If You Don't Know Your Numbers You Don't Know Your Business! - Annual Income Statements - Financing the Growth - Financing Accounting Assignment Help

Assignment task:

A good understanding of numbers is obviously key when you are a financial manager or an investor, but it is also essential for an entrepreneur or any other company manager. (Not to mention, finance is useful for our personal finance decisions...) The company’s performance assessment relates to the areas we studied in the Financial Management course. Company’s performance is primarily seen through its ratios that reflect current and historical standing, and through exploring what investments and actions a company are currently or planning on taking to increase future revenue and cutting costs to improve profitability, with the view to raise the value of the company. 
The goal of this assignment is for students to provide conclusions on how they assess the company’s current standing and future performance. Based on your findings, you are supposed to recommend whether an investor (institutional one or retail-like you and me) should: 
• Buy: invest and buy (more) company’s shares because the company’s value is likely to increase 
• Sell: divest and sell the company’s shares because the company’s value is likely to decrease 
• Hold: keep investment in the company’s shares at the current level because the company is expected to perform at the same pace as comparable companies or in-line with the market. 
More specifically, the report will encompass

(1) ratio analysis (the ability to calculate ratios is important, the real value of ratios lies in the insight that can be gleaned from them, so it is the interpretation of ratios and comparison to company’s competitors that matters more),

(2) an evaluation of the current and future business performance based on the recent and planned strategic decisions, investments and financing decisions (while it is a must to discuss how the company plans to grow itself in the near future, it is not a requirement to forecast free cash flows even though such analysis will be seen in positive light), and

(3) discussion of the ethical and sustainable aspects of the business (impact of its operations on Ethics, Sustainability, and Responsibility, as the market is nowadays paying an increasing amount of attention to how companies are run in these perspectives). 
The report should demonstrate the logic of the analysis, error-free writing/quality control, and consistent formatting. Since this is a graduate-level course, it is expected that the final output would be produced to a professional standard. 

Tasks: 
1. Download financial data for the company in question. 
a. Download the annual income statements, balance sheets, and cash flow statements for the last three fiscal years (usually 2016-2018, but some companies finishing accounting year sometime during 2019, might have data for 2019 already available). To download data, you can use either: 
• Morningstar. Enter each company’s stock symbol and then go to “financials” and for each financial statement click on its name followed by an arrow to see more data. Export the statements to Excel by clicking the Export button. 
• Company’s website (each one is different so it’s your task to figure it out). 
b. Bear in mind that Morningstar data is super easy to download but positions are also quite detailed (e.g., “Cash, Cash Equivalents and Short-Term Investments” has been broken down into multiple sub-positions). For simplicity of further calculations, use the aggregated positions (e.g., to calculate ROE, use the Total Equity)
c. Find historical stock prices for each firm. Enter your stock symbol, click “Historical Prices” in the left column, and enter the proper date range to cover the last day of the month corresponding to the date of each financial statement. Use the closing stock prices (not the adjusted close). To calculate the firm’s market capitalization at each date, we multiply the number of shares outstanding (see “Basic Weighted Shares Outstanding” on the income statement) by the firm’s historic stock price. 
2. Ratios: Assess the company’s financial standing in a two-step analysis. 
a. Individual ratios: Choose two ratios from each “group” of ratios (e.g. ROE from the operating return ratios), calculate it for the last 3 years and analyze/interpret each of them. Calculate at least the P/E and EV/EBITDA from the family of valuation ratios. Interpret the ratios you calculated. 
b. Benchmarking: Choose a company that is comparable to your company (a direct competitor) and use their financial data to calculate the same financial ratios only for the most recent year (2018 or 2019). Compare all recent (2018 or 2019) ratios that you calculated for your company with the competitor & interpret. Are there red flags? etc. 
3. Strategy & Financing: analyze three separate areas 
a. Strategy: provide a brief analysis of the company’s strategy (what it does— products, services, what it plans to do—grow current business, diversify its business, etc, how it intends to bring this strategy to life) 
b. Current Financing: provide a brief analysis of the company’s recent sources of financing (your starting point is the recent balance sheet; more information can be obtained from the notes to financial statements). Hereto, check if the company is using corporate bonds and if so, how are they rated and what it means. 
c. Financing the growth: Then, look for information or provide your own conclusions based on historical trends, how the company is likely to grow in the oncoming years and how it will finance its growth in the oncoming years. 
1 One of the challenges of this assignment is that usually in financial statements there will be a lot of details that can be very accounting-wise technical. One way to get around this is to aggregate the details into major categories (e.g. if there are different types of interest expenses, just add them all up to form one single “interest expense”). The idea is to take a step back and focus on the big picture instead of getting bogged down by unnecessary details.  

4. Simple valuation using DDM: attempt to do a simple valuation of a company’s shares using the DDM model. 
a. Look at the recent dividends and how they have been growing in recent years (to estimate the dividend growth rate). If the company has not paid any dividends over the recent years, assume it would be paying anything between 35-55% of its EPS2. b. For the discount, assume the cost of equity as reported by prof. Damodaran 
(decide which industry your company belongs to, and assume this cost of equity; for most big companies there is an official categorization - go to “Download detail” for an excel file in which you find the company and its industry) 
5. ESR: As the market is nowadays paying an increasing amount of attention to how companies are run, some 300-500 words of this paper should be dedicated to explaining the implications of the ethical and sustainable aspects of the business (impact of its operations and growth on Ethics, Sustainability, and Responsibility). For instance, it can involve discussing whether the sustainability programs the company is carrying out is in your view useful or beneficial to the society, or whether the company's strategy as a whole is contributing or destroying any social benefits. It is also possible to consider how ratios can be manipulated to bring a better image of the company. Your insights should be of relevance to the final recommendation, as there might be examples of companies with good current financials, yet with the detrimental effect of their operations on either environment or social good. Therefore analyze ESG jointly with the financial dimension of your company.

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