Financial Statement Analysis and EPS Forecasting Report Assignment


Financial Statement Analysis and EPS Forecasting Report Assignment
First, choose a publicly traded company to analyze this semester. Choosing a US company which has
been trading for more than 3 years will alleviate many issues (i.e. translating currencies).
Next, gather historic data on key financial statements of the firm from either SEC filings
(http://www.sec.gov/edgar/searchedgar/webusers.htm), Yahoo Finance (http://finance.yahoo.com/) or the
firm’s own investor relations website. These include:
 Balance Sheet
 Income Statement
 Cash Flow Statement
Also collect necessary information like stock price, shares outstanding, dividends paid, etc.
Then prepare a professional report to answer the following questions:

  1. Compute the following ratios for the firm that you are analyzing, for the most recent period:
  2. Comment on the financial condition of the firm in each of the above 5 categories in 2 or 3 sentences
    each. Use the ratios of your firm as evidence of your assertions by comparing it to some benchmark
    (historical ratios, competitors, market or industry average, etc.). If certain ratios are not applicable to
    your firm (if your firm doesn’t have debt or inventory, for example), still write on these ratios and
    how the absence of these items affects the firm – both the costs and benefits.
  3. Decompose the ROE of your firm using the extended Du-Pont Analysis.
    ROE =
  4. Compare these components of ROE for the firm’s current period its past periods to understand the
    time trends.
  5. Compare these components of ROE for the firm’s with its major competitor(s).
  6. Now use the trends from questions 4 and 5 along with your own forecast of future macro-economic
    conditions to forecast the firm’s Earnings per share and cash flow per share. See the Sample
    Financial statement analysis in the course content for an example. To do this:
    a. First, make a common sized income statement for the last 3 to 5 years (every number as a
    percentage of revenue/sales).
    b. Next, measure the revenue growth for each year in the historical window.
    c. Forecast future revenue growth both quantitatively (for example, using a linear fit trend
    line/regression) and qualitatively.
    d. Produce forecasted income statements for future years using your revenue growth projections
    and common-sized balance sheets. Adjust items in income statement based on trends you see
    in past data, competitors, and the economy as a whole.
    Your grade will be based on the following rubric:
    Item Weight
    Question 1 18
    Question 2 18
    Question 3 9
    Question 4 14
    Question 5 13
    Question 6 18
    Overall Quality 10
    Total 100

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