Financial statements and ratio analysis, cost of debt, cost of common equity (CAPM model), capital structure, and WACC calculation
Segment 2: Project Introduction
The project on company analysis is designed to give you an opportunity to practically apply the concepts covered during the course in a “real-world” scenario as well as to familiarize you with the business research resources available to you. After you have completed the project, you should be comfortable researching any publicly listed company in which you may want to invest, where you may want to seek employment, or with which you may want to do business.
● Company Selection
Choose a company that has been publicly traded for at least 3 years, pays dividends, and has debt. (Do not select a bank or an insurance company.)
You may also refer to blogs such as the one mentioned here to search for companies that meet the criteria. Please note that the selected company will dictate the entire project. Thus, please ensure you select the company carefully.
Pays Dividends: The company is a well-known dividend aristocrat, having increased its dividend for over 60 consecutive years. This makes it an ideal subject for analyzing the cost of common equity.
Has Debt: The Coca-Cola Company utilizes a mix of debt and equity in its capital structure to fund operations and acquisitions. Its financial statements clearly show a significant amount of long-term debt, which is necessary for calculating its cost of debt and WACC.
Not a Bank or an Insurance Company: As a global beverage company, Coca-Cola operates outside of the financial services sector, aligning with the project's exclusion criteria.
Sample Answer
The Coca-Cola Company (KO) for this project. This company is a highly suitable candidate for the required financial analysis as it meets all the specified criteria and its long history of financial transparency will facilitate a thorough investigation.
The Coca-Cola Company fulfills the project requirements as follows:
Publicly Traded for at least 3 years: The Coca-Cola Company has been publicly traded for over 100 years, far exceeding the 3-year minimum. This long history ensures a wealth of financial data is available for analysis.