Week 4 Assignment – Ratio Analysis
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Week 4 Assignment – Ratio Analysis
Overview
For this assignment, assume the role of a newly hired equity analyst in an investment bank. Your boss has asked you to use your financial background to recommend three stocks to company investors. You are to:
Select three publicly traded companies to research.
Important: You may not choose Ford Motor Company or Microsoft Corporation.
Calculate the identified financial ratios for each company.
Summarize the findings on your selected companies’ performance in a 4–5 page report.
Information Gathering
After identifying the three companies you want to research, you will need to obtain financial information on them to calculate the required financial ratios:
Access the Markets section of the Wall Street Journal:
Enter the stock symbol for the first of your selected companies in the Search bar in the upper right corner of the page.
Click on More Company Research.
Click on the Financials tab to obtain the income statement, balance sheet, and cash flow documents for your selected companies.
In the drop-down box that appears, click on Income Statement, Balance Sheet, and Cash Flow to obtain these financial documents for your selected company.
Repeat this process for your other two selected companies.
Click on the Research & Ratings tab to obtain the company’s closing stock price for the last day of the financial statement reporting period for use in your assignment.
Click on Historical Prices in the drop-down box that appears.
Enter the starting and ending dates for the most recent fully reported year (for example, start date = 01/01/2020; end date = 12/31/2020) to the left of the Go tab in the middle of the page.
Click on Download a Spreadsheet on the right-hand side of the page.
Note the company’s stock closing price for the last day of the financial statement reporting period for use in your assignment.
Repeat this process for your other two selected companies.
Use Reuters Markets & Finance News to obtain industry averages for each of your selected companies:
Click the magnifying glass search icon on the upper right side of the page.
Enter your first selected company’s name.
Click on the Companies tab.
Click on the Financials tab.
Repeat this process for your other two selected companies.
Note: You may use other websites to gather financial information for your selected companies if you are more familiar with them. Examples include:
Finviz.com – Stock Screener.
MarketWatch.
Google Finance.
Instructions
Write a 4–5 page report, summarizing the findings of your financial analysis, in which you:
Perform the required financial calculations for each of your selected companies correctly:
Price-earnings ratio (for earnings per share (EPS), use the diluted EPS total).
Operating margin.
Net profit margin.
Return on equity.
Current ratio.
Quick ratio.
Revenue growth for the past five years.
Long-term debt to equity.
Analyze each firm’s performance against the industry average, considering all critical aspects necessary to assess company performance.
Be sure to comment on each firm’s strengths and weaknesses.
Advise investors whether to buy and hold or sell these stocks based on your companies’ current stock prices, products and services, and your well-supported stock valuation experience.
Recommend to investors the prices at which they should buy or sell these stocks and provide rationale for all recommendations.
Remember: A buy recommendation means you are expecting prices to rise; a sell recommendation means you are expecting prices to fall.
Determine your first profit target and the recommended risk tolerance level for each stock and provide rationale for your recommendations.
Remember: Your recommended risk tolerance level is the price at which investors should sell the stocks if the market goes against them.
Summarize the current market sentiment for your selected stocks along with a five-year outlook, based on accurate data points.
Use three sources to support your writing.
Choose sources that are credible, relevant, and appropriate.
Cite each source listed on your source page at least one time within your assignment.
Access the Strayer University Library or review library guides for help with research, writing, and citation.
Formatting
This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions. Note the following:
The preferred method is for your paper to be typed, double-spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
Use headers to highlight each topic (Financial Ratios, Performance Against Industry Average, Buy and Sell or Hold Decision, and so on).
Include a cover page containing the assignment title, your name, your professor’s name, the course title, and the date. The cover page is not included in the required page length.
Include a source list page. Citations and source list entries must follow SWS format. The source list page is not included in the required page length.
Learning Outcomes
The specific course learning outcome associated with this assignment is:
Evaluate stocks by computing, comparing and contrasting ratios, and analyzing the performance of the stocks versus the industry averages.
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