Financial statement analysis

Students are supposed to form a team. Each team has 4 to 5 students and will analyze a firm’s financial statements, stock price, bond valuation, WACC, and valuation.

Using CRSP, CompuStat, or yahoofinance.com, each team has to do analyses and prepare for final report and its presentation.

1.    Financial statement analysis
Using information in Compustat or yahoofinance.com, you have to analyze;
1)    Balance sheet and income statement during the last three years.
2)    Ratio analysis during the last three years.
3)    Free cash flow of the firm during the last two years.

2.    Bond valuation
1)    Discuss overall yield curve €“ bond market.
2)    Using Composite Bond Rates at http://finance.yahoo.com/bonds/composite_bond_rates, generate yield curves for US Treasury Bond, Municipal Bonds and Corporate

Bonds.  Here for Municipal Bonds and Corporate Bonds, you need to generate yield curves on AAA, AA and A.
Then explain overall bond market.
3)    Find and summarize the firm’s bond information at http://finance.yahoo.com/
4)    Comparing to competitors, analyze and summarize whether or not the firm pays higher costs and why it happens.

3.    Stock  valuation
1)    After downloading weekly stock prices of the selected firm and at least two competitors during the last one year, estimate correlations among them.
2)    After downloading any weekly market index (e.g NASDAQ, S&P 500, etc) during the last one year, then estimate the beta of the selected firm.
3)    Estimate an expected return of the selected firm, using CAPM (Capital Asset Pricing Model). Then evaluate its stock price with Dividend models (You may need

your own assumptions for dividend payments).
4)    How do you think about current stock price of the selected firm? Undervalued or overvalued?
Later you will learn about the relationship between weights of portfolio and risk of the portfolio in the upper level class.

4.    WACC
Calculate your selected firm’s and competitors’ WACCs.  Compare and evaluate them.

Financial Statement Analysis

Please make sure you follow these directions to the letter

Prepare an eight- to ten-page fundamental financial analysis (excluding appendices, title page, abstract, and references page) that will cover each of the following broad areas based on the financial statements of your chosen company:
a.Provide a background of the firm, industry, economy, and outlook for the future.
b.Analyze the short term liquidity of the firm.
c.Analyze the operating efficiency of the firm.
d.Analyze the capital structure of the firm.
e.Analyze the profitability of the firm.
f.Conclude with recommendations for the future analysis of the company (trend analysis).

Writing the Final Paper
The paper
•Must be eight to ten double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center.
•Must include a separate title page with the following:
◦Title of paper
◦Student’s name
◦Course name and number
◦Instructor’s name
◦Date submitted
•Must begin with an introductory paragraph that has a succinct thesis statement.
•Must address the topic of the paper with critical thought.
•Must end with a conclusion that reaffirms your thesis.
•Must use at least three scholarly sources from the Ashford University Library, in addition to the text.
•Must document all sources in APA style as outlined in the Ashford Writing Center.
•Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center