The last project for this course is a group Business Analysis and Valuation Report. For this project you will use the company you selected for your second project, “Reading the 10-K”.[1]
Due Date
Please submit your project by e-mail by the end of the day, May 4th.
Target Audience and Grading
As you write your project report, pretend that your customer is a business executive in your firm that has some average level of accounting and finance knowledge. Accordingly, you should define your terminology and explain your procedures/process. The project grade will be based on the substance of your company analysis/valuation (≈ 80%) and the presentation of your work (i.e., a professional appearance, meaning that sections are labeled, formatting is consistent [12-point serif font, double-spaced], is organized, has correct spelling and proper grammar [use Word’s spelling and grammar checker and you should be okay], and with properly labeled and referenced tables and figures [which should be at the end of your report]).
General Instructions
Gather your company’s financial statements or its 10-K SEC filings as you did for the second project. You’ll want more years of data than you gathered for Project 2, Reading the 10-K.
Make use of the library and school databases to gather additional information on your company; for example, if I use Business Source Complete (EBSCO/host) and search for “sherwin williams” (one of our ten firms), I immediately get SWOT analyses, company profiles and more from a variety of sources (e.g., MarketLine, industry journals, Investor’s Business Daily [IBD]). The Wall Street Journal (WSJ) is also available free of charge to every student (see https://libguides.umsl.edu/c.php?g=841334&p=6011408#s-lg-box-wrapper-25300926Links to an external site.).
Once you have supplemented your insight from the last project with additional 10-Ks and business/industry information, you will prepare your report. See the next section for details.
Your Report
Your report needs to have analyses of past performance and current financial condition, plus the outlook for future performance. You should limit your report to 15-pages, but feel free to add appendices with detailed analyses if you think any additional supporting information is needed. In other words, do not feel constrained by the 15-page limit. Your significant analyses, analysis assumptions and implications are what should in the body of your report. Everything you learned in the modules we covered has prepared you for this moment!
You should have a title page, table of contents (these pages do not count toward the page limit) and an executive summary (a paragraph or two with the important results and conclusions you came to [< 1 page]). If you want to get some ideas, you might want to look for a published analyst report, although this isn’t necessary.
You will want a section on the business and its strategy (perhaps 2-4 pages). A great deal of information on the company you should have gathered in the second project, and you may be able to copy some of that information into this project. You will want to describe the industry and do a competitive analysis, listing the firm’s primary competitors. If you have taken a course in corporate strategy at some point, or a marketing class, you can use Porter’s five-forces framework or the well-known SWOT analysis (for Strengths, Weaknesses, Opportunities and Threats). You will find discussion of these items in Module 1. Since valuation is most often about the future cash flows of the firm, you will need to assess both the industry and company prospects. Here you can draw on the 10-K you’ve already studied and possibly supplement that with business news sources (e.g., WSJ, Forbes, Business Week, IBD).
Next you will do your financial statement analysis and preparation of any adjusted financial statements (this section might be about 5-7 pages). You will analyze operating and non-operating income, creditworthiness, allowance of uncollectible accounts, inventory accounts, etc. You will find these items in Modules 3-5.
You should do an ROE analysis (Module 3) for the current year adjusted financial statements. You should compare performance (benchmarking) and interpret ratios.
Prepare and interpret common-size adjusted income statements and balance sheets (expressed as a percentage of sales or total assets). You will recall covering this in Module 2. Compute and interpret trends using percentages for important income statement and balance sheet accounts (to get a trend, use the past several years). You may use some unadjusted data for this part since adjustments for many years would be unnecessarily time-consuming.
Forecasted Financial Statements (Module 9) are next in your analysis (this section will be about 3-4 pages). This is your prediction of future firm performance with key financials of sales, expenses, assets liabilities, etc. Support your inferences by reference to your work on the firm strategy and the financial statement analysis sections. You should forecast at least 5 years, but an 8-10 year forecast horizon would be better. Feel free to review any forecasts from professional analysts. For each forecasted annual income statement, compute and report NOPAT, and for each year-end balance sheet, compute and report NOA. Summarize each annual forecasted financial statement with key valuation measures (e.g., NOPAT).
Lastly, you will do the equity valuation (about 3 pages). You need to estimate the cost of capital measures (Module 12) and use the dividend discount model (also Module 12) or discounted cash flows. If you can do so, a sensitivity analysis or Monte Carlo analysis will help you see your multiple assumptions (e.g., sales growth, NOPAT, NOA, WACC) impact valuation. (Monte Carlo analysis is easy to implement in Excel and it can provide great insights.)
[1] If you want to go with one of the other firm choices from the 10-K project (recall these were RTX, HTZ, FE, SO, CLF, AMD and SJM), that is okay with me. I suggest you go with the firm from Project 2 since you already have most of the background knowledge needed to do this Valuation Project. Sticking with the same firm will save you time and effort. If for some reason your group would like to select some other company, please reach out to me.
FTI- Sufficient calculations need to be added internally.  Please let me know anything you need. Thank you