My name:___________________ My company name:___________________ Ticker symbol:________________
Monterey Peninsula College
Bus 1A, Financial Accounting
Company Evaluation Project
Partners: _________________ _________________ _________________
_________________ _________________ _________________
Wall Street, New York, NY
Project Overview:
This project takes you away from creating the financial statements. You are now an investment
advisor interpreting financial information for your client. You will form a team to research
businesses within an industry of your choosing. Your team’s task is to create a report using a
step by step process to analyze the investment worthiness of your companies. Each step listed
below will become a section in your final investment recommendation report.
Step 1: Form a group of students to analyze companies in your selected industry. Each team
member selects one different company within your group’s industry. Each person researches a
small number of selected external performance indicators. The group then compares this
information, draws conclusions and prepares a report ranking the companies within your
industry.
Step 2: Perform internal analysis of each company to discover their sources of strengths and
weaknesses. Again, compare the individual companies and rate them based just on this
information. Compare your findings from this information to that from step 1. Prepare a
ranking report discussing the information from step 2 and how it affected your step 1 opinions.
Step 3: Analyze cash flows of the firms. Infer strategic direction and evaluate your trust in their
overall financial statement presentation. Compare each firm’s results, and prepare a ranking
report discussing any changes or supporting relationships among steps 1 through 3.
Step 4: Review, compile, and Conclude. Review your findings from each step. Include other
analysis as you see fit. Check your conclusions with outside resources. Prepare a final report
incorporating all of your work to form a comprehensive final report of your recommendation.
My name:___________________ My company name:___________________ Ticker symbol:________________
Project Administrative Details:
Self-select teams of about 5 people to start. Your grade will partially depend on the performance of
your team members. Each member is personally accountable for their share of the work and the quality
of the project as a whole. Individual project grades will vary by personal input and teamwork.
Communication, work styles, meeting schedules are important considerations in selecting teams.
Team and individual process organization
Each individual first completes the templates for their company. Team members then share and compare
each person’s individual company performance. The team then completes the paper comparing and
judging these companies based on the research and analysis. Complete ONLY step 1 during step 1.
Complete only step 2 during step 2, etc. You will repeat the process with different content for each step.
Each team member is responsible for completing their own individual company research and
contributing to the team effort for each step as follows:
1. Complete the following research templates EARLY in each step.
2. Compare your numbers to those provided by the other team members for their companies.
3. Provide a balanced amount of input into organizing, and preparing the team analysis paper.
4. Be individually responsible for knowledge of all aspects of your team’s paper.
Each Team is responsible for coordinating group communication, encouraging even participation, and:
 Each team selects a different step leader for each step. That leader is responsible for ensuring the
team meets all assignment requirements. The leader does NOT do the whole step on their own.
 What to submit for steps 1, 2, and 3:
1. A cover page including your industry, team member names, companies, and each team
member’s signature by their name. Indicate the team leader for the step on this page.
2. A well organized 1 page MAX single spaced paper. Look to the templates in each step to
drive the content and organization of this paper.
a. Include an introduction paragraph announcing your purpose and methods.
b. Each body paragraph should: Describe the purpose of the paragraph. Display the
numbers used to support that purpose. Use your judgment to explain the relevance
of these numbers to these firms. Interpret the numbers to provide meaning to the
reader.
c. Conclude by ranking companies according to your opinion of their investment
worthiness. Support this ranking by reviewing key points from your body
paragraphs.
d. Cite your research resources properly on a second page.
3. Include each team member’s individual research templates for each step. Hand filled-in,
messy, crumpling, are all absolutely fine! Put your name on the top front.
4. Submit your assignment in the above sequence, stapled in the top left hand corner.
5. One volunteer team per step may be able to present to the class for up to 10 extra credit
points. Presenters must meet formally with the instructor at the beginning of their
presentation step and complete a pre-presentation development process to the satisfaction of
the instructor to be able to present.
