EMBERY MBAA518 ALL ASSIGNMENTS & FINAL PAPER

EMBERY MBAA518 2.4 - Asignment: Financial Ratios

MBAA 518 - Managerial Finance

1

Financial Ratios Assignment and Research Activity

Note:This activity will be submitted as Activity 2.4. However, it is recommended you begin to start work on this activity in Module 1. Most of the content necessary to complete the assignment is provide in Module1. Submission of the assignment will occur in Module 2.

This assignment will require you to perform some analysis of financial ratios and some research to further your understanding of financial ratios from other sources. You will select an industry and two firms within the industry as described below and analyze the Return on Equity (ROE) of both firms and the market valuation ratios.

To retrieve the data you will need to do the following steps:

1. Go to the Hunt Library website

1. Select the “Articles” tab (Databases)

1. Select “List All Research Databases”

1. Select “S” in the alphabetical tabs

1. Select “Standard and Poor’s Industry Surveys (S&P NetAdvantage)”

1. There are several different reports that can be found here.

For this assignment you will be looking at a number of ratios for a firm and comparing to industry averages.

To get information on the industry, you can use the Industry Surveys, click on the dropdown menu, then select the industry you are interested in, and then click the gold colored box with the play button in the box. There are a number of reports here and also a number of different reports.

The report will come up in the html format which is (in my opinion) the least useful. The PDF format provides a very good easy to use/read report with a large amount of information about the industry.If you click on Downloadable Company Data an excel spreadsheet will be available for firms in the industry.

The excel spreadsheet (Downloadable Company Data) includes a number of tabs each with different information of each of the firms some of which are ratios. Here you can get a quick overview of how a given firm is performing relative to peers; you could quickly calculate some averages for the industry etc. This could be helpful for use as you analyze projects, need an estimate for a similar project etc.

For this assignment we are going to focus on one ratio which can actually be calculated using three other ratios. That ratio is the Return on Equity. Return on Equity can be calculated in the following manor:

May 2015

MBAA 518 - Managerial Finance

2

ROE	= net profit margin	x	asset turnover	/ equity ratio
	= earnings to owners	x	revenues	/ common equity
	revenues		assets	assets
	= earnings to owners	x	revenues	x assets
	revenues		assets	common equity

look at what cancels and you are left with

earnings/equity which is ROE ROE is comprised of:

Profit Margin (bottom line)

Turnover (asset utilization)

Equity ratio (financial cushion)

A note on equity ratio: (equity/assets)

Say a firm had $100 in assets and $37 dollars in equity The equity ratio would be 37/100 or 0.37

What does that mean? How can a firm be financed?

How much came from equity (owners)? How much from creditors?

In this case for every dollar of assets, owner have funded 0.37 cents and creditors 0.63 cents.

The second set of ratios you will need to consider are market value ratios. How does the firm you selected compare to industry averages, main competitor(s) etc.

For this assignment, you will need to select an industry using the S&P Net advantage database and download the data. Select two firms one with a relatively high ROE and one with a relatively low ROE in the industry. Analyze each of the firms taking into consideration the components of ROE as identified above. This will require you to do some additional research regarding ROE analysis.

The information you will need is not all here or in the textbook. There are times in the workplace where you will be performing or asked to perform tasks that require some learning/teaching yourself. This assignment will require you to do that.

May 2015

MBAA 518 - Managerial Finance

3

Hints:You may want to look at each of the components of ROE and compare those. You maywant to look up (another book, online, etc) DuPont Identity or DuPont Analysis. Realize the components you need to analyze may or may not be in the spreadsheet you download form net advantage. If not find what you need but make sure you document where you find any data used. (Yahoo finance is a good site and there are others.)

Some thoughts to keep in mind:

Marginsreflect the firm’s production function. If margins are low what could be done toimprove them?

Total asset turnoverdeals with the marketing function. If turnovers are low what mighta firm wish to consider to improve its performance?

Equity ratiois the finance province. Issues to consider are if you are being tooconservative (not employing enough cheap debt)?

For your deliverable:

Include the downloaded industry spreadsheet for the industry you selected.

Identify the firms you selected within the spreadsheet by changing the color of the font for that firm on each tab to red.

Prepare a table that calculates the ROE for each firm using the three components. Make sure each column is labeled. (You should have columns that are labeled ROE, Net Profit Margin, Asset Turnover, Equity Ratio) Create a similar table for the market value measures.

Write a brief paper; about two pages maximum (2 plus/minus a half page). Paper should address the reasons why one firm has a high ROE, why one firm has a low ROE and what could be done to improve the lower performing firm based on ROE (if it is really performing at a lower level). Perform similar contrast and comparisons for the market value ratios.

Be sure to address issues such as marketing, asset utilization, financing and if your chosen firm appears to be under or overvalued.

May 2015

EMBERY MBAA518 4.5 - Assignment: Valuation of Stock

MBAA 518 – Managerial Finance Activity 3.5 (Due in Activity 4.5)

Valuation of Stock using PE ratios

Note:This activity will be submitted as Activity 4.5. However, it is recommended you begin to startwork on this activity in Module 3. Most of the content necessary to complete the assignment is provide in Module 3.

Submission of the assignment will occur in Module 4.

There is also a discussion question in activity 4.6 related to this assignment.

For this activity, you will need to select a publicly traded firm and a major competitor. Firms from any industry can be used.

