coporate finance

Scenario: As a new junior analyst for a large brokerage firm, you are excited to demonstrate the skills you learned in college and prove that you are worth your attractive salary. Your first assignment is to analyze a publicly traded stock. Your boss recommends determining prices based on both the discounted free cash flow valuation method and the comparable P/E ratio method. You are a little concerned about your boss’s recommendation because your finance professor explained that these two valuation methods can result in widely differing estimates when applied to real data. You are really hoping the two methods will reach similar prices. Good luck with that! (Berk Demarzo Harford 2018, Chapter 10 Data case)

Your analysis consists of looking up published information on your company: either provided by the company directly, or from information made public by professional analysts and an analysis of that data. Your ultimate goal is to determine a market stock price for your firm using your understanding of the firm’s current financial position, it’s growth expectations, and a forecast of what you think it’s future value will be at the end of the Q1 2020 (March 31, 2020).

1. Choose a public company.

· Corporation must be a publicly traded firm on a US stock exchange: Limited to the NYSE and NASDAQ stock exchanges.

· The first letter of the company name must be the same initial as one of your names (first, middle, surname including hyphenated names). For instance, the instructor could choose DISH Network Company {Nasdaq: DISH}, or Macy’s Inc. {NYSE: M}.

2. Use online resources to obtain your company’s financial and performance data to develop your analysis. You may also source professional analyst information for different analysis variables. However, you must reference where your information is sourced from. If you did not create an analysis variable, give credit to the author.

Select online reference sources:

Yahoo! Finance

Google Finance

Mergent Online

UW Library

Bloomberg Terminal +

Required reported data analytics:

5 Stock price: Averaged over February 2020

5 Earnings per share (TTM), Diluted & Undiluted, most recent

5 Number of shares stock outstanding as of February 2020

5 Industry Price to Earnings (P/E) ratio as of February 2020

5 Long term growth rate*

5 Income Statement annual data for previous three (3) years

5 Balance Sheet data annual data for previous three (3) years

5 Statement of Cash Flows annual data for previous three (3) years

5 Discounted Free Cash Flow valuation**

5 EBIT/sales 3 year average

5 Tax rate 3 year average

5 Fixed assets/sales 3 year average

5 Networking capital/sales 3 year average

5 Forecast next five (5) years Sales for firm {see LT growth rate}

5 Forecast next five (5) years:


§ Fixed Assets

§ Depreciation

§ Networking capital

5 Forecast next five (5) years Free Cash Flow

5 Determine company’s Cost of Capital rate***

5 Determine horizon enterprise value for year five (5) using ½ LT Growth Rate and 10% cost of capital for your firm.

5 Determine enterprise value of the firm as the present value of the Free Cash Flows

5 STOCK PRICE I: Determine price per share of the firm from enterprise value

5 STOCK PRICE II: Company price estimate as a comparable to firm

5 Multiply industry average P/E ratio by your firm’s EPS.

+ Located in UWBB by the School of Business Dean’s Office Suite

* may be sourced from consensus of professional analysts

** see equation 10.2 & 10.6 in textbook.

*** may be sourced online or organically developed by you

Deliverables will be a one page executive summary of your analysis, including reported data values, sources, and estimation narrative in table format. Supporting spreadsheet analyses must also be included to support your assessment.

Project is due online no later than 10:00pm March 17th, 2020.