Measuring a Firm's Health

Project Overview

Financial analysis is about measuring the progress of a business. You will need to be familiar with the various forms of financial statements, analysis, and metrics. With financial analysis, you are able to, for example, evaluate the firm’s financial performance against its competitors’. This project will introduce some of the common components that go into financial analysis.

Due Date

Your final project is due in Module 06. There will be individual assignments along the way. The module they are due is noted in the time line below.

Time Line

Module

Assignment

Measuring a Firm’s Health through Financial Metrics

Valuing Bonds and Stocks

Risk and Return

A Firm’s Investment Policy

Evaluating a Firm’s Health

Requirements

You will pick a company of your choice to analyze. Select a company that has been public for at least three years. ( a company like walmart, microsoft, target, etc) Assume that your role is a financial analyst and your boss asked to evaluate the company’s health. Your project will be the report you will submit to your boss.

Your final paper must be 5 – 10 pages long, with additional pages for the data. The sections to include are:

A brief description of your company
Financial statement analysis, including ratio analysis and industry comparison
Capital investment strategies (stocks and bonds)
Risk management
Capital structure
M&A
Summary

Each section should be at least one page. Include both in text citations and a References page (minimum of three distinct sources; a mix of web pages, journals, and databases, for example) in APA format. Also remember that your final paper should have a cover page and table of contents.

Part 1) Measuring a Firm’s Health through Financial Metrics..

Knowing how to work with the numbers in a company’s financial statements is an essential skill for financial managers. In this part of the course project assignment, explain your company’s financial statements.

There are three main financial statements: (1) balance sheets, (2) income statements, and (3) cash flow statements. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time.

In this assignment, briefly describe your company. Using the lectures and any available resources as your guide, describe what information you can glean from your company’s financial statements. You can include, for example, the trend over the last few years, the profit generator (which assets?) and the use of debt and equity. At least three metric calculations should be included. Be sure you touch on all three statements.

Your submission should be at least a page.

Part 2) Valuing Bonds and Stocks..

Dividend policy of a company can tell you a lot about what the management thinks of the current situation and what it sees upcoming in the future. Many companies use debt to finance operations. By using leverage, a company can invest in its operations without increasing its equity.

In this section of your course project, describe the sources of financing available for your company. What does it tell you? Do agree or disagree that your company makes use of the best possible source of financing? Why? Explain your reasoning backed up with data or calculations.

Your submission should be at least one page of written analysis and additional page(s) for the data and calculations.

Part 3) Risk and Return..

Risk analysis is important in making capital investment decisions because of the large amount of capital involved in many facets of the business. For example, an investment in properties and equipment involves decisions based on the long-term prospect of the business.

For this section, describe some of the risks to which your company is exposed. What is the nature of the risk? What are some of the firm’s risk management plans?

Also include your CAPM calculations and analysis.

Your submission should be at least one page.

Part 4) A Firm’s Investment Policy..

Cost of capital is the rate of return required to make an investment in a project worthwhile. Financial managers must know the cost of capital to make capital budgeting decisions and to establish the optimal capital structure. The module covered the computation of the cost of capital as the weighted average of various capital components.

For this assignment, describe your WACC computation. Explain how you found the rate of each element of the capital (rate of return on stock, for example). Comment on the value of the WACC.

Capital structure is the mix of resources used by the firm. The primary objective is to maximize the market value of the firm through an appropriate mix of long-term resources, thus minimizing the firm’s cost of capital. Examine your company’s capital structure. Is the firm mixing the resources well? Explain.

Your submission should be at least one page long. Include the calculations and relevant data.