The knowledge of finance theory and application will be applied to the real-world in a useful and highly practical manner. Visual aids can be imbedded into the research paper by the reasonable use of one to three graphs or charts utilizing concepts learned.
1.Select a real company. It can be foreign, domestic, large, small and from any industry.
2. What industry does the firm operate in? Examine the firm’s past and future position within the industry. Is it a leader? What percent market share does it hold? Describe the services and products that the firm produces.
3. Who are the company’s important managers (aka: insiders) CEO, CFO, etc.? What is their experience? Is it applicable to their current position within the firm? Are they owners of the firm’s stock/bonds? How are they compensated? Are they buyers or sellers of the firm’s stock/bonds?
4. Explore the Company 10-K (Annual Report) and find its Income Statement, Balance Sheet and Statement of Cash Flows. From the firm’s financial statements, calculate the following ratios:
A. Firm Liquidity 1. Current Ratio 2. Acid-Test Ratio 3. Average Collection Period 4. Accounts Receivable Turnover 5. Inventory Turnover
B. Operating Profitability 1. Operating Return on Assets 2. Operating Profit Margin 3. Total Asset Turnover
C. Financing Decisions 1. Debt Ratio
D. Return on Equity 1. Return on Equity
E. Market-Value Ratios 1. Price/Earnings Ratio (P/E/ Ratio) 2. Price/Book Ratio
How is the firm doing in relation to its industry peers? How are its ratios in relation to it industry peers? Where do you see them going in the future based on past selected performance (i.e. previous years’ ratios)?
5. Company Bonds. Does the firm issue bonds? If so, what are the characteristics of these bonds and do you feel that they borrow too much, too little or just about right? Why?
6. Company Stock. What are the details of stock offerings has the company had? What has been the performance of the stock in the past 10 years? What is the dividend and dividend percentage? Calculate the value of the common stock of the firm.
7. Examine the financial ratios, stock valuation and news about the selected firm. Do you see the firm’s share price rising/decreasing in the near-, intermediate- and long-term? Do you believe the firm has a stable future of sustainable growth, currently stagnant, or is heading for financial failure? Why?
8. Discuss the current and future macroeconomic conditions you expect the firm to encounter.
9. Has there been any news about the firm that has affected its share price materially recently? How important is news in your view in affecting the share price of a company?
10. Would you invest in this firm? Why or why not? 11. Construct your ideal investment portfolio allocation. Why did you choose this? Which asset classes do you like in particular? i.e. (domestic/foreign stock/bond, gold, real estate, oil, venture capital, cash etc.) How will your portfolio fare in an environment of economic stagnation, economic growth, and economic recession? Which one of these conditions do you expect in 1 year, 2 years and 5 years? Why?
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