Posted: September 2nd, 2015

Revenue recognition policies.

Income Statement Analysis

Discuss revenue recognition policies.
Discuss changes in trends; unusual or extraordinary items
Quality of earning: potential red flags
Balance Sheet Analysis

Major changes in assets/liabilities
Significant trends in liquidity, working capital and balance sheet ratios.
Identify off-balance sheet exposure and identify potential impacts.
Cash Flow Statement Analysis

Amount of cash generated;
Source and uses of cash.
Availability of funds to finance capital expenditures, expansion of business activity, etc.
Analyzing your firm’s financial statements for the most recent three years. Compute your firm’s Current Ratio, Quick Ratio, Account Receivables Turnover, Total Asset Turnover, Inventory Turnover, Fixed Assets Turnover, Gross Profit Margin, Operating Profit Margin, Net Profit Margin, Return on Total Assets, Return on Common Equity, Debt to Equity Ratio, and Interest Coverage. For the same years, use ratios from either the industry or a similar firm as a benchmark for comparison.

Bond Valuation I: Prepare a brief description of at least one bond for your company, including such factors as its credit rating, bond’s call feature (if applied), collateral, interest dates, sinking fund provisions, and refunding provisions. Note: bond information can be found on yahoo finance (bond), E-trade. Also you can try NASD website for bond information: http://www.nasdbondinfo.com/asp/bond_search.asp. Barnes & Noble bookstores also has corporate bond book for all major companies.
Bond Valuation II: Using current price and information on coupon interest and maturity date, compute a yield to maturity (YTM) for your company’s bond. Compute the duration for your company’s bond.
Stock Valuations: Using Earning Multiple [i.e. price-earnings (P/E) multiple model] and Multi-stage Dividend Discount Model (DDM), compute the value of your firm’s common stock. Compare your calculated value to the current market price. Make investment recommendations. Note that for firms with no dividends or negative earnings, P/E model and DDM are not applicable.
Regression Analysis & Beta: For your firm’s common stock, collect the Friday closing price for the last 12 months and compute the weekly percentage price changes (ignoring dividends) and the standard deviation (s) of these weekly rates of return. Do the same for a market index, e.g., the Standard & Poors 500 index, QQQ, or DASDAQ. Plot the computed returns on a graph and use least-squares regression to construct a line of best fit. The slope of this line is an estimate of the beta for the stock.
Financial Derivatives: Discuss / describe how the firm achieves consistent revenue and earning growth through the uses of financial options / derivative tools / off-balance sheet financing (e.g. foreign exchange hedging, interest rate risk management, and off-balance sheet financing like joint partnership). Off-balance sheet exposure may be substantial for certain technology companies (including high-tech and bio-tech firms) due to standby letters of credit or synthetic leases. Identify off-balance sheet exposure and identify impact to leverage and repayment.

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