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Financial Statement Analysis (OVERVIEW)

 
Part A: Financial analysis of a publicly-held company. We will use Ford’s latest consolidated and segment financial statements (form 10K) as filed with the SEC. You will calculate the current ratio and profit margin for the company as a whole. You will also answer general questions relating to Ford’s business operations.
 
Part B: Discussion of risks. You will search Ford’s form 10K and identify three majors risks identified by the company. You will also assess the company’s market share for automobiles. You will determine the company’s growth rate of EPS or dividends.
 
Part C: Discussion of Ford’s capital structure. You will review Ford’s consolidated financial statements. You will calculate the company’s debt/equity ratio and the earnings per share. You will also determine the company’s return on investment and the weighted average cost of capital.
 
Part D: Discussion of Free Cash Flow. You will determine Ford’s consolidated free cash flow. In this part, you will make a prediction as to what the company’s stock price would be in three (3) months. You will also review analysts’ estimates and predictions for the past year.
 
Part E: An investment recommendation. You will answer questions relating to whether the company maximizing the wealth of its shareholders? If not, what can they do to achieve this result? You will review your calculations and discussion of the following 6 ratios and financial measures: Current Ratio, Debt/Equity Ratio, Return on Investment, Earnings per Share, Profit Margin and Free Cash Flow. You will conclude your analysis with other observations on the firm and whether your analysis differs from other analyses that are available. You will indicate if there is any other measure you would want in order to make an investment recommendation. Finally, you will make an Investment Recommendation. For this recommendation, assume you have been asked by an investor, age 35, who wishes to invest in conservative stocks that will provide some income now but is mainly interested in growth over the next ten (10) years. Would Ford meet this investor’s investment goals? Defend your analysis in 2,000 to 2,500 words written in APA style and cite your sources in a reference list.
 
Explanation of each part LP1.
 
Part A: Financial analysis of a publicly-held company. We will use Ford’s latest consolidated and segment financial statements (form 10K) as filed with the SEC. You will calculate the current ratio and profit margin for the company as a whole. You will also answer general questions relating to Ford’s business operations.

Requirements

Step 1: Locate Ford’s form 10K for the most current year.
 
1. Go to the SEC’s
2. Under Filings and Forms, go to “search for Company Filings”
3. Click on : Company or fund name, ticker symbol, CIK (Central Index Key), file number, state, country, or SIC (Standard Industrial Classification)
4. The Ticker Symbol for Ford is
5. Locate the form 10K for the latest year. Ford files its annual reports in February. Note the interactive document does not provide all of the information. You will need to open the form 10K.
 
Step 2: In the Discussion 1.4, share your answers to the following questions. Share where you found the answers with your classmates.
 
1. What are Ford’s 2 major segments?
2. What are the major 3 components associated with Ford’s profitability for cars and trucks?
3. Comment briefly (one paragraph) on Ford’s planning assumptions and key metrics share.
4. Comment briefly (one paragraph) on Ford’s Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Step 3: Calculate the current ratio and the profit margin for Ford . You may share your questions as well as your calculations with your classmates in Discussion 1.4. It is useful to understand that you may have difference calculations due to differences in the formula for the ratio. Compare your answers to publicly-available information to see if your answers are close. Use any of the websites listed in the directions. Share your research with your classmates using Discussion 1.4. Be sure to use the consolidated financial statements.
 
Step 4: Summarize your findings in a word document. You will add to this document throughout the semester. Your final submission will include the results from part A – D.
 
LP2. Part B: Discussion of risks. You will search Ford’s form 10K and identify three major risks identified by the company. You will also assess the company’s market share for the automotive segment. You will determine the company’s growth rate.

Requirements

Step 1: From the form 10K, item 1A, identify three (3) major risks identified by the company you consider most important.
 
1. Read the form 10K item 1A.
2. Identify three major risks you consider most important to the company’s future.
3. Calculate the company’s Beta coefficient of the stock. From any of the websites listed in the directions, how does your calculation compare?
4. Share your conclusions with your classmates in Discussion 2.2.
 
Step 2: From the form 10K, review item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Assess the company’s market share.
 
1. Read the form 10K, item 7, Management discussion and analysis of financial Condition and Results of Operations.
2. Locate information about production volume of cars and market share.
3. Explain if the company’s market share for automobiles increased or decreased over the past year. You may look at other sources to support management’s position.
4. Share your research with your classmates in Discussion 2.2.
 
Step 3: Calculate the company’s growth rate of EPS or dividends. Compare your calculation with publicly-available information from any of the websites listed in the directions.
 
1. Calculate the growth rate of the company’s EPS or dividends using the formula presented in the text.
 
2. Compare your result to publicly-available rates. Use one of the websites listed
in Part A.
 
3. Share your calculation and research with your classmates in Discussion . Provide and explanation if your calculations differ from your classmates or publicly-available information.
 
Step 4: Summarize your findings in a word document. Add to the document You started on Part A. Your final submission will include the results from part A – D.
 
LP3. Part C: Discussion of Ford’s capital structure. You will review Ford’s consolidated financial statements. You will calculate the company’s debt/equity ratio and earnings per share. You will also determine the company’s return on investment and weighted average cost of capital.

Requirements

Step 1: Review the form 10K, item 15, to determine Ford’s capital structure. From the consolidated balance sheet, what kinds of stock has Ford issued?
 
Step 2: Read note 24. CAPITAL STOCK AND AMOUNTS PER SHARE. What is the meaning of Earnings per share and diluted earnings per share? Share your comments with your classmates in Discussion 3.2.
 
