Project on Evaluation of a company: 4 000 words (excluding bibliography, appendix, and cover page)
Business and Strategic Analysis (30%-35% of word count):
• Discuss briefly (2-3 paragraphs) which macroeconomic factors (political, economic,
social and/or technological factors – PEST analysis) may affect the industry that the
company belongs to and your company performance.
• Identify the industry that company belongs to and the company’s place in the
industry (e.g. top performer, middle range, bottom; market share, etc.).
• Identify a competitor company that belongs to the same industry and occupies
similar position in the industry. You will use this company further in your analysis.
• Conduct Porter’s five forces analysis conclude with assessment of industry’s current
• Discuss the industry’s growth potential. You must include this section and refer to it
in your prospective analysis (further)
• Discuss company’s competitive strategy, key success factors (core competencies)
and risk drivers. Identify the company’s growth potential.
• Discuss the company corporate strategy.
• Download a copy of the company’s annual report for current year and last 3 years.
• Download a copy of the competitor’s annual report for current year and last 3 years.
• Convert financial statements for your company (Balance Sheet, Income Statement,
Statement of Cash Flows) into Excel.
Accounting Analysis (5-10%% of word count) : ( Approx- 400)
• Using financial statements for the company and their competitor and your
previous analysis (industry analysis and competitive/corporate strategy analysis)
• identify 3 key accounts in their balance sheet/income statement. You must
show a link to your previous discussion of the industry analysis and
competitive/corporate strategy analysis.
• Evaluate the quality of the disclosure of the company (accounting analysis step
4). You can use comparison to the competitor.
• Identify 3 potential red flags for your company: use your company’s financial
statements and notes. Red flags are potential source of earnings management
for the company’s management
• Do not refer to account balances in this analysis ($). Importance of accounts is
identified based on importance of items that they proxy for key competencies
(success factors)/ weaknesses (risk drivers), growth and current/future
profitability of the industry/company .HINT: Start with balance sheet items first.
Financial Analysis (20%-30% of word count): ( Approx- 1200)
• Complete the practical part first and then write up the analysis. This
• ROE and its decomposition (DuPont analysis): you need to identify components that
are strong and weak for your company. This is done using the time-series analysis
and comparison with a competitor.
• Use your previous analysis to identify and calculate 4 ratios per each area of financial
analysis, i.e. operating management, investment management, and financial
leverage ratios for the company and their competitor. These ratios are used further
in the cross-sectional and time-series analysis.
• You MUST justify why you use these particular ratios, not others. The choice should
be based on your previous analysis (industry, competitive/corporate strategy
analysis, accounting analysis).
• Cross-sectional analysis:
Use the ratios you calculated in your Excel file and provide cross-sectional analysis of
your company’s performance across each area of financial analysis: discuss major
trends and relate them to changes in the macroeconomic factors, industry/business
strategy, accounting analysis.
• Time series analysis:
Use the ratios you calculated in your Excel file to conduct time series analysis of
company’s performance over last years. Use your competitor’s figures to uncover
major trends. Discuss major trends and relate them to changes in the
macroeconomic factors/industry/business strategy
• You can combine cross-sectional and time series analysis, but you need to cover
both in your discussion.
• Make the ANALYSIS how you use ratios to relate them to macroeconomic changes,
industry, competitive/corporate strategy and accounting analysis. The emphasis of
your analysis should NOT be on fluctuations in ratios (just presentation of figures is
• Your analysis should identify significant trends and explain them by linking your
findings to macroeconomic factors, industry analysis and/or competitive/corporate
strategy analysis (if there is an uptrend/downtrend, you need to explain what
factors/decisions caused it).
Your Excel file MUST show your calculations. Do not copy/paste ratios from
databases. Show the understanding of the ratios and their calculations
• Cross-sectional analysis:
Use Excel file(s) you prepared in Section 1 and calculate ratios identified in your
report for your company and competitor for the current year: 4 ratios per each area
(operating management, investment management, and financial leverage)
• Time series analysis:
Calculate the same ratios for your company and their competitor for previous three
4. Prospective Analysis (10%-20% of word count): ( Approx- 800)
• Justify major estimates for the forecast of the company (sales growth rate, NOPAT
margin, WC to sales, LT assets to sales, Debt ratio, after-tax cost of debt, dividend
• Your justification should be based on the company’s prior performance (major
trends identified in section 3), macroeconomic/industry factors (identified in section
1), changes in business strategy (identified in section 1).
• Brief analysis of the forecast with emphasis on overall performance.
• Analysis of valuation of your company using the abnormal earnings method and
market multiple approach.
• Use the prior analysis to prepare a forecast of condensed income statement and
balance sheet for one financial year (the next year for which the company has not
published an annual report).
• Prepare a valuation for your company using abnormal earnings method
• Prepare a valuation for your company using market multiples approach. Add the
following data for your company, their competitor and industry averages for the
current year (to be used in your report for market multiple valuation):
• price to earnings ratio,
• price to book value ratio,
• This data is available through databases and additional resources.
• Your statements should, where possible, incorporate the latest information about
the company, its industry, and general economic conditions and should not be the
result of naïve extrapolation of past trends.
5. Recommendation: (5% of word count): ( Approx- 800)
• for the clients, drawing on the whole analysis of the company/company reporting
(5% of your word count).
• report should include: Recommendation for clients as to sell/buy decision
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