26, 2020

Prepare Ratio and Cash Flow Analysis for current and prior years using eVal Model

Evaluation: The Assignment #1 is 16.67% of final course grade.

No more than 20% of the text of the project should be made up of quotes.

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:

  1. 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.
  2. Quarterly (Form 10-Q) and Current (Form 8-K) reports (if available)
  3. Investigate the Company’s Web site. Most companies have an investor relations section on their website providing financial information about the company.
  4. Read the press release section in the company website. Company press releases often provide more timely information than periodic SEC filings.
  5. Find the most recent annual report to shareholders on the company Web site.
  6. Read financial press (www.finance.yahoo.com , https://www.reuters.com , www.morningstar.com , www.msn.money.com). Find the articles about the company.
  7. 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 2018. We will consider that the ‘current year” is 2018.

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)

  1. Ratio analysis (30% of the project grade)

Complete current, year of 2018, 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 2018 and prior years. Please see uploaded document. 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).

The analysis needs to include all ratios for the current (2018) 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

  1. Cash Flow Analysis (30% of the project grade)

Complete current (2018) 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 4-7 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 must be:

  1. typed, double-spaced, in 12-point Times New Roman or Arial font, with margins no wider than one inch
  2. have footnotes or endnotes, with correct citations
  3. have a bibliography of sources used
  4. include, for each entry, the author, title, city and state of publisher, publisher’s name, year, and page numbers
  5. prepared using word processing software (Microsoft Word preferred), in a manner similar to the preparation of a written assignment for classroom submission

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.

 

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