Final Analysis and Valuation

Throughout this semester, you have completed various analyses of the company that you selected, Your Company, to review. For your final analysis and valuation, the Business Report, use the weekly assignments as a starting point and complete each of the steps below to analyze and value the company you selected. Prepare a well written Business Report to present your findings. Your findings in your Business Report must be in your own words. All financial statement data and related schedules in the report must be in good form and in summary format. That is, DO NOT cut and paste entire YC Assignment spreadsheets into the report. Appropriately title the relevant sections within the report.

Use Exhibit 1.2 in the Wahlen text to review the steps to complete this project:

The six steps above were discussed in Week 1, Chapter 1.

Step 1: Identify Economic Characteristics and Competitive Dynamics in the Industry Economic characteristics and competitive dynamics influence the strategies companies will employ.

• Describe Your Company and its industry, and complete one of the tools described in Chapter 1 for assessing industry economic characteristics. Your analysis must discuss the economic characteristics and competitive dynamics of the industry while analyzing the financial statements for Your Company.
  • Porter’s Five Forces Framework
  • Value Chain Analysis
  • Economic Attributes Framework
• Compare the financial statement ratios for Your Company to industry ratios (see Appendix D) and assess how Your Company’s performance compares to the industry. Include the industry ratios used in your analysis in your report and cite the source(s) for the ratios.

Step 2: Identify Company Strategies Review the annual reports for the most recent two years and any other published items on the companys website to identify your companys strategies. Review recent news and conduct research to familiarize yourself with Your Company’s strategies. Discuss the company’s strategies in your report. Cite the sources you use to support your comments and conclusions.

Step 3: Assess the Quality of the Financial Statements Review the quality of the financial statements as discussed in Whalen Chapter 1 and:

• Identify what potential areas on Your Companys financial statements could compromise the quality of their financial statements. Explain.
• Discuss your assessment of the quality of Your Company’s financial statements based on the research and analyses you have completed.

Step 4: Analyze Profitability, Liquidity, Risk, Growth, and Leverage Analyze the following for Your Company using the ratios and risk analyses you completed in your YC Assignments.

• • Profitability
  • Liquidity
  • Risk
  • Growth and
  • Leverage

Discuss what the ratios and their trends say about Your Companys profitability, liquidity, risk, and growth, and leverage, and its current value. Your written analysis must be in your own words. Refer to the Rubric for Assessment of Your Company Final Analysis and Valuation to ensure that your analysis and discussion of Your Company in this report are complete and meet the grading criteria for this assignment.

Step 5: Project Future Financial Statements Project three years of financial statements (Balance Sheet, Income Statement, and Statement of Cash Flows) for Your Company. Use the “Forecasts spreadsheet in Your Companys FSAP 9e Excel file to calculate, compile, prepare, and test the validity of the financial statement forecasts for Your Company (Years +1, +2, and +3).

Forecast assumptions Determine the Long-run Growth Rate to be used for the forecast based on the last three years of growth in the revenue. Input the growth rate on Line 15 and ensure that the Long-Run Growth Factor on Line 16 is correct. Discuss the growth rate used and justify using the rate for the forecasts.

Forecast Base Year Review the Actuals data in the Forecasts tab to ensure that the amounts and the common size percentages agree with data for the three years of Income Statement, Balance Sheet, and Statement of Cash Flows on the Analysis tab. Correct any errors or omissions in the data columns.Income Statement Assumptions:

• Project Revenue amounts consistently across the three years using the three-year growth rate assumption as determined above and input on Line 16.
• Project cost of goods sold and all other expenses using the common size income statement percentage for the most recent year (Column C) to calculate the projected amount for each expense item each year. Enter the percentages in the appropriate rows of Column E. The rate of change should remain constant for all revenue and expense items across the three years.

Balance Sheets Assumptions:

The Forecasts template provides explanations for the Balance Sheet forecast calculations. Leave the template assumptions unchanged unless you have data to support different assumptions for your company.

• Use common size balance sheet percentage for the most recent year (Column C) to calculate the asset and liability amount for each account item each year. Enter the percentages in the appropriate row of Columns E, F, and G.
• The Forecasts spreadsheet is programmed to balance the balance sheet by adjusting Retained Earnings as the flexible financial account. If necessary, alter this assumption by allocating the change across the assets, or liabilities including debt, or both; whichever most closely aligns with Your Companys strategies.

Statement of Cash Flows Assumptions:

The Statement of Cash Flows in the Forecasts template uses the Forecasted Balance Sheet and Forecasted Income Statement to project the three years of Forecasted Statements of Cash Flows.

