Management plans to invest $50 million to satisfy one of its financial goals. Using published financial statements of publicly traded corporations (excluding banks, financial institutions and insurance companies), you have been asked to evaluate the “financial health” of two companies (whether or not the companies are in the same industry).
By performing the tasks listed below, select the company which you believe has had the strongest historical performance. Then, using historical information as documented by your ratio calculations, use current information to predict which company will have the best future financial performance.
Management has asked you to select two publicly traded companies for which you will:
1. Download the annual income statements, balance sheets, and cash flow statements for the last two fiscal years. (Do not upload the financial statements as part of the project.)
2. For each of the two years of statements, compute or show the following information for each corporation:
Price-Earnings Ratio (for EPS use Diluted EPS Total)
Closing stock price
Gross profit on net sales Operating income on net sales
Return on shareholder’s equity Return on average assets
Net Income Comprehensive income
Financial Strength Ratios (if applicable):
Current Ratio Acid-test Ratio
Debt to equity ratio Accounts receivable turnover
Based on your calculations of the above requirements, prepare a report to management (Senior Vice President – Equity Investments) in which you identify the corporation which has had the strongest historical performance. Make any assumptions to support your decision. Also, use any outside information to support your decision. You may also be creative and develop one or many alternative ratios to value the companies to support your decision.
Based on current events related to the corporation(s), the industry and the overall national or international economy, state whether you believe the current level of performance will (a) continue, (b) improve or (c) worsen. Also, if you cannot come to conclusion, state why. Make any assumptions to support your decision. Also, use any outside information to support your decision. You may also be creative and develop one or many alternative ratios to value the companies to support your decision.
List and define at least 10 terms that you learned as a result of completing this project. For example, define Hedge Fund – a hedge fund is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques.
Select a business or service provided by one of the corporations you selected. Identify enhancements you would make to this service if you performed or undertook a leadership role in this business. Would you operate in the United States – why or why not? What licenses, if any, are needed? How much capital would you need, if any?