Value the company’s common stock and bonds.

Instructions according to the Syllabus:

  1. For the fiscal years 2013 and 2014, review the financial statements (annual reports) of the company you selected for the project. Identify key the elements of the following financial reports:
    1. Balance Sheet: Liquidity, Debt versus Equity, Market Value Versus Book Value;
    2. Income Statement: Income, Earnings and Dividends per Share, Noncash Items, Taxes;
    3. Statement of Cash Flows: Operating Cash Flow, Capital Spending, Change in Net Working Capital, Cash flow to Creditors and Stockholders, Sources and Uses of Cash.
  2. Measuring Corporate Performance – calculate the company’s financial ratios (use Table 4.3 on page 127 as a guide). Perform peer group analysis: compare the company’s ratios either to the industry sector or to the company’s major competitor. Interpret your findings.
  3. Find estimates made by stock analysts for revenue and growth for the next 3 years for the company and compare them to benchmarks: sector, industry and the S&P 500 index.
  4. Calculate the firm’s internal growth rate (review Chapter 8, p. 259) and discuss the determinants for growth.
  5. Value the company’s common stock and bonds. You can find information on the bonds issued by the company in the WSJ, among others. By using the yield on a 10-year T-bill as the risk free rate, determine the individual rate of return required by you as an investor (review the concept in Ch.6). Explain the reason(s) why or why not you would invest in the company’s securities (stocks and bonds).
  6. Find the stock’s beta coefficient and calculate the cost of the company’s common equity by using the CAPM. Use the return on the S&P 500 as proxy. Calculate the company’s after-tax cost of debt and the cost of its preferred stock (if any). Determine the company’s weighted average cost of capital (WACC).
  7. Discuss the dividend policy, if any, of the corporation and describe its dividend payment procedures.
  8. Analyze the company’s working capital management by calculating its cash conversion cycle (CCC). Perform the same calculation for the company’s major competitor. Compare and contrast the peer company’s cash conversion cycle with the company you selected. Suggest ways to improve your company’s CCC.


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