Imagine that you are now working for the UAE company for which you conducted the DCF analysis. The company has asked you to recommend an investment strategy. You will write up a report for the company that addresses the following points below, and then recommend an investment strategy for the company based on the results and your analysis.
Provide an introduction to the industry, and the company, which should include its products, competitors, characteristics of the company, and its strategies and plans for the future.
Do a trend analysis, a common size analysis, and a DuPont analysis for the company. Choose the period 2018-2022.
Integrate your DCF analysis from the previous write-up in your assessment of whether the company is undervalued, overvalued or at-its-value.
[Optional] Use comparable common analysis as another valuation technique to triangulate an interval for the company’s value.
Conclude if the company was overvalued or undervalued by the market. Assuming you did everything correctly the value you calculated (or the interval triangulated) should be close to (or include) the realized value which implies that the company is at-its-value. If the realized value is significantly above/below the calculated value (or interval) then it means that it is overvalued/ undervalued.
[If possible] Cross-check your recommendation with the recommendations made by relevant investment analysts. You should be able to find an online accessible financial analysis written by a financial analyst by the end of 2021. Make sure you cite your sources.
IMPORTANT NOTES:
Choose a public company traded in the stock market of the country you are residing in right now.
In your DCF analysis, to arrive at an appropriate valuation: Estimate FCF for 2022 (assume 2022 as Year 0 and include it in your valuation), project it over the next five years (2023-2028), and estimate a terminal value if you think the store will continue indefinitely (estimate a reasonable terminal growth rate).
Calculate your own WACC. Use CAPM to calculate the cost of capital. Assume a beta based on the systematic risk by looking up betas of public companies that are in the same industry and geography (Yahoo Finance shows equity betas which you will need to adjust by using Hamada’s Equation to account for the public companies’ debt; this is because you need an asset beta for your store given the assumption of no debt) or estimate your own beta using market data.
Be sure you justify the key assumptions (revenue growth rate, working capital changes, terminal growth rate etc.).
For your write-up, focus on introducing the company in detail, justifying your comparables, stating and justifying your assumptions, discussing each valuation result, comparing the results across the techniques, and comparing them with recommendation(s) made by the financial analyst(s) (if available).
Your valuation techniques and estimation approach could be explained further in an Appendix.
Your models and calculations should be submitted as a google sheet. The assumptions and given values should be colored blue and your calculations should be in black. Leave the formulas and links as is. The grader should be able to follow your calculations.
Any data you have used from the Bloomberg terminals should be included.
If you have any questions about this assignment, contact the Professors immediately.
Sources you may find useful (you do not have to use them):
Prof Damadoran’s Website
Market-risk-premia
Yahoo Finance
Global Corporate Tax Rates
Statistica.com
Ministry of Economy of UAE
Ministry of Finance of UAE
Central Bank of UAE
Annual financial reports of the company of your choice. The company must be a public company. Every public company must announce its financial statements with transparency. So you should be able to find these statements on their website under their investors’ relations page.
In addition, you have the Bloomberg Finance Labs as a resource to use for this assignment.
GUIDELINES:
-** Do not put your name anywhere** on the assignment or on shared exhibits (Forum will track your submission). Your assignment will be graded blindly.
Be sure you submit a single PDF on Forum (do NOT submit Zip files).
Assume your audience is knowledgeable about the accounting/finance concepts we’ve covered in class and is familiar with the case facts. Don’t waste words explaining what asset turnover is. Jump right into the analysis.
Go deep. When formulating a response, ask why. Then ask why again and justify your explanation. Back up your explanations with evidence. Integrate numbers into your arguments.
Use no more than two significant digits for all numbers in the text and exhibits (12%, 3.5%, or 0.46%, not .12480294). Less is more. Displaying too many digits makes numbers hard to read and actually obscures their value and intuition.
All exhibits you create yourself and referenced in your write-up must be included in the write-up itself and be properly formatted. You must also include a link to all your exhibits so that your calculations can be seen and checked (only those exhibits that appear in the write-up and are explicitly discussed will be assessed). Place your link at the very beginning of the write-up and be sure to grant your professor viewing privileges. Follow these guidelines (e.g. avoid including numbers in a calculation cell but instead, reference inputs/assumptions cells that do contain numbers; use black text for calculations and blue text for inputs).
Check your spelling and grammar. Poor writing conveys carelessness and unprofessionalism.
The course-related LO’s are #financials, #valuation, and #bizstrategy will be graded based on your answers to the 3 questions above, with each corresponding to a specific LO.
In addition to this, use and tag the following GLO’s wherever appropriate: #audience, #evidencebased and #sourcequality.
Add a word count at the end of the assignment (exclude exhibits, footnotes, and the bibliography).
For assignment deadline extensions please refer to the policies section written at the end of the course syllabus.
Assignment Information
Length:
~1500 words
Learning Outcomes Added
Financials: Evaluate business situations by identifying or calculating accounting and financial information.
Valuation: Calculate the value of a financial asset.
BizStrategy: Formulate and analyze business strategy.
