Park University Financial Analysis

Term Paper

This will be a 7-8 page paper, which will require you to apply the knowledge you've accumulated throughout this course and one that you should be gradually completing as the course progresses. 

The goal of this term paper is to enable you to do a financial analysis of a publicly traded corporation and to provide you with substantial information for you to make recommendations regarding investing in this company.

Your financial analysis report will be driven by a ratio analysis and supplemented with your written analysis, interpretation, and evaluation of the data.

Your research should be strategically driven by one probing question:  Would you invest your financial capital in the selected firm as a shareholder?

 The steps in preparation of financial analysis report include the following:

1.            Select a publicly held company.

2.            This company should be easily classifiable into an industry, so you can compare it to industry averages. In other words, no conglomerates, or companies that are involved in multiple industries.

3.            Obtain the firm’s balance sheet, income statement, and statement of cash flows for the past 3 years. Download or read the firm’s annual report. 

4.            Go to:   http://www.sec.gov/edgar/searchedgar/webusers.htm (Links to an external site.)Links to an external site..  Research EDGAR’s database for additional SEC report filings: 8-k, 10-Q.

o             The following table is the type of Excel or Word table that should be used to gather and report your ratio and financial performance data. You should pick 3 of the 5 financial diagnostic categories, and use those 3 in your analysis.

Financial Diagnostic Categories  Chosen Company vs.      Benchmark Competitor

1.  Liquidity of Short-Term Assets             •         Current Ratio

•         Cash Ratio

•         Quick Ratio              •         Current Ratio

•         Cash Ratio

•         Quick Ratio

2.  Long-Term Debt-paying Ability             •         Debt Ratio

•         Debt-equity Ratio

•         Times Interest Earned        •         Debt Ratio

•         Debt-equity Ratio

•         Times Interest Earned

3.  Profitability   •         Net Income / Sales (Profit Margin)

•         Net Income / Assets (ROA)

•         Net Income / Shareholder Equity (ROE)     •         Net Income / Sales (Profit Margin)

•         Net Income / Assets (ROA)

•         Net Income / Shareholder Equity (ROE)

4.  Asset Utilization /

Management Efficiency                •         Total Asset Turnover

•         Inventory Turnover Measures

•         Accounts Receivable Turnover       •         Total Asset Turnover

•         Inventory Turnover Measures

•         Accounts Receivable Turnover

5.  Market Measures      •         Price / Earnings Ratio

•         Earnings per Common Share

•         Dividend Payout   •         Price / Earnings Ratio

•         Earnings per Common Share

•         Dividend Payout

Use 3 ratios per diagnostic category. Place your ratio calculations in the table for your selected companies—primary company and industry benchmarks. Using 3 diagnostic categories, and 3 ratios to assess each category, results in 9 ratio measures per company that will be compared side by side.

5.            To validate your research, 3 years of data should be analyzed.

6.            The 7-8 page financial analysis report must be written properly. They must include a title page, a table of contents, exhibits, and a reference page, which do not count toward the 7-8 page minimum. For the final report, information sources from the web, etc. must be cited properly, using APA style.  This means that every table that you cut and pasted or typed from the web must have a source at the bottom of the table AND that citing must also be included in a reference page at the end of the report.

The parts of the research paper are discussed below. The completed report (parts 1 through 8) is due Week 7. Your project should include:

1.            An overview of the corporation.

o             Provide general information regarding the type of business, products and/or services, location of headquarters, name of CEO, number of employees, and countries of operation, etc.

2.            The latest financial statements

o             Get the income statement, balance sheet, and cash flow statement for the past fiscal year. Cut and paste them in your report as exhibits. Do not forget to cite the source under each statement.

o             If you cannot cut and paste them, you may have to type in the information in a table in your report.

3.            A summary of each financial statement

o             Take each statement and state the key parts in words.  Tell a story from each of the financial statements.  For example, for the income statement, the story starts like, “Total Revenues in 2010 were $10 billion, while Cost of Goods Sold were $8 billion, leaving a gross profit margin of $2 billion, or 20 percent of total revenues….After taking out interest and taxes from EBIT, the net income was $0.5 billion, or 5 percent of total revenues.”

4.            Ratio calculation (include 3 major types of ratios).

o             Organization of this section is based on the THREE types of ratios listed in the text book.  Calculate the ratios from the financial statements in part c above using Excel or your calculator and present them in a table for the most recent 2 years, with industry benchmarks for each year.

o             If applicable and/or helpful to your analysis, find industry financial ratios online (e.g. Yahoo.com) and compare your corporation’s ratios to these industry ratios.

5.            For you to decide if a corporation’s stock is a good buy or sell, you must forecast several key variables, including the stock price. 

o             Use historical prices (3 years of monthly data recommended) and forecast the stock price for the next year. Use a moving average, etc. to create your forecast.

o             Create a graph from the historical data and show your forecast on the same graph. You can add a trend line to the graph to help you with a forecast.  Include the graph in your report.

o             You need to say specifically what the forecasted value of the stock price is. 

6.            Recommendation regarding the future of these corporations. 

o             Is the stock a good buy, average buy, or a poor buy (implying a good sell)?

o             Include a justification of your recommendation based on your analysis and research.