FINC 350 - Business Finance Online

Course Project
This project is worth 200 of the possible 1000 points in this course, and that is 20% of your grade for this class. This is not a project you want to procrastinate on start early and work on it a bit every week otherwise, you will not be able to produce the quality I am looking for and that you should expect from yourself. Contents The Setting Your Tools The Look of Your Report Expectations Final Thoughts Bi-Weekly Submissions

The Setting
You are employed as a Financial Analyst for the private equity firm Celash, Byrne & Moovon (CB&M). They are considering approaching either the management of Company A or Company B (choose from the list below) to discuss with management their possible interest in selling out to CB&M. You have been asked to do a comprehensive analysis and evaluation of both companies and make a recommendation as to which of the two is the most desirable acquisition and at what price. You report directly to Mr. Moovon (pronounced move on). He is not a patient person and has a low tolerance for waffling and indecision. You have less than two months to complete the task and he will expect frequent updates. You can also expect that he will interrupt you with other projects. Welcome to the real world! Choose one of these pairs of companies to compare: 1. 2. 3. 4. General Motors (GM) and Toyota (TM) Target (TGT) and J. C. Penney (JCP) Merck (MRK) and Lilly (LLY) Exxon-Mobil (XOM) and Valero Energy (VLO)

Important Note: You are to choose one of the matching pairs above. If you choose to evaluate General Motors, you would also evaluate Toyota. If you select the second option, your two companies would be Target and J. C. Penney.

Your Tools
So how do you decide what to recommend? Well, you apply the tools we will be learning and using throughout this session. As a bit of guidance, the most important things you will need are: 1. The course text book. 2. The supplemental text, Benjamin Grahams The Interpretation of Financial

FINC 350 Business Finance Online

Course Project Statements. a. Detailed Financial Statements for your companies as filed with the Securities and Exchange Commission and available on the company web sites. b. The Value Line Investment Survey (available online from the Columbia College Library). This list is in no way comprehensive and is not designed to give you every resource you may need or decide to use you are more than welcome to use other sources when appropriate, but make sure they are academically credible. On that note, Wikipedia and similar sites are in no way academically credible, and if you use them you will automatically lose 10% of the points possible.

The Look of Your Report

This is an important project, and I expect you to treat it accordingly. A few tips for you: 1. Moovon is not going to weigh your report, but a good guess would be that he would be disappointed by less than 10 to 15 pages and 2-3,000 words of explanation (all four parts totaled) oh, and a cover letter, table of contents, references page, etc., do not count towards the expected length. 2. You are submitting this project to your supervisor, so it needs to look professional and polished a poorly formatted paper will not do as well as one that looks like a nice, well presented, and completed package. 3. Do not be afraid to use a cover page, some color in your tables, etc. make this thing look professional and polished (after all, you would like to get that big promotion). 4. A lot of numbers buried in text are very, very hard to follow and understand use tables to summarize the data and then use your text to discuss the tables.

Expectations
Though the project is submitted in four different parts, as a whole piece (which you will have by the end of Week 7) I expect a detailed comparison of the two companies using all of the relevant ratios and the calculations involved. The ratios should be accompanied by text explaining what each means and why they differ between the two companies. Your textbook (particularly Chapter 3) and Part Two of the Graham book will be a big help here. As an overarching train of thought, consider the following guidance: Mr. Moovon expects you to begin with the Balance Sheet: 1. Start with the Capital Accounts. How do they differ? How are they the same? Are they realistically presented? What are the