 What to submit for step 4:
1. Compile the previous three team step essays into one single essay about 4 pages long. The
paper should be one cohesive essay with an inclusive introduction, then your previous steps
together with transitions, any new step 4 information, and a robust conclusion.
2. Submit individual requirements in the same manner as previous steps for 4’s solo work.
My name:___________________ My company name:___________________ Ticker symbol:________________
Step 1: Initial Selections:
Brainstorm as a group to discuss your individual ideas and their relative ability to succeed in
current economic conditions. Choose one industry as the group’s industry. Each group will
select one unique industry. Each individual will select a different company within that industry
to investigate further.
My group’s industry:________________________ This industry’s SIC code:________
My company’s name: ____________________ Ticker symbol: ____________________
Company website URL: __________________________
What are the economic conditions that led you to select this industry? How will your industry
capitalize on these conditions? Why did your team pick this industry over others?
______________________________________________________________________
______________________________________________________________________
_______________________________________________________________________
______________________________________________________________________
_______________________________________________________________________
What about your firm in particular justifies considering it as a potential investment when
comparing it to the other companies in your group?
______________________________________________________________________
______________________________________________________________________
_______________________________________________________________________
______________________________________________________________________
_______________________________________________________________________
What is your team’s process for executing the teamwork element of this project? Do you have
the resources you need to get the job done? How will you secure any missing resources?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Team member contact information:
Group website:________________________________
Full Name
Telephone
Email
Other
My name:___________________ My company name:___________________ Ticker symbol:________________
(Step 1 Cont.) Volume, Growth & Value: Volume indicates strength as measured by sales and
net income. Demonstrated growth in volume from year to year indicates increasing strength.
Use those indicators to compare performance of your companies. Expected growth and market
leadership drive up the price to buy a company. The Price to Earnings (PE) ratio compares the
price of one share of ownership to the profits earned by that one share. The PE ratio is one
indicator of whether the stock is over or under valued as an investment choice. Use the PE ratio
to judge the value of each company compared to their performance in volume and growth.
Fiscal Year End
Figures
($ x
2009 Dollars
% Change
2008 Dollars
% Change
2007 Dollars
1,000,000 except per share)
Annual Sales
Net Income
FYE Share price
Earnings per share
Price to Earnings Ratio trailing
Size = Power:
Rank firms on current sales volume.
eg Firm : Sales $ 1)_____________ 2)______________
3)______________ 4)_______________ 5)_______________ 6)_______________
Rank firms on current Net income volume. eg Firm : N I $ 1)____________ 2)_____________
3)______________ 4)_______________ 5)_______________ 6)_______________
How are the leading and trailing firms benefited or harmed by their performance in these
metrics? How & why does this performance matter to an
investor?______________________________________________________________________
______________________________________________________________________________
Growth = increasing power:
Rank firms on sales volume growth. eg Firm : growth % 1)____________ 2)____________
3)___________ 4)___________ 5)___________ 6)___________
Rank firms on Net income growth. eg Firm : N I growth % 1)____________ 2)____________
3)___________ 4)___________ 5)___________ 6)___________
How are the leading and trailing firms benefited or harmed by their performance in these
metrics? How & why does this performance matter to an
investor?______________________________________________________________________
______________________________________________________________________________
Value = Comparing earnings to the price of ownership:
List the firms in order from the lowest PE ratio to the highest PE ratio.
eg Firm : PE ratio 1)_____________ 2)_____________ 3)____________ 4)____________
5)____________ 6)____________
How do these companies’ PE ratios indicate their relative attractiveness as investments?
Consider each PE ratio compared the volume and growth position of each
company.__________________
My name:___________________ My company name:___________________ Ticker symbol:________________
Step 2: Management Effectiveness: Return on Equity (ROE) is a popular indicator of
corporate performance. It measures the return (aka earnings) for the owners compared to the
owners’ equity in the firm. While a high ROE is a good thing, how the company achieved their
ROE is even more important. First, calculate your ROE the simple way. Then, recalculate your
ROE using the Du Pont Method. The ROE numbers should match, but the Profitability,
Efficiency, and Leverage ratios that make up ROE in the Du Pont will deliver much more insight
into where management is doing their job well and where they are performing poorly.
Calculate your firm’s ROE based on current year figures.
ROE = Net Income ÷ Equity $______________ ÷ $__________________ = ____________%
Net Income
Owners’ Equity
ROE
Du Pont Method: The Du Pont Method shown below multiplies three causal factors to calculate
ROE. Each of the columns (top to bottom) below explains a unique management analysis
metric, and provides you with space to calculate that metric for your company. Complete the
table with your latest year figures then share your figures with your team to analyze them.
Return on
Equity
Profitability
x
Efficiency
x
Leverage
=
Profit
Margin
x
Asset
Turnover
x
Assets to Equity
Ratio
=
Return on
Equity
Net Income
Net Sales
x
Net Sales
Assets
x
Assets
Equity
=
Net Income
Equity
$
$
x
-
x
-
$
$
x
$
$
-
=
x
$
$
-
=
List your group’s company numbers in order, from highest ROE to lowest ROE
Firm________
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Firm________
Firm________
Firm________
Firm________
Firm________
My name:___________________ My company name:___________________ Ticker symbol:________________
(Step 2 Cont:) Which firm has the highest ROE?___________ What does that bare-bones ROE
number tell the investor about the company? Why might an investor prefer a high ROE firm?
_____________________________________________________________________________
_____________________________________________________________________________
Which firm has the highest profitability ratio?____________ What is that company’s
management doing right that results in their high profitability ratio? How does this performance
translate into strength in the marketplace and investment attractiveness? ___________________
_____________________________________________________________________________
_____________________________________________________________________________
Which firm has the highest efficiency ratio?____________ What is that company’s management
doing right that results in their high efficiency ratio? How does this performance translate into
strength in the marketplace and investment attractiveness? ______________________________
_____________________________________________________________________________
_____________________________________________________________________________
Which firm has the highest leverage ratio?____________ What is that company’s management
doing right or wrong that results in their high leverage ratio? How does this performance
translate into strength or weakness in the marketplace and investment attractiveness? _________
_____________________________________________________________________________
_____________________________________________________________________________
Repeat those three (profitability, efficiency, leverage) analysis steps with the companies
having the lowest of those three ratios:
Low profitability:
Company_______________
Management’s action causing it__________________________________________
Weakness as competitor and investment____________________________________
Low efficiency:
Company_______________
Management’s action causing it__________________________________________
Weakness as competitor and investment____________________________________
Low leverage:
Company_______________
Management’s action causing it__________________________________________
Weakness or strength as competitor and investment__________________________
Select one company as your pick for the overall most desirable performance. Discuss
Management’s actions and the company’s strengths in the market and as an investment.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
My name:___________________ My company name:___________________ Ticker symbol:________________
Step 3) Cash Flows Analysis: The amount of cash on hand, as well as the increase or decrease
in cash and its sources may indicate a strengthening or weakening in the company’s health.
$___________ is the balance in the cash account at the beginning of the fiscal year.
$___________ is the balance in the cash account at the end of the fiscal year.
$___________ + or – is the change in the cash position for the year.
Explaining the change in the cash balance for your firm: Where cash came from, and how
cash was spent, is far more important information that the simple overall cash change.
Cash flow from Operations was $___________ (positive or negative)
Is this consistent with their accrual based Net Income?___________ Does this raise any concern,
and why? _____________________________________________________________________
_____________________________________________________________________________
What does the net cash provided/used by operations imply about the performance of the
company’s core business activities?_________________________________________________
_____________________________________________________________________________
Cash flow from Investing Activities was $___________ (positive or negative)
The business activities that caused this cash flow were: _________________________________
_____________________________________________________________________________
Speculate as to why management carried out the above business activities. What were they
trying to accomplish? Does this imply anything about their strategies or the future of the
business?______________________________________________________________________
______________________________________________________________________________
Cash flow from Financing Activities was $___________ (positive or negative).
The business activities that caused this cash flow were: _________________________________
_____________________________________________________________________________
Speculate as to why management carried out the above business activities. What were they
trying to accomplish? Does this imply anything about their strategies or the future of the
business?
______________________________________________________________________________
______________________________________________________________________________
Refer to the handout on analyzing cash flows. Describe your company’s overall cash flow
pattern and interpret it to share your insight on the company’s overall cash performance. ______
_____________________________________________________________________________
_____________________________________________________________________________
My name:___________________ My company name:___________________ Ticker symbol:________________
(Step 3 Cont.) Cash Flows Analysis
Complete the grid below and interpret the cash flow story of each firm in your group. Evaluate
the attractiveness of each firm’s total cash flow story and rank them in preference in the right
hand column.
Firm
Operating Investing
$ +/$ +/-
Financing
$ +/-
Story
Rank
Indicate scale of dollars presented above:___________________
Compare your ranking to your investment preferences from earlier rounds. Does your cash flows
analysis support or contradict your earlier findings? How so? What is the significance of this to
the investor? __________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
My name:___________________ My company name:___________________ Ticker symbol:________________
Step 4) General Review and Final Report: Review your previous work looking for concerns
you may have uncovered during your research. Consider these sources to address your concerns
or to uncover some new ones: Read several of the footnotes to the financial statements. You
will find plenty of footnotes in your company’s 10-k report at www.sec.gov. And/or review the
analytical measure on pages 662-663 of the text and settle on a few areas you would like to
compare with your group. Read at least 2 articles on your company that are not sourced from the
company web site. If you find something very important to your group analysis then put it in
your paper. Otherwise, evidence of each individual’s work should show up here:
Work Space/Reporting Space for your number crunching and article & footnote highlights:
Context Check: Compare the winning company in your industry to the other winning
companies in the other industries researched in the class. Quick meetings and highlighted topics
are all that is needed here. Organize your resources before the announced in-class discussion
day. Bring sufficient resources to class to enable effective communication about your winning
company’s performance. Each member of your team is individually responsible for
understanding the performance of your groups winning team and being able to complete these
discussions effectively. You will have about 3-5 minutes to compare your winning company
with other industries’ winning companies and pick the ultimate best investment prospect. The
exact nature of what you choose to focus on will depend on your opinion.
Findings:
Industry and company benchmarked:______________________ | ________________________
Key points:
Findings:
Industry and company benchmarked:______________________ | ________________________
Key points:
Findings:
Industry and company benchmarked:______________________ | ________________________
Key points:
My name:___________________ My company name:___________________ Ticker symbol:________________
(Step 4 Cont.) Conclusion: Prepare the following two items.
Paper: Prepare a final report compiling the previous step write-ups along with any important
findings from step 4. This final paper should read as a single document leveraging the
organization provided by the previous research steps. There should be no mention of “Step 1”,
“Step 2”, etc. instead, use the step topics “external performance analysis”, “internal analysis”,
and “cash flows analysis” to make the report more professional and sensible to a target audience
who won’t have any familiarity with step numbers.
Make sure to include all requirements for a step paper including your final investment
recommendation. The overall paper needs its own introduction explaining at a general level the
purpose and methodology of the total paper. Each individual section should retain its section
introduction and conclusion. The overall conclusion should reference the major decision making
points from each section, declare your group’s overall investment selection, and support that
choice.
Paper length will vary. Most top quality papers are between 3 and 5 pages. Excess pages
without additional valuable content will earn lower marks than fewer pages with similar content.
Brevity is rewarded unless valuable content is missing.
Suggested references:
Check the index in your textbook for really great information. See chapter 14 especially.
www.sec.gov
www.morningstar.com
www.fool.com
www.investopedia.com
http://www.reuters.com
www.quickmba.com
www.yahoo.com
http://blog.accountingcoach.com/
Your firm’s website – warning you are entering a self perspective zone.