FNN 5200 SPRING COURSEWORK
Objective: This assignment asks you to prepare a financial report for a real firm using data from Yahoo! Finance (https://uk.finance.yahoo.com/), Financial Times (https://markets.ft.com/research/markets/companies-research), and the financial models presented in the course.
Question: You have just been employed by a financial services company. Your new manager wishes to test your skills so she sets an initial assignment for you. You should prepare a financial analysis report about a quoted firm. In your report, you should:
1. Present the profile of the firm (including Main Shareholders, Market Capitalization, Stockholders’ Equity (Common Stock and Preferred Stock), Retained Earnings, Total Debt, Debt-Equity Ratio -Total Debt/Equity, Beta, Dividend Payments / Policy. You may find information about the profile of the firm, its capital structure and main competitors from Yahoo! Finance within the key statistics (also view financials – Balance Sheet – Annual Data) and competitors sections. You may find information about the main peers from Financial Times within Business Profile. (20 marks)
2. Compute and report the followings performance measures: Market Value Added and Market to Book Ratio. Discuss the relationship between the Market Value of Equity and the Market to Book Ratio. You may find the information necessary to compute those measures in Yahoo! Finance within the key statistics. (15 marks)
3. Assuming the management are trying to improve the share price evolution, look at the data on corporate financing choices of the firm (Retained Earnings, Debt and Equity) and discuss which theories are the most appropriate.
Note: For heavily indebted companies, the trade-off and the pecking order theories may be relevant. For companies easily able to meet their debt obligations, discussion around re-investment in new or existing projects (retained profits), dividend policy and payments (Dividend Discount Model) or share repurchases will be more relevant. (20 marks)
4. Compute and report the cost of equity of the firm (i.e. rate of return required by the shareholders) using the Capital Asset Pricing Model (CAPM). You may assume that the rates of return on the market and on the risk-free asset are 10% and 4%, respectively. The beta of the firm can be found in Financial Times. Discuss the relation between the market risk of the firm and the cost of equity. (10 marks)
5. Select one of your company’s competitors/peers. Download from Yahoo! Finance (https://uk.finance.yahoo.com/) adjusted monthly closing stock prices for both your company and competitor/peer company over the most recent period of five years (your series should end in December 2015 and have 60 monthly observations).
Plot the stock price evolution for both firms on the same graph and comment on each firm’s performance (Figure 1). Choose an appropriate Index (FTSE 100, STOXX 600, S&P 500 and plot the indices against the company and chosen peer (Figure 2). This is best indexed to put all charts on the same scale.
What can you infer with respect to the relationship between the two stock returns? Calculate the 5 year return for the two companies and the market (index) and comment. (20 marks)
10 marks will be allocated to the inclusion of recent and relevant financial news that could be interesting to the investors.
5 marks will be allocated for the clarity and structure of the report