Financial Statement Analysis and Equity Valuation

Write a persuasive, professional equity analysis report based upon detailed strategy, accounting, financial and prospective analysis of a FTSE 100 company of your choice. The analyst report must not exceed 3000 words.  All reports should have an executive summary (500 words) that clearly states the key recommendations and financials. (Total word count 3000+500= 3500 words)

1)    
Comment on the industry and strategy.

2)    
Create a peer set

3)    
Discuss the key accounting policies and red flags.

4)    
Assess the financial, operating, credit and dividend policies of the company.

5)    
Comment on the sustainable growth rate.

6)    
Assign a debt rating.

7)    
Forecast future sales and earnings.

8)    
Arrive at a value of your chosen firm using comparable multiples.

9)    
Recommend a sell/ buy/ hold based on the performance analysis and valuation.

10) 
Comment on how your chosen company compares to a major competitor/peer set.

A good report will include elements from all weeks. A good report will also tie all aspects of the analysis (rather than having disjointed parts and have a clear introduction and strong conclusion.

Mark distribution

Strategy, industry and peer analysis                                                                              13

Accounting analysis                                                                                                     08

Ratio analysis                                                                                                               13

Cash flow analysis                                                                                                        07

Capital structure and debt rating                                                                                  15

Forecasted numbers and assumptions                                                                          10

Comparable Valuation using price multiples                                                                09

Recommendation                                                                                                         05

Presentation, writing style, and overall structure of report                                               10

Executive summary                                                                                                     05

Overall use of competitor and industry                                                                        05

Total                                                                                                                100 marks

Please note that:

  1. Choose any ONE company (only one student/team per company). The focus of the analysis is on your chosen company. Good reports will compare and contrast company performance with the major competitor and/or the industry.
  2. Do not attach the full set of financial statements in the report. However any key financials that are used in calculations should be attached as an appendix.
  3. ALL sources of information must be referenced in the report. If students have used analyst reports or numbers/ratios e.g. from Thomson Reuters/ FT etc. they MUST clearly state so in the report. Failure to do this will lead to marks being deducted.
  4. You can work individually or in teams of up to 3 students. If you are working in a team submit only ONE report with the candidate numbers of all group members listed clearly.

NOTE: Any coursework that is submitted by students who have not informed me of their company choice or that they are working in a group will be penalised by deducting 10% from the marks (e.g. a mark of 60% will be reduced to 50%).

  1. The deadline for submission is Thursday 30th March, 2017 10 a.m.
  2. The full equity report must not exceed 3500 words in length. An electronic word count must be noted on the front of all work.
    1. The word count does not include tables, graphs, footnotes, appendices, or bibliography.
    2. The appendix must NOT exceed 1000 words. It should only contain information that guides the understanding of the report. The appendix will not be marked.

Coursework Tasks Week 1- 5

The final objective is to use all the financial analysis tools and write a professional equity and debt report on a company of your choice.

Week 1- PART 1

·       
Choose a FTSE 100 company. Note: ONLY One student/team per company.

  • Think about a possible competitor for the chosen firm.

·       
Download the annual reports for the company and a competitor.

·       
Track the share price of the company and competitor firm and the FTSE 100 index level from ‘today’ till submission.

·       
Identify and collect any significant news influencing the share price of your chosen company. Download the historical share price performance of your chosen company

 

Week 2- PART 2

Familiarise yourself with the annual reports and identify the main accounting polices of your company.

  • Briefly explain the key strategy of your company –using Porter’s forces (useful information can be found in the first 10-15 pages of the annual reports). Is your company competing thought cost leadership or differentiation or both?
  • Flag up any potential problems in the accounting practices.

Week 3 PART 3:

       
Comment on the performance of your company using ratio and cash flow analysis.

       
Calculate and comment on the overall profitability and sustainable growth rate of your firm.

**Note:

Students may choose to compare performance of their company with previous years (time series), with a suitable competitor (cross-sectional), industry as a whole or whatever benchmark they may deem suitable.

The emphasis of the report should be on analysing ratios and linking them to company strategy and relevant news (NOT on calculating ratios).

You can calculate your own ratios or use ratios from Thomson Reuters/ OSIRIS (indicate source in your reports).

Remember to select ratios which are most relevant to your company and link them to your strategy and accounting analysis (copying and pasting all the ratios from Thomson Reuters will not fetch you marks).

Tables and graphs DO NOT count towards word count.

 

Weeks 4-7 -PART 4:

·      
Comment on the capital structure (proportion of debt and equity) and type of debt financing of your firm.

·      
Propose a suitable debt rating for your firm based on your earlier financial analysis.

NOTE

You may refer to Moody’s or S&P debt ratings for their firm (if it exists). However, you need to assign your own debt rating and comment on it.

You could discuss the debt- equity mix of your firm and give possible reasons for the choice of financing used by your firm.

Weeks 5 and 9- PART 5

Forecasting

  • Based on your strategy, accounting and financial analysis forecast sales and earnings for the next two years – (see coursework FAQs document on Keats for details)

Valuation

·       
Value your firm using comparable multiples (Not DCF).

Recommendation

·       
Based on your valuation and financial analysis issue a recommendation for the firm (Sell/Hold/Buy). You could use the current share price as a benchmark.

Note

Clearly indicate the assumptions underlying your forecasts. It’s the logic of the forecasts not the accuracy of numbers that will get you marks.

All your calculations for forecasted sales and earnings must be attached as an appendix.

The emphasis should be on deriving your own forecast based on the news and historical share price that you have been following and analysis in weeks 1-8.

 

All calculations for comparable multiple valuation must be attached as an appendix -Clearly stating the comparable firms, the price multiple for the comparables and the method by which you calculated the share value for your firm.

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