MUST USE FORD MOTOR COMPANY AS THE COMPANY FOR THIS PROJECT! MUST COMPLETE ALL PARTS! CHECK ATTACHED PICTURE FOR MORE!
Part 1: Ratio Analysis
- Pick a public company and download the latest Form 10-K in the Excel format. You can go to the company’s website or https://www.sec.gov/edgar/searchedgar/companysearch.html. On EDGAR, search fillings by Company Name or Ticker Symbol, and look for the latest 10-K Form. Click on “Interactive Data”, and click on View Excel Document here to download the form in Excel format.
- Prepare a cause-of-chase analysis for the latest 2 years. Use the same format as in Exhibit 6.3. Comment on your findings. What is the biggest factor that explains the increase/decrease in net income (earnings) including non-controlling interests over the year?
- Prepare a common-size and trend analysis income statements for the last 3 or 4 years and discuss what you found in them (Exhibit 6.5 and 6.6). What contributed to sales growth (or decline)?
- Prepare a common-size and trend analysis balance sheets for the last 3 or 4 years and discuss what you found in them (Exhibit 6.7 and 6.8). Try reclassifying investment securities as “negative debts” and comment on your findings, if any (Exhibit 6.11).
- Prepare a common-size and trend analysis cash flow statements for the last 3 or 4 years and discuss what you found in them (Exhibit 6.13). Comments on how the company is generating cash and using cash.
- Pick 1-2 competitor companies to your company and use their ratios as benchmarks. So for example, if you picked Ford, you can use Toyota and VW as benchmark companies. You can obtain ratios from finance.yahoo.com by typing stock symbols and click on “statistics” tab. Or you can do it the old fashioned way by going the company’s websites or SEC’s EDGAR database.
Part 2: Forecasting and Valuation
- Perform comprehensive financial statement forecasts as in Appendix 7B (Exhibit 7.10 and 7.11) and comment on your findings. How is your company looking in terms of profitability and financial positions in the future? Are there any causes for concern?
- Use the abnormal earnings approach to calculate the intrinsic value (V) of your company (Exhibit 7.8). How is the V you found different from the market value of stock? Why are they different?
- Use the flow to equity (P/E ratio) approach to calculate the intrinsic value (V) of your company. How is the V you found different from the market value of stock? Why are they different?
- Use the free cash flow approach to calculate the intrinsic value (V) of your company. How is the V you found different from the market value of stock? Why are they different?
Part 3: Credit Assessment
- Make necessary changes to the financial statements (see P7-29).
- Calculate the S&P’s key financial ratios for your company and give a rating of its corporate debt (Exhibit 7.5). Briefly comment on your findings.
Part 4: Item Specific Analyses
- Receivables à compute credit loss expenses (provision for doubtful accounts) as a % of sales, % of ending gross receivables, and % of ending gross receivables. Is there any cause for concern based upon the above?
- Inventories (if any) à convert LIFO ending inventory and COGS to FIFO ending inventory and COGS, and re-compute Gross Margin %, current ratios, inventory turnover. How big is the impact of FIFO adjustments on these ratios.
- Long-lived assets à compute average total life (gross PPE/annual depreciation expense), average age (accumulated depreciation/annual depreciation expense) and average remaining life (net PPE/annual depreciation expense) of the firm’s total long-lived assets (see p11-28). Do you see the firm will have to make a large CAPEX in the near future based upon the above?
- Leases à Look at the note about leases. How large are firm’s operating and financial leases’ ROU relative to the total assets? What about the annual payments of each lease type for the current years and in the next few years? Is there any cause for concerns?
- Income tax reporting à does your firm have deferred tax assets/liabilities and if so, how big are they relative to the total assets? What was the impact of Tax Cuts and Jobs Acts on your firm, if any?
6. Pensions and OPB à Does your firm have any pensions and OPBs? If so, does your firm has an overfunded or underfunded status on them? Compute short-term pension risk ratio and long-term pension risk ratio and comment on them (p15-37). How risky is the firm’s pension?