Comprehensive Case Analysis and Final Exam

Comprehensive Case Analysis and Final Exam

Accompanying these instructions are spreadsheets containing recent financial information for two competing firms. You are to use these two spreadsheets plus the information at the bottom of this document to accomplish the analysis described below. You will be evaluated based on 1) how well you apply the textbook material that we have covered, and 2) the quality of your interpretation of the analyses. I urge you to ignore the identity of the companies and instead focus on the information that you have about them.

Part 1 (100 Points) – Group Effort

Perform the following for each company, focusing on the fiscal years ending in 2016 (FY 2016):

1. After an initial review of the financial statements, list five specific elements of those statements that you think are important to investors when they evaluate the success of the company and briefly explain why each of those is important.

2. Calculate return on assets (ROA) and decompose ROA into profitability and productivity measures (Modules 1 and 4).

3. Calculate NOPAT, RNOA and decompose into net operating profit margin and operating asset turnover (Module 4).

4. Decompose ROE into operation and non-operating return (Module 4).

5. Describe inventory valuation and depreciation methods for the two companies and compare methods between the two companies (Module 6). Are there any substantial differences that should be adjusted for when comparing performance for the two companies?

6. Forecast income statements for the two companies for the next two years. Clearly list the basis for your estimates. (Module 12)

7. Estimate firm equity value (and corresponding market price of stock) at the end of fiscal year 2016 using the residual operating income model as shown in exhibit 13.4. Determine the NOPAT using the analysts’ forecasts of earnings per share (last worksheet in each spreadsheet) times the number of shares outstanding at the end of FY 2016. Forecast NOPAT for 2017 to 2020 and then compute the terminal value for NOPAT after 2018. Assume that net operating assets will grow at 2% annually. Assume a terminal growth rate of 2% and a weighted average cost of capital of 10%. (Module 13).

If you feel that you do not have enough information for any task, you are to make a reasonable assumption; document clearly any assumptions that you make. Submit your work via the DROPBOX before 1 PM Monday Dec 18th.

Part 2 – Final Exam (100 Points) – Group Effort

1. Review your analysis from part 1.

2. Select the performance indicators that you think best indicate the relative future performance of the two companies. Compare the performance of the two companies side-by-side based on those performance indicators.

3. Select which company you would invest in. Explain why.

4. Prepare a set of PowerPoint slides documenting your choice and how you came up with that choice. Document clearly any assumptions. Submit your work (one submission per group) via the DROPBOX before 1 PM Monday Dec 18th and come to class ready to present your findings.

Past Stock Returns (note that past performance does not always indicate future performance)

Company A Cumulative Stock Returns – 5 Years

* Company returns shown in dark blue; corresponding return for the S&P 500 shown in purple and Dow Jones in light blue.

Company B Cumulative Stock Returns – 5 Years

* Company returns shown in dark blue; corresponding return for the S&P 500 shown in purple and Dow Jones in light blue.


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