Step 3: Calculate the debt/equity ratio. Use all long-term debt in your calculation. Compare your answer to publicly available information. Share your analysis with your classmates in Discussion 3.2.
 
Step 4: Calculate the Earnings per Share. Compare your answer to publicly available information. Share your analysis with your classmates in Discussion 3.2.
 
Step 5: Determine the company’s return on investment. Compare your answer to any website listed in the directions. Share your analysis with your classmates in Discussion 3.3.
 
Step 6: Determine the company’s weighted average cost of capital. Compare your answer to any of the websites listed in the directions. Share your analysis with your classmates in Discussion 3.2.
 
Step 7: Comment on whether the firm’s capital structure is optimal.
 
Step 8: Add to the document you started on Part A. Your final submission will include the results from part A – D.
 
LP4. Part D: Discussion of Free Cash Flow. You will determine Ford’s consolidated free cash flow. In this part, you will make a prediction as to what the company’s stock price would be in three (3) months. You will also review analysts’ estimates and predictions for the past year.

Requirements

Step 1: Look at Ford’s Consolidated Statement of Cash Flows. Note the operating cash flow section is found in Note 25.
 
Step 2: Calculate the free cash flow. Share your calculations with your classmates in Discussion 4.2.
 
Step 3: Compare your answer to any of the websites listed in the directions. Share your research with your classmates in Discussion 4.2.
 
Step 4: Make your prediction as to what the stock price will be 3 months from now. Share your predictions with your classmates in Discussion 4.2.
 
Step 5: Add to the document you started on Part A. Your final submission will include the results from part A – D.

Requirements Answer the Following Questions and wWite your Final Report

Step 1: Is the company maximizing the wealth of its shareholders? If not, what can they do to achieve this result?
 
Step 2: In the LP5 discussion dedicated to the financial statement analysis project, share your tentative conclusions about whether or not the company is maximizing the wealth of shareholders with your classmates. Provide support for your answer.
 
Step 3: Review your calculations and analysis of the following 6 ratios and financial measures: Current Ratio, Debt/Equity Ratio, Return on Investment, Earnings per Share, Profit Margin and Free Cash Flow If you have any questions, post them in the discussion forum.
 
Step 4: Conclude your analysis with other observations on the firm and whether your analysis differs from other analyses that are available. Indicate if there is any other measure you would want in order to make an investment recommendation. You may also share your thoughts with your classmates using the LP5 discussion forum.
 
Step 5: Make an Investment Recommendation. You should not share your final recommendation with your classmates. Assume you have been asked by an investor, age 35, who wishes to invest in conservative stocks that will provide some income now but is mainly interested in growth over the next ten(10) years. Begin your final project essay with an investment recommendation to this investor and support it with solid financial analysis. Your report should include your conclusions related to each of the five parts of this financial statement analysis project. You should conclude with a statement on whether or not Ford would meet this investor’s investment goals. Your essay should be in 2,000 to 2,500 words, written in APA style, and cite any your sources you used both in the body of the paper and in a reference list found at the end of the paper.

Assignment Financial Management

1. Directions: Find an article online about a publicly traded firm’s decision regarding at least two different project alternatives. To be clear, you are to choose (1) decision, and analyze at least (2) different project alternatives for that (1) decision. What was the decision that the firm made about the different projects and what was the decision process that they used to come up with their final decision? Did it turn out to be the correct decision? Using publicly available financial data critically analyze the firm’s decision and its alternatives. Then formulate a plan to either adopt one of the alternative projects or to support the original project decision depending upon which project would be the most beneficial to the firm. Defend your answers in a 750 to 1,000-word report and cite your sources.
 
2. Directions: Christopher William, president of William Industries which produces widgets, has hired you to determine its cost of debt and the cost of equity capital. The stock currently sells for $25 per share and the dividend will be $5. Christopher argues that it will cost us $5 per share to use the stockholders money this year, therefore, the cost of equity is equal to 20%. Furthermore, Christopher believes that the cost of debt is 25%. This is based upon the most recent financial statements which show that William Industries has total liabilities of $10 million and will face total interest expenses for the year of $2.5 million. Christopher argues that the company should increase its use of equity financing because debt costs 25% while equity only costs 20% and thus, equity is cheaper. Is Christopher’s analysis of the cost of equity, debt, and decision to increase the use of equity financing over debt financing accurate? Defend your answers in a 500 to 750-word report and cite your sources.
 
3. Directions: Revco Drug Store filed for bankruptcy in July of 1988 and was one of the largest bankruptcies in US financial history as well as being one of the largest leveraged buyouts. As recently as 1984, Revco was operating approximately 2,000 stores in 30 states and was taken private in a leveraged buyout in 1986 which lead to a significant increase in Revco’s debts from $44.7 million in 1985 to over $700 million in 1986 after the leveraged buyout. Eventually, its debt reached $1.3 billion and Revco announced that it could no longer make the interest payments on its debts. Using the basic background information already provided conduct more extensive research about the Revco bankruptcy on ProQuest and prepare a plan for the firm’s bankruptcy. Be sure to address issues such as whether it would be better for Revco to file for formal bankruptcy instead of private restructuring, what the costs of the Revco bankruptcy will be, and how long you expect before Revco will emerge from bankruptcy.
 
4. Directions: Examine the risk report of five different countries on at least 3 different continents. Discuss the different sources of risk in these countries and how these risks will impact different things such as the country’s exchange rate, your ability to conduct business and borrow in the country, etc. As the manager of an international firm, how would you respond to mitigate these risks? Defend your answers in a 750 to 1,000 word report and cite your sources.

Product code: Finance-QA53

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