A 5,000 words report plus a 250 words executive summary. A report based on very detailed research into company accounts. Analyse companyâs business activities – Use your own explanation of how companyâs business model works (DO NOT COPY COMPANYâS STATEMENTS)
⢠Identify key drivers of business model and competitiveness
- Use independent data on companyâs markets
- Assess future prospects for these markets
⢠Compile financial ratios for performance, efficiency, liquidity and solvency for company and at least three competitors - Ratio analysis over the past five years
- Comparing these ratios â draw your own conclusions, NOT just descriptions
Structure of the Project
REPORT SUMMARY:
- equity data, company fundamentals, prospects, valuation & recommendation
⢠Show key data on share price & performance, valuation price & ratios and investor recommendation
⢠Two to three statements which explain your forecasts for the companyâs revenue, income and cash flow
⢠Key economic and market forces driving companyâs prospects
⢠How this translates into valuation, target price & recommendation
1) INTRODUCTION:
⢠Summarise companyâs activities and business model
- What does it sell? Where? To whom? With what competitive advantage? ⢠Main markets served by company â by region, product, customer type
⢠Typical features which MIGHT affect your company: - Demographics, social trends, consumer behaviour, fashion, changes in global trading patterns, environmental issues
⢠Avoid lengthy history and descriptions
⢠Use short, sharp summary of what drives this business) - Companyâs business model â which markets drive its revenue and profit?
2) SECTOR REVIEW: - the market forces driving demand, supply, competition, prices, costs & margins in the sectors which contribute most of the companyâs revenue and profits
⢠Sector comments must be relevant to companyâs operations
⢠Identify two to four key market forces driving demand
⢠Understand how competition works in sector
⢠Reach clear conclusion on likely future directions
⢠Reach clear conclusions about specific market forces
⢠Support those conclusions with statistical evidence
⢠Do NOT simply download economic and sector data without explaining how it affects sector prospects
3) COMPANY ASSESSMENT:
- companyâs competitive position in sector, past performance relative to peers (using financial ratio analysis), key drivers of future trading, conclusion on their likely direction and impact on financial forecasts
⢠Assess historic performance and future prospects
⢠Analyse 5-year trends in financial ratios: - Has it improved or deteriorated in recent years?
- Have there been any volatile movements – what may have caused them?
- Is the company reliable in delivering sustained earnings growth?
- Or is it poised for recovery from a low point? Or unlikely to recover?
⢠Compare companyâs performance with sector peers - Has it performed better or worse than its peers?
- Are its finances stronger or weaker than its peers?
- Has it been operated more efficient than its peers?
4) FORECASTING:
- translate trading assumptions into sales, costs, income & cash flow forecasts
FORECASTS FOR:
⢠Revenue from demand, price & competitor analysis
⢠Expenses from assessment of supplier pressures and movement in operating overheads
⢠Net income & earnings from tax, debt & interest rates
⢠Dividend from earnings and payout ratios
⢠Cash flow from working capital and depreciation accruals
⢠Balance sheet from accruals, retained earnings and cash flow
5) VALUATION:
- translate forecasts into DCF & DDM valuations relative to share price, and Price Multiples relative to peers
Absolute Valuation Methods / Intrinsic Value
⢠Convert dividend forecast into DDM
⢠Convert free cash flow forecast into DCF
Relative Valuation Methods / Price Multiples
⢠First-year forecast of sales, earnings & book value of equity
⢠Calculate ratios of: - P/E
- P/Sales
- P/Book
⢠Compare with peer company ratios
6) RECOMENDATION AND CONCLUSION:
⢠If wide variations (>15%) between these valuations, check assumptions
- does cash flow over/understate by using too high/low depreciation charge?
- does dividends over/understate by using too high/low payout ratio?
⢠If after re-examination values still widely divergent, explain why
⢠Compare each valuation with current share price to identify Buy (valuation > share price) or a Sell
(share price > valuation)
Sample Solution
better practices for work and increases productivity of even the unskilled labourâ thus, giving the economy a boost. The lack of such peopleâ who are often better educated due to their initial financial positionsâ leads to the creation of a void at the top of the economic chain. Historically, data and studies conducted indicate that countries can be affected in two ways. They can experience a net brain-drainâ the direct effect of migration that obviously reduces the stock of talented individuals in an economy. In other situations, they can experience a positive flow of talentâa net brain-gain (Collier). Contingent on the size of the source country amongst other factors, an indirect effect is often one that augments talent. This is because migration leads to the creation of diasporas and also incentivizes the citizens to educate themselves well in order to capitalize on the opportunities and benefits presented by it. Not all people who equip themselves with skills necessarily migrate. Additionally, there is reverse brain-drain when students return after receiving education abroad. In some countries, over time, these indirect forces combine and lead to an economically and socially favorable phenomenonâ brain gain. This can be observed in large developing countries such as India and China (Collier). The better equipped population tend to contribute to development and institutional changes that eventually lead to greater economic output. They have better ideas, more exposure and experience that they have gathered in their time abroad and can implement for the betterment of their home countries.>
better practices for work and increases productivity of even the unskilled labourâ thus, giving the economy a boost. The lack of such peopleâ who are often better educated due to their initial financial positionsâ leads to the creation of a void at the top of the economic chain. Historically, data and studies conducted indicate that countries can be affected in two ways. They can experience a net brain-drainâ the direct effect of migration that obviously reduces the stock of talented individuals in an economy. In other situations, they can experience a positive flow of talentâa net brain-gain (Collier). Contingent on the size of the source country amongst other factors, an indirect effect is often one that augments talent. This is because migration leads to the creation of diasporas and also incentivizes the citizens to educate themselves well in order to capitalize on the opportunities and benefits presented by it. Not all people who equip themselves with skills necessarily migrate. Additionally, there is reverse brain-drain when students return after receiving education abroad. In some countries, over time, these indirect forces combine and lead to an economically and socially favorable phenomenonâ brain gain. This can be observed in large developing countries such as India and China (Collier). The better equipped population tend to contribute to development and institutional changes that eventually lead to greater economic output. They have better ideas, more exposure and experience that they have gathered in their time abroad and can implement for the betterment of their home countries.>
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