Research report
1). Industry Analysis & Corporate Governance
2). Identify Company Strategies
3). Ratio Analysis (Time-series and cross-section)
4). Forecast Free Cash Flows
5). Identify Capital Structure & Estimate Cost of Capital
6). Stock Valuation Methods
7). Risk Analysis
- Links and other useful information
The goal of this project is to make a buy, hold, or sell recommendation for a company stock. You will be collecting data about the company from sources such as SEC, Edgar, or finance.google.com, finance.yahoo.com etc. analyzing the various sections.
You can start with a public firm in the nearby states, for example, Wal*Mart, FedEx, Autozone, International Paper, and so on.
News & Info
Headlines: Study all available headlines and summarize the important ones that significantly affect investment prospects
Company Events: Look for any merger acquisition, dividend initiations etc.
Company Profile
This is an important page. Provides the contact information for company’s headquarters; Defines the company’s sector, industry, number of employees. Company’s website; Key employees; and Summary of company’s business.
Key Statistics: This information is very useful for investment recommendation.
Competitors: Very important information for strategic analysis. A source for information about best practices in the industry. Gives you a choice of buying exposure in the industry or business at a better price.
Industry: Best practices and leaders of the industry. Market share composition. Calculate Herfindahl Index for the industry.
Ownership
Major Holders: Share Ownership structure and List of large shareholders
Insider Transactions: Recent sale and purchase of stocks by directors, top officials and other insiders.
Insider Roster: List of insiders
Financials
Income Statement: Check out the levels and changes in revenues (sales), costs ( and other expenses), and Income (profits).
Balance Sheet: List and values of company’s assets and liabilities at the end of each year.
Cash Flow: Cash flow is different from profitability. Profit is governed by rules of accounting. Cash flow is real flow of money. For example company buys machinery and records the entire value of machine as a cash outflow at the time of purchase but in the income statement it may depreciate the value of machine over its useful life, say of 10 years.
Valuation and Recommendation
- Pro Forma, or projected, financial statements for the next few years
You can use percent of the sales method discussed in Intermediate Financial Management by Eugene F. Brighan & Phillip R. Daves: Chapter 9.
- Beta estimation
Estimate a firm’s beta and risk premium to arrive at the discounting rate.
- Weighted average cost of capital (WACC) estimation and Dividend discount model application.
Discount the projected cash flows at the discounting rate to arrive at the fair price for the stock.
- Recommendation
When you compare the price with today’s market price, you can determine whether the stock is undervalued, overvalued to fairly priced.
After reviewing all of the information above, you will conclude whether the company’s stock is a good buy, hold or sell. If you expect future returns to be high and risk to be low then you would categorize it as a good buy. But you must justify why will be future returns be high.
Risk analysis
Industry analysis
DuPont equation analysis
Sensitivity analysis
Scenario analysis
Porter’s five competitive forces
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