Here are detailed requirements:
Stock of choice is APPLE:
Put together a report that analyzes it performance and compares it to
the other companies in the same industry.
The first paragraph should be ‘Executive Summary’. Explain what
type of stock you selected. Are they large stocks (large market cap, usually
greater than $10 billion)? Are they growth stocks (high P/E and P/S ratios) or
value stocks (low P/E and P/S ratios)? Are they hot stocks (relative high past
6 month return and past 12 month return)?
What made you decide to buy or sell the stock?
The rest of the project shall include;
Marco
factors
that may have long-term impacts on the whole industry, such as
regulations; competition from other firms. You can find much useful info
from the company’s annual report or quarterly report.
Industry
level factors that may affect your firm: such as suppliers,
major customers, competitors, etc.
Firm
level factors:
Risk
and return analysis
Capital
budgeting (asset) analysis
Financing
(liability) analysis
Risk
profile: a commonly used measure of systematic risk in the capital market is
‘beta’. Get your stock’s beta. If its beta is highly bigger than 1, then your
stock has relatively high systematic risk.
Returns:
There are several ways to measure a firm’s performance.
Stock market return (past 6 month return, 12 month return and 36 month return);
Accounting returns, such as return on assets (ROA) and return on equity
(ROE).
Capital
budgeting analysis: you should study the asset part of the balance sheet. In
particular, capital expenditures are directly associated with investment
decisions. You should get the ratio of capital expenditures over total assets
of the firm and compare it with its peers or industry average. Another item –
R&D expenditures is also important. It is expensed, not capitalized. So you
should look at income statement. Again please don’t use dollar value of
R&D, use the ratio of R&D over total assets instead because ratios are
comparable across firms and industries, while dollar values are not. You can
also find useful info from “Management’s Discussion and Analysis” Part in the
annual/quarterly report published by the firm.
–
Financing
analysis: you should calculate the firm’s debt-to-equity ratio, interest
coverage ratio, current ratio, etc. to get a sense of the firm’s long-term and
short-term financing status. And compare them with the industry norm.
Valuation analysis
· List the following key variables for your stock in a
table. (You need to get these from
company’s balance sheets and income statements. Group project Lecture PPT notes
present the formulas for the following measures.)
•
Value and Value Added
•
Measuring Profitability
•
Measuring Efficiency
•
Analyzing the Return on Assets: The Du Pont System
•
Measuring Leverage
•
Measuring Liquidity
•
Calculating Sustainable Growth
· Remember: Ratios are not very helpful by themselves:
they need to be compared to something. You must do the following for the
valuation analysis:
•
Time-Trend Analysis — to see how the firm’s performance is
changing
through time
•
Peer Group Analysis — compare to similar companies within
industries or compare to industry averages
How to find a company’s balance
sheets and income statements? –Yahoo Finance