Go to reuters.com and for the firm you have selected obtain the trailing twelve-month P/E ratio for the firm, industry, and sector. (You can use other sources if you wish)

Use information about your company’s earnings and industry and sector’s P/E s based on the P/E ratio value your selected firm as indicated in the example. If there is no earnings estimate, or the earnings estimate is negative, use earnings for a previous year. If that’s also negative, pick another company for this assignment. There is an example of a partially completed table found here.Note:the example is only complete for one of thetwo firms indicated. Your submission must include the data for both firms. Boeing’s data is included; therefore, Boeing cannot be used by any student. Lockheed-Martin is indicated as a competitor but no information is provided. Lockheed-Martin could still be used.

Once you have completed the above write a short report discussing the valuation of your selected firm and competitor. Note if the current price is very close to “Estimated share price based on TTM P/E and Earnings past 12 months.” This should be very close if not you have likely done something wrong. How does the valuation of your firm compare to that of the competitors based on the P/E ratio? Why might this be the case? How does you firm’s current price compare to the estimated price using the industry and sector P/E’s compare both for the TTM and estimated year end? Is it higher or lower? Why might that be (provide one rational reason why)? Based on simple analysis which of the two firms (your selected firm and its competitor) appears to be undervalued? Why did you draw that conclusion? What do you suspect is the reason?

Your submission will only need to be a single page to page and a half formatted with single-spaced, Times New Roman, 12 point font. Include a citation for where you retrieved the data and the date retrieved. A table following the example must be included in your submission but is not considered as part of the page to page and a half write-up. Get to the point in your write-up. There is no need for extra “baggage.”

May 2015 1

EMBERY MBAA518 8.5 - Assignment: Payout Strategy

In the supplemental readings you saw some examples of firms that have announced dividends, stock splits, and reverse stock splits. The assigned research paper reading looked at firm’s decisions and what factors appear to affect payout decisions. For this activity you will write a short one page to one and a half page paper on a firm of your choosing meeting the following criteria:

Publicly traded
You can provide a link to the firm’s profile and financial summary (similar to what can be found inYahoo finance (Links to an external site.)).Note:this can be other websites and non U.S. stocks can be used as well

An announcement that a firm has split, repurchased, dividend, or other payout discussed in the module’s readings in the past 3 months. The announcement could include the announcement of a firm cancelling their dividend payments as well as the various payouts.

For the selected firm provide a brief profile of the firm including the primary businesses/industry of the firm. Provide an overview of the industry. Address issues such as whether the firm is considered being in a growth industry, mature industry and the role/impact your firm has on the industry.

Discuss the payout strategy selected by your firm. What did the firm announce? Why did the firm make the announcement? Based on your study of dividends and other payouts does the strategy make sense? What signals is management sending with the announcement? Do you agree with the decision? As a shareholder would you be pleased with the announcement? Why or why not?

This activity is due at the end of the module week. Attach the announcement to your submission.
Please save your file using the following naming convention:LastName_FirstName_PayOut_Strategy.docx

EMBERY MBAA518 8.6 - Final Paper

MBAA 518 – Managerial Finance

1

In Module 8, you will submit your Final Paper:

For your final project you will write a short concise stock recommendation report for a firm in which you would recommend as a buy. You are correct that this is not an investments class but as you take a look at the examples provided you will see the application of various topics studied in this course. You will see ratios discussed, discounted cash flow valuation applied, growth opportunities analyzed and ultimately whether or not the investment opportunity is one that should be pursued. This investment opportunity and determining the risk, reward and valuation all are discussed throughout this course.

Your paper will be in the range of 2 to 3 pages formatted similarly to the examples provided. References must be included and those should be referenced using the latest APA guidelines.

The examples are not all the same but there are some common themes. Most include a brief discussion of the industry and industry outlook and where the firm being analyzed stands and performs in the industry. You will not that ratio analysis is often used but the ratios may vary by industry. In other words the key ratios used to analyze firms in industry “A” are not the same ratios used to analyze firms in industry “B”.

Valuation is often considered using more than one method. Discounted cash flows may be used in conjunction with an appropriate ratio (again the ratio likely varies across industry). How does the current share price compare to what your analysis values the stock?

Risk, growth potential, payout policy, and other factors are other items that may be discussed in the reports. These all play a role in analyzing a firm and may signal management’s belief on future value of the firm. Those may be items you will want to discuss in your report. Do not forget the threats that the firm faces as well. There is no firm that does not face competition. Those threats should be considered. You have been provided with a list of supplemental sources in the course content. This includes sources available through the Hunt Library one of which is S&P Net Advantage. S&P Net Advantage provides some very useful industry reports which may help you determine how firms in a particular industry are analyzed. There are other sources you can feel free to use as well.

The big question is why buy the stock you have selected. You do not have a lot of space to complete this project. You will need to be concise and to the point in your writing. Provide tables as you see fit and other graphs/charts that support you position. Note, the examples may include recommendations to buy, sell, or hold. Your report must be for an opportunity you believe is a buy.

Note on the examples: Value Line has a very unique format. The data is there is some discussion of key factors. The other example(s) better reflect what your submission should be similar to.

When submitting your Word document using the following naming convention: lastname_firstinitial_MBAA518_firmticker_final_project.

(example: Jones_M_MBAA518_firmticker_final_project.docx)

Font size should be no smaller than 10 nor larger than 12 point font. Headings should be bold (not a larger font). Again, be concise; you do not have room for a lot of “fluff.”

May 2015

MBAA 518 – Managerial Finance

2

Examples can be found at these links:

ValueLine.MSFT

Mergent.WebReports.MSFT

Please note that these links are through the ERAU Hunt Library, so you may need to log in with your ERNIE username and password.