ratio trend analysis

1. Complete a ratio trend analysis for the 2010-2013 period (4 years) using the eleven major
ratios emphasized in class. Include a Du Pont analysis for ROA and ROE, and integrate the
results with a discussion of the significance of your findings. Compare the most recent
year’s ratios with industry ratios, which may be available in a number of sources. In some
cases, the most recent year’s industry ratios may not be available. Under those
circumstances, compare the available industry ratios from a prior year with the relevant ratios
for the company. Attempt to match up the years compared whenever possible, and be sure to
delineate which data is being used, and where it was obtained. Be sure to comment on the
relevant results and your findings in the executive summary. Include photocopies of the
sources you used for the industry ratios in an appendix. KEY: Be sure to analyze the ratios,
not just repeat them. What do they mean individually? What do they mean when viewed
2. Determine whether the company was a generator of cash or a user of cash for the 2010-2013
period, and whether it is expected to be a generator of cash or a user of cash for 2014, 2015,
and 2017-2019. Include a table showing the company’s cash flow per share, capital spending
per share, and free cash flow for every year between (and including) 2010 and 2013. In the
table, include the expected data for 2014, 2015, and 2017-2019. Be sure to comment on the
relevant results and your findings in the executive summary. KEY: Refer to Value Line as
3. Using the firm’s balance sheet and income statement, create two source and use of funds
statements for the 2011-2013 period (two statements). Allocate the sources to the uses, and
be certain to analyze in writing the results of your allocations. Organize your sources and
uses allocations according to the uses. In other words, allocate a source or mixture of
sources to each individual use, and do not split up any use of funds. Be sure to comment
on the relevant results and your findings in the executive summary.
4. Using the percent of sales equation, calculate the expected additional funds needed (AFN) for
2014. Be sure to provide a detailed list of all of the assumptions that you made when you
calculated the AFN. As a part of this analysis, calculate the total funds needed (TFN), the
internal funds generated (IFG), and incorporate those figures in your analysis. The results
should be compatible with Value Line, including the anticipated growth in sales, and the
expected payout ratio. Include a copy of the Value Line sheet in an appendix. Be sure to
comment on the relevant results and your findings in the executive summary.
5. Calculate the sustainable growth rate for the company, and compare it to the projected rate of
growth given in Value Line. Be sure to comment on the relevant results and your findings in
the executive summary.
6. Construct a pro forma balance sheet and income statement for the 2014 fiscal period. It
should be consistent with Value Line and with your AFN calculations. Present any AFN as a
separate line at the bottom of the balance sheet that makes the balance sheet balance. Past
financial statement data may be obtained from the company’s annual reports, the SEC, or
numerous other sources. Include a copy of the financial statements used in an appendix.
You do NOT need to re-type them into Excel. Photocopies or printed pages from the
original source are acceptable.
7. Research the company’s outstanding long-term debt (even if it is maturing in less than a
year), and provide a table showing the coupon rates, the exact dates of maturity, whether the
bonds are callable (and if so, when), and why the bonds were issued (if possible and/or
available). Do the same for any long-term notes outstanding. Include data on current yields
if it is available. Include the yield to maturity as well whenever possible. Be sure to
comment on the relevant results and your findings in the executive summary. KEY: Refer to
S&P’s NetAdvantage and the most recent10-K.
8. Using the stock’s current price and the projected dividends and price from Value Line,
calculate the expected rate of return if the stock is purchased at the closing price on March
24. Discuss whether the rate of return is attractive or not relative to the CAPM and the
company’s beta (given in Value Line). Include a printout that shows the firm’s current stock
price that you used when calculating the expected rate of return.
9. Calculate the firm’s cost of capital. List all of the assumptions that are inherent in your
a. For the cost of equity, calculate it using both of the following:
(a) The constant growth stock model. Assume a ten percent flotation cost, and
make your calculations consistent with the relevant historical growth of the
company as shown in Value Line.
(b) The CAPM. Use the current rate of return on 10-year treasury bonds for krf,
an appropriate historical annual rate of return for the stock market as km, and
the company’s beta (from Value Line). Include documentation for the rates
b. For the cost of debt, use the firm’s bond ratings, if relevant, in conjunction with
the most recent period’s relevant interest rates in the S&P NetAdvantage. Be
certain to include a printout of the S&P NetAdvantage page. You may also
consider referring to the recent yields on the firm’s long-term debt, if it has any.
10. Review the company’s dividend policy for 2009-2013. Create a table that shows the firm’s
earnings per share, dividends per share, and payout ratio over the period. Comment on the
implications of the results, and be sure to include the relevant results and findings in the
executive summary.
11. Include the following information about the company:
a. Date and location of incorporation. If multiple incorporations have been
performed over time, give a brief history of the development of the company into
its current form of incorporation.
b. Provide the address and phone number for the company. This may be found in
some of the business resources listed in class, and through other resources.
c. The firm’s primary SIC code and NAICS code.
d. The company’s closest competitors. (Refer to Dun’s Business Ranking, by SIC,
sorted by sales.) Include a copy of companies, sorted by sales.

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