PROCESS OF PERFORMING FINANCIAL ANALYSIS OF A PUBLIC COMPANY
GENERAL COMPONENT
No more than one paragraph describing the history of the
company.
1. Obtain the most recent ten years of annual total sales (total revenue) data from the
firm’s financial history. In addition, use just the last three years for the firms
financial statement data: I recommend, you use abbreviated financial statements. They
can be found inNasdaq.com, Yahoo Finance, MSN Money. DO NOT GET BOGGED
DOWN IN THE DETAILED OF THE AGGREGATE FINANCIALS
a. Income Statement
b. Balance Sheet
c. Statement of Cash Flow
2. Derive common size statements for the income statement and the balance sheet NOT
the cash flow
a. Looking at trends in the data
b. Looking at variations in the same data as well as variations in the trends
ECONOMIC COMPONENT
3. How does the above relate to the industry that the company is in, i.e. need to perform
competitive economic analysis about the company:
a. Macroeconomic analysis—-is the company’s sales cyclical or counter cyclical for
example?
b. Industry analysis—market share, is the company’s sales growing, declining, or
staying the same? How is the company performing relative to its competition?
SWOT
4. STRENGTHS and WEAKNESSES should focus exclusively on the INTERNAL
CHARERISTICS OF THE FIRM’S FINANCES.
5. The OPPORTUNITIES and THREATS should focus exclusively on the EXTERNAL
CHARACTERISTICS OF THE FIRM.
FINANCE COMPONENT
The above should provide you the assumptions for deriving proformas for each of the three
financial statements (balance sheet, income statement, and statement of cash flow), and will
allow you to do your critical financial analysis of the firm. The pro forma, must be forecasted
out three years. Make sure you focus on your assumptions and explicitly show them since they
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will drive your forecasted data, which will allow you to perform the critical analysis where the
company is going, based on your forecasted data. THIS SHOULD BE THE FOCUS OF YOUR
WRITTEN ANALYSIS; STATED DIFFERENTLY, THE FOCUS NEEDS TO BE ON THE
FUTURE OF YOUR COMPANY AND WHERE IT IS GOING AND WHY. THE EMPHASIS
SHOULD NOT BE ON THE HISTORY OF THE COMPANY, OTHER THEN WHAT I HAVE
ASK YOU TO INCLUDE, THAT IS STATED ABOVE. FINALLY, IN YOUR ANALYSIS
YOU NEED TO JUSTIFY YOUR CONCLUSIONS, FOR EXAMPLE IS THE COMPANY IN
A STRONG FINANCIAL POSITION, BASED ON ITS EXPECTED SHARE PRICE AND
MARKET CAPITALIZATION, WHY OR WHY NOT? WHAT DIRECTION DOES THE
COMPANY NEED TO GO IN EITHER CASE? These are some of the questions that need
answering.
FORMAT FOR FINANCIAL ANALYSIS PAPER WRITEUP
I. Executive Summary
II. Introduction
? One paragraph history of the firm
? Problem Statement—–Is the firm financially viable?
III. Review of Literature
? Newspapers
? Periodicals
? Etc.
IV. Structural Framework—Estimation of sales (revenue) forecast using your data
? Regression Analysis
? Alternative Estimation Techniques
? Derivation of Proformas—Balance Sheet, Income Statement, Cash Flow
V. Analysis of your findings
? Using your historical data from your financial statements and common
size financial statements
? Using your forecast data from your pro-forma financial statements and
other information such as economic value added, free cash flow, intrinsic
value, return on invested capital to name a few examples that can help in
your analysis
VI. Summary and conclusions
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VII. Appendix
? Tables
? Graphs
? Other
1. Use the APA format—Full Documentation, which includes explicitly identifying
others works.
2. NO CUTTING AND PASTING
3. Title page
4. Executive Summary
5. Maximum of five (4) written pages, does not include title page, executive summary
or appendences—tables etc. go into appendix
6. Bibliography
7. Page numbers