Professor Sirousse Tabriztchi
Office
Hours: Wednesdays
Office: Room C335
E-mail cyrus1315@aol.com
COMPARATIVE ECONOMIC AND FINANCIAL ANALYSIS
OF TWO MAJOR
COMPANIES
Select two major
public firms. Obtain the forms 10K and
10Q for these companies from Edgar for past five years. Conduct Internet and library search for
additional information on these companies, their industry, and the US
As the course
progresses you will apply the concepts and techniques that you learn to analyze
the economic and financial conditions of these companies. Upon completing the course you will gain an
understanding of the fundamentals of financial management as well as experience
in practical financial analysis.
PROJECT OUTLINE
TITLE
PAGE
·
Project title
·
Professor’s name
·
Semester
·
Course code and name
·
Your name
·
Social Security Number
TABLE OF CONTENTS
·
Chapter 1. Executive
Summary
·
Chapter 2. Background
Information on the Companies
·
Chapter 3. Analysis
of Financial Strength and Weaknesses
·
Chapter 4. Financial
Forecasting and Opportunities and Threats
·
Chapter 5. Financial
Planning
·
Chapter 6. Analysis
of the Company’s Risk and Return
·
Chapter 7. Cost
of Capital and Capital Structure
·
Chapter 8. Analysis
of the Industry and Economy
·
Appendix 1. Definitions
of Term in Balance Sheet, Income Statements, and Cash Flows
·
Appendix 2. Definition
of the Ratios.
REFERENCES
· List of the reports of the companies, books, and articles used.
Chapter
1. Executive Summary
This chapter is written after your research is completed. Review all your work and summarize your findings as follows:
1.1 Comparison of financial strength and weaknesses of the companies.
1.2 Comparison of the opportunities and threats facing the companies.
1.3 Comparison of the risk and return of the companies.
1.4 Evaluation of the financial strategies of the companies.
1.5 As a consultant to the Chief Operating Officer and President of the Companies what are your recommendations for improving the financial performance of the companies.
Chapter
2. Background Information on the
Companies
The purpose of this chapter is to provide you with sufficient background to evaluate the ratios and relate them to the strategies of the companies. Important information will include the followings
2.1 Mergers and acquisitions
2.2 Marketing strategies
2.3 Technological innovations and patent rights
2.4 Organizational capabilities and human resources
2.5 Financial resources
2.6 Economic conditions
Chapter 3. Analysis
of Financial Strength and Weaknesses
Proceed in the following manner:
3.1 Type the balance sheets and income statements of the companies in a Lotus or Excel spreadsheet.
3.2 Explain what balance sheet and income statements are and find the definitions of the accounts in the balance sheet and income statements of the companies. You have to use the notes to the financial statements in developing your definitions.
3.3 Compute the following ratios for five years:
· Common size ratios
· Annual rates of change
· Liquidity ratios
· Asset management ratios
· Debt management ratios
· Profitability ratios
· Market value ratios
· Solvency ratio
3.4 Look up the industry ratios for five years
3.5 Graph the ratios for two companies and the industry.
3.6 Write your analysis:
· Explain if each ratio shows strength or weakness compared to the industry average
· Summarize your findings regarding each group of ratios
· Use DuPont chart to explain how the strategies have affected profit margin, assets turnover, equity multiplier, and return on equity.
· Relate the changes in the company’s balance sheet and income statement to the changes in economy.
· Use DuPont Chart to show how each company can increase its return on investment by increasing asset turnover, profit margin on sales, or equity multiplier.
·
Analyze the effects of change in
Chapter 4. Financial Forecasting and Opportunities and
Threats
4.1 Review the statements made by and the forecasts of the management of the companies.
4.2 Apply simple regression analysis to quarterly data to forecast the sales of the companies for the next five years.
4.3 Prepare a table that shows the company sales and data on four major factors that affect the sales of the companies. Conduct multiple regression analysis.
4.4 Make comments on your sales forecasts.
4.5 Prepare pro forma balance sheet and income statements for the companies for the next year.
4.6 Prepare cash budget for the companies.
4.7 Discuss the changes that will happen under optimistic and pessimistic Scenarios.
Chapter 5. Financial Planning
5.1 Discuss the mission, vision, and principal strategies of the company.
5.2 Conduct total, operating, cash, and financial break-even analysis.
5.3 Prepare a break-even chart.
5.4 Measure the degrees of operating, financial, and total leverage.
5.5 Discuss the impact of fixed operating and financial costs on the profitability of the company.
Chapter 6. Risk and Return
6.1
Measure the realized quarterly returns on common stock of the companies
and S& P 500 Index.
6.2
Calculate the mean, variance, and standard deviation of the realized
returns.
6.3
Develop ex-ante estimates of probable returns and compute the mean,
variance and standard deviations.
6.4
Run a simple regression between the realized returns of the companies and
S&P 500 index. Measure the Beta for each company. Compare your Beta those
available from other sources such as Value Line Investment Survey.Explain the
possible reasons for any differences.
Chapter 7. Cost of Capital and Capital Structure
7.1
Measure the cost of retained earnings and common stock using:
§
Capital assets pricing model
§
Gordon model
§
Cost of bonds plus premium
7.2
Measure the costs of bonds and preferred stock by examining new issues by
the companies or comparable firms.
7.3
Review the historical capital structure of the companies and make a
judgment regarding optimal capital structure.
7.4
Measure the weighted average cost of capital.
Chapter 7. Analysis
of the Industry and Economy
Evaluating
Macro Economy
8.1
Changes in gross domestic product.
8.2
Inflation and its components.
8.3
Business Cycle and economic indicators.
8.4
Fiscal and Monetary policy
Industry Analysis
8.5
Industry life cycle.
8.6
Demand and supply analysis.
8.7
Industry profitability.
8.8
International competition and markets.
STYLE
§
The format should follow that of Journal of Finance http://www.afajof.org/submission.shtml.
§
For general strategies for the writing process: Joseph D. Andrew Jr., Claire B. May, and
Gordon S. May. Effective Writing: A Handbook for Finance People (Saddle
River, NJ: Prentice Hall, 1999)