• No adjustments to this section of the template should be necessary, However, if your assumptions support a change, adjust SCF activities in accordance with Your Company’s strategies discussed in Step 2 above. Correct any errors and ensure that the check figures on line 317 are zero.

Finally, discuss what the projected financial statements show regarding Your Companys future profitability, liquidity, risk, growth and leverage. Your written analysis must be in your own words.

Step 6: Value the Firm Using the analyses from steps 1-5 above and the simple firm valuations methods discussed in Whalen Chapter 1, assess whether Your Company is overvalued, or undervalued. Discuss the current stock price and the PE ratio in your valuation analysis. Provide justification for your determination. Show in your discussion that you have thought through and connected the results reported in steps 1-5 above.

Submission Requirements:

Prepare a written business report using the six section headings outlined below to present your findings from Step 1 through Step 6. Refer to the Rubric for Assessment of Your Company Final Analysis and Valuation to ensure that your Business Report meets all of the grading criteria. Use the following headings for the six sections of the report:

• Economic Characteristics and Competitive Dynamics in the Industry
• Company Strategies
• Quality of the Financial Statements
• Profitability, Liquidity, Risk, Growth, and Leverage
• Projected Financial Statements
• Firm Valuation

The report must be typed, professionally presented, and saved and submitted as a Microsoft Word document. The maximum length for the written part of the report (exclusive of summary financial data) is four (4) full-length single-spaced pages using Times New Roman-12 font with 1-inch margins all around.

All financial statements and related schedules in the report should be in good form. DO NOT cut and paste entire YC Assignment spreadsheets into the report. Provide only the relevant sections of a spreadsheet within the report. Appropriately modify, title, and insert any relevant sections from your YC Excel spreadsheets in the report.

Submit an electronic copy of your Business Report, the supporting FSAP 9e Excel spreadsheet file, and .pdf copies of other supporting documents, to the Canvas assignments by the due date and time. The due date and time for the assignment is available on the Canvas course site.

Your Final Analysis Valuation assignment will be submitted in 3 Canvas Assignments.

2. 1. Your written Business Report as a MSWord document to the assignment.
   2. Your Excel file with FSAP 9e YC spreadsheet compilations and computations to the location. Reference the worksheet tabs correctly throughout in the report and include separate tabs labeled for Steps1 thru 6 above in the FSAP 9e spreadsheet file to present any additional compilations and calculations prepared for the report.
   3. Your Companys Supporting Documents to the location. (Include .pdf copies of Annual Reports for the last 2 years, Industry Ratios, and other cited documents.

Criteria:1. Summarize Industry Economics & Characteristics:Summarize economic characteristics, and competitive dynamics in the industry.

2. Summarize Company Strategies:Summarize company strategies and assess the quality of the financial statements.

3. Calculate and Discuss ROA:Discuss trend and interpret trend. Focus on the change between most recent two years.

4. Calculate and Discuss ROE:Discuss trend and interpret trend. Focus on the change between most recent two years.

5. Calculate and Discuss Profitability and Growth Ratios:Calculate growth rate in revenues, gross profit margin, operating margin, net profit margin. EPS, and assess income quality. Discuss 5-year trends and interpret trends. Discuss income quality and company culture.

6. Calculate and Discuss Liquidity Ratios:Calculate A/R turnover, days A/R outstanding, inventory turnover, days inventory held, and fixed asset turnover. Discuss 5-year trends and interpret tends.

7. Calculate and Discuss Debt Ratios:

Calculate debt ratio, debt-to-equity ratio, and TIE ratio.
Discuss 5-year trends and interpret trends.

8. Project Future Financial Statements:Project three years of financial statements (Balance Sheet, Income Statement, and Statement of Cash Flows). Discuss what the projected financial statements show regarding the company’s future profitability, liquidity, risk, growth, and leverage.

9. Calculate and Discuss PE Ratio:Obtain stock prices and calculate PE Ratio. Discuss 5-year trend and interpret trend.

10. Value the Firm:Assess whether the company is overvalued or undervalued.

11. Summarize:Summarize the firms profitability, liquidity, growth and risk. Discuss 5-year trends and interpret trends.

12. Depth of Comments:Analysis demonstrates critical thinking and connects trends for profitability, liquidity, growth and risk to the broader financial performance and strategic direction of the company.

13. Insightful Commentary:Comments and explanations reflect a deep understanding of financial ratios and their implications for the companys profitability, liquidity, growth, and risk.