ScholarMatic: Explanation & Answer
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BUS 170, Section 1
Financial Analysis Project
On your first job assignment as an
equity analyst, you need to analyze one of two companies—Facebook (FB) or Twitter
(TWTR). Please complete the following tasks:
1. Download the annual income statements, balance sheets, and cash flow
statements for the last 4 fiscal years from MarketWatch (.marketwatch.com/”>www.marketwatch.com), SEC
Website, annual reports, or other site. Enter each company’s stock symbol and
then go to “financials”. Copy and paste the financial statements into
Excel. You can also use a subscription
software, such as CapitalIQ, and utilize the Excel plug-in.
2. Find historical stock prices for each firm (Yahoo! Finance, finance.yahoo.com
is one site that has this information). Enter the stock symbol, click on
“historical prices” in the left column, and enter the proper date
range to cover the last day of the month corresponding to the date of each
financial statement. Use the closing stock prices (not the adjusted close). To
calculate the firm’s market capitalization at each date, multiply the number of
shares outstanding (see “Basic Weighted Shares Outstanding” on the
income statement) by the firm’s historic stock price.
3. For each for the 4 years of statements, compute the following ratios for
each firm:
Valuation Ratios
Price-earnings ratio (for EPS use diluted EPS total)
Profitability Ratios
Operating margin (Use operating income after depreciation)
Net profit margin
Return on equity
Financial Strength Ratios
Current ratio
Deb-equity ratio (indicate Book or Market)
4. Obtain industry averages for each firm from Reuters.com (.reuters.com/finance/stocks”>www.reuters.com/finance/stocks).
Enter the stock symbol at the top of the page in the “Symbol lookup”
and then click on the “Financials” button, and then click on
“Search”. Scroll down to “Valuation ratios”, and compare
each firm’s ratios to the available industry ratios for the most recent year.
(Ignore the “Company” column as your calculations will be different.)
Comment on each firm’s valuation compared to its industry.
5. Analyze the performance (from profitability ratios) of each firm versus its
industry and comment on any trends in each individual firm’s performance.
6. Identify any strengths or weakness you find in each firm.
Notes:
The statements from MarketWatch seem to group things differently: For
example, in their gross profit (“gross income”) calculation, they
include depreciation & amortization under COGS.
To calculate operating income, you
don’t have to subtract D&A again since it’s already reflected in
“gross income”. What you need to do is to take out “SG&A
expense” and “other operating expense” to get operating income.
Some of you get negative operating income, because you subtracted SG&A,
R&D, and other SG&A from gross income. But actually SG&A is the sum
of R&D, and other SG&A.
Sorry for the confusion. If you
found a clearer format of financial statements for the two companies, feel free
to use them. I don’t really care of the source of information, as long as they
are official!
Points
breakdown (20 points)
#1:
4
#2:
3
#3:
6
#4:
3
#5:
4
#6:
4
ScholarMatic: Explanation & Answer
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