Reference no: EM132323541

Final Project

Overview

Accounting professionals are often asked to provide financial statement analysis for a variety of reasons and audiences. Internally, such evaluations of a company's health and value may be used to inform decisions regarding redeployment of assets or improved operational performance. Externally, they may be used in making credit or investment decisions.

In this project, you will put course concepts into practice by preparing a financial analysis and valuation report on a company you selected from an abbreviated list of the S&P 500 and compare it to a chief competitor.

In the report, you will evaluate the financial health of the company, its future prospects, and its current value based on the public financial statements required by the Securities and Exchange Commission. You will also identify opportunities for enhancing operational performance and discuss whether you would recommend investing in the company based on your analysis of the statements.

In this assignment, you will demonstrate your mastery of the following course outcomes:

01: Analyze financial statements to determine the financial health of a company

02: Perform a valuation calculation of a company to address the needs of various audiences and purposes

03: Perform an economic and industry analysis to project a company's future performance

Prompt

For this project, you will produce a financial statement analysis and valuation report that summarizes the financial health, projected future performance, and estimated value of the publicly traded (S&P 500) company that you selected at the beginning of the course.

As an independent financial accounting analyst working for a major trade journal, your report is intended to inform a general audience about the overall financial well-being of the company and how it compares to a major competitor.

Your report should cover information of interest to both internal and external stakeholders-summarizing major findings, suggesting ways to improve operational performance, and assessing investment potential. Keep in mind that brief, clear communications are essential in effectively reaching business and media audiences.

Specifically, you must address the critical elements listed below. Most of the critical elements align with a particular course outcome (shown in brackets).

I. Company Background. Provide your audience with relevant context on the selected company, including the purpose of the valuation. Your goal is to set the stage for the analysis to follow. The elements listed below must be included. [ACC-345-02]

A. Purpose for valuation

B. Date of valuation

C. Percent ownership being valued

D. Company history and business structure

E. Description of facilities, major assets, or equipment key to running the business

F. Overview of Management Structure

II. Balance Sheet Analysis. In this section, use financial statements and accompanying notes to:

A. Analyze what the company's current and prior year liquidity and debt-to-equity ratios say about the company's financial health, justifying your response. Consider the appropriate level of debt and how this year's performance compares to the previous year's. [ACC-345-01]

B. Consider normalization adjustments when adjusting the balance sheet to be comparable to competitors', when creating the prospective balance sheet, and when calculating the final company valuation as either a premium or discount. (Include your analysis spreadsheet in Excel as an appendix.)

C. Analyze the company's balance sheet for the current and previous year using a horizontal analysis. (Include your horizontal analysis spreadsheet in Excel as an appendix.) Explain your findings.

III. Income Statement and Cash Flow Analysis. In this section, use financial statements and accompanying notes to:

A. Analyze the profitability of your selected company using appropriate profitability ratio(s) and a vertical analysis of the company's current and prior year income statement. (Include your vertical analysis spreadsheet in Excel as an appendix.) Be sure to explain your findings.

B. Normalization adjustments. Analyze historical income statements to determine whether there were any non-recurring or extraordinary items that should be removed from the income statement. An example would be aggressive expense recognition or conservative revenue recognition, which could either depress or inflate earnings. Adjusting these items will make the target company more comparable to the others.

C. Free cash flow. Analyze what your selected company's free cash flow figures for the current and prior year say about the company's financial health. Consider other sources or uses of available discretionary cash.

D. Dividend paying capacity of the company. Determine if the company is on track to pay out dividends this year and whether the dividend payout ratio increases or decreases.

IV. Industry and Economic Analysis. This section will focus on evaluating the selected company's industry, its market structure, competitors, supply and demand, regulations, outlook or forecast, and other relevant factors specific to that industry. The section should also cover macro and microeconomic trends. This considers current monetary policy, GDP growth, the current economic health of the country of origin, and/or the company's global presence, all of which are relevant for valuing a company.

A. General economic overview. This will explore trends in economic indicators. It will also cover output of goods and services produced by the domestic and global economy.

i. Economic output and consumption. Identify national trends that could impact your chosen company or its industry as a whole based on macroeconomic qualitative data.ii. Current monetary and trade Policy. Evaluate upcoming changes to policies or regulations that would impact your selected company or its industry.

iii. Explain relationships these policies and regulations would have with the company's sales or expenses.

B. Industry analysis. This piece involves researching the industry in which the target company operates to understand its strengths, weaknesses, opportunities, and threats. It will explore the following issues:

i. Supply and demand. Ascertain key supply and demand issues relevant to your company's industry, pinpointing critical issues that could benefit or harm your chosen company's operations.

ii. Market share and competitive landscape. Approximate your company's market share within its own industry, and distinguish its strengths and weaknesses from those of its major competitors.

iii. Regulation. Evaluate new regulation that is specific to your chosen company's industry, and determine whether it benefits or harms your company.

iv. Employment issues. Explain how the labor markets and the constraints that exist impact your company's operations.

v. Industry outlook. Determine how industry trends and relevant emerging technologies impact your chosen company's industry in the
future.

V. Final Valuation Calculation. Estimate your selected company's value by using one or a combination of the following approaches. Then apply applicable discounts to arrive at a final indication of value. Specifically, you should:

A. Evaluate each of the three valuation methods (asset approach, market approach, and income approach) for the selected company to determine which can be performed. Provide evidence as to why you would or would not use one or a combination of approaches.

B. Calculate the income approach to arrive at a single indication of value.

C. Apply the appropriate discounts and/or premiums to arrive at the final indication of value.

Milestones

Milestone One: Company Background

In Module One, you will select a company from the list, and submit a brief overview of the company background. This milestone will address specific critical elements from Section I. This milestone will be graded with the Milestone One Rubric.

Milestone Two: Financial Statement Analysis and Valuation Report

In Module Three, you will produce a financial statement that summarizes the financial health, projected future performance, and estimated value of the company you selected in Milestone One. This milestone will help you complete Sections II and III of the Final Project and will be graded with the Milestone Two Rubric.

Milestone Three: Industry and Economic Analysis

In Module Five, you will submit a report that addresses SWOT, the industry and economic analysis, as well as any emerging technological trends that might impact your selected company. This milestone will help you complete Section IV of the final project and will be graded using the Milestone Three Rubric.

Final Submission: Financial Analysis and Valuation Report

In Module Seven, you will submit your final project. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. This submission will be graded with the Final Project Rubric.