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BU113: Foundations of Business Administration
Prof. Bauer-Ramazani
Finance
Application Assignment
Links to Content: |
Part 2: Selecting two comparable
companies | Part 3:
Comparative Financial Analysis of Two Companies |
Part 4:
Effect of an Announcement or Event on Company
Stock Price--Indexed Stock Price Performance |
Part 5:
Extra Credit--Auditors' Opinion |
Part 7: References |
Part 8:
Attachments
This is an individual
assignment, with each student required to submit his/her own analysis,
to be written in MEMO form. You may work
with a partner only to collect the data and calculate the ratios. While
you may discuss the meaning of the data/ratios with your partner, you must
submit your own written analysis.
Your finance application assignment
should be written in memo format--with headings, single-spaced, no
indentations--and will consist of the following sections:
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Introduction
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Brief description (1 paragraph)
of the business of each of two publicly traded U.S. companies in similar
businesses (same industry).
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Comparative financial analysis of
the two companies.
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Indexed stock price performance
of one of the two companies vs. the S & P 500 following a major company
announcement.
-
Optional
for extra credit:
Your assessment of whether the Auditors' Opinion on one company's financial
statements is a qualified or unqualified opinion and with the pertinent information
circled or highlighted.
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Summary/Conclusion
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References
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Attachments
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Financial Ratio sheet
(including calculations)
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Exhibit comparing
relative
valuation, ROE, D/E and growth rates of your two companies
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Indexed stock price vs. S & P
500 performance graph
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Calculation of index values for
the event study
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Value Line sheets for
each of the two companies, with financial information you used circled or
highlighted.
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Balance Sheet and Income
Statement for each of the two companies, with financial information you used
circled or highlighted.
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Printout of Company Event/Announcement
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Audit opinion on one company's
financial statements (optional)
Below is information on how and
where to get information on your two comparable companies as well as fuller
descriptions of what is required for parts 3, 4, 5, and 7, and 8.
Part 2:
Instructions for selecting two comparable companies
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Go to
Valueline
(http://www.valueline.com/secure/vlispdf/stk1700/industry.aspx)
and click Look up Industry. Select two publicly traded U.S.
companies in similar businesses, i.e. in the same industry. find your two
comparable companies. Confirm that the companies are listed on a U.S.
stock exchange (New York Stock Exchange--NYSE--or NASDAQ). For the
industry lookup, you may also use
Yahoo's Industry Index at
http://biz.yahoo.com/ic/ind_index.html.
NOTE: The companies must meet the following requirements:
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No financial institutions or
automobile companies
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Not combined on the "Company
Pairs not Allowed" list
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Must have positive net income for
latest year
-
Download or copy the pages from
Value Line.
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For each company, get the Balance
Sheet and Income Statement for the latest year. These can be found in
the company's Annual Report (also called 10-K) on either the
company's Web site, under the SEC filings on the company's site in Yahoo!Finance (http://finance.yahoo.com/),
MSN-Money (http://moneycentral.msn.com/investor/research/profile.asp),
or another source. Make sure to get the annual
(not quarterly) financial statements.
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Other sources for this
information can be found on the Web Study Guide for "BU113: Company
Financials: Researching and Collecting the Data" at
http://academics.smcvt.edu/mscoville/business113.htm.
Instructions for Part 3:
Comparative Financial Analysis of Two Companies
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Do a financial ratio comparison
of the two companies (see separate handout for ratios and other information
required). Make sure you use data from the same year for each company.
Use the latest historical year available for both. Do not use projected
data, except for projected earnings per share and projected growth rates.
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In the memo, discuss the
following:
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Comparison of the liquidity,
operating efficiency, financial risk, profitability, valuation and expected
future growth rates of the companies. (In this section you should be
analyzing what the ratio comparison tells you about one company versus the
other company.)
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Valuation: Based on your
financial analysis above, do you think the company with the highest
valuation ratio (P/E) should have the highest relative valuation? Why
or why not?
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Use the
Company RATIO Calculations table to record your calculations.
Instructions for Part 4:
Effect of an Announcement or Event on Company Stock--Indexed
Stock Price Performance
For one of your companies,
discuss a major event that affected the company or a major announcement made by the
company that you think might have affected the stock price of the company.
Track how the stock price of the company reacted to this new information.
To address this question, you will have to do the following:
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A computer search of business
periodicals or recent news from the company's Web site to find an article
announcing the event/new development.
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Track the closing stock price of
the company for 3 days before the announcement, the day of the announcement,
and 5 days after the announcement, and also track the closing value of the
Standard & Poor's 500 (S&P 500) on these days. Use Historical Prices on
Yahoo!Finance to get the stock quotes. The S&P 500 closing level can be
found at Yahoo!Finance (http://finance.yahoo.com/mt?u
-- symbol: ^spx) or MSN Money (http://moneycentral.msn.com/investor/market/home.asp
-- symbol: $US:INX). It is an indication of how the U.S. stock market as
a whole performed.
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To see if the event/development
impacted the company's stock price, determine whether the company's stock
price outperformed or underperformed the market as a result of the
announcement. Track the performance of the company's stock vs. the
market by preparing a table and a graph indexing the company's stock price performance
during this period to that of the S&P 500 (see instructions below and/or
in-class handout).
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Decide whether the company's
stock outperformed or underperformed the S&P 500 and discuss any possible
reasons for this outperformance of underperformance based on your knowledge
about the company and the event/development.
Instructions for preparing the
graph of indexed prices (Also see in-class handout on preparing the index
value calculations.). Index
calculations must accompany your graph. For the index you may do your
own calculations or use Excel (see Note below). Your graph can be
constructed in Excel using the index calculations (see Note below).
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Initial value becomes a base of
100 (e.g. if the beginning stock price is $10, the $10 becomes the index
value of 100.).
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Compare each later value to the
initial value to get the index value for each day (e.g. if a later stock
price is $15, the index value is $15/$10 X 100 = 150.). Use this same
process for both the stock price and the S&P 500 values.
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Plot the index values you
calculated. Both plot lines will therefore start at 100 and
independently move up or down from 100.
Note:
Part 5: Extra Credit--Auditors'
Opinion
For extra credit, find the
auditors' opinion on the company's financial statements in the annual report of one of your companies on the Internet
and attach it. Determine who the auditors of the company are and if the
company received an unqualified audit opinion or not. Highlight the
pertinent information in the Auditors' Opinion.
Part 7: References
Please be sure to follow the
guidelines in
Examples of Citing
Electronic Resources for both in-text and reference citations.
Part 8: Attachments
In the attachments, circle or
highlight the pertinent information (financial information used, auditors'
opinion).
Note:
Good samples are available in
DocSharing--Samples of Class Assignments.
Click the drop-down arrow next to "Select View".
This page was last updated:
October 14, 2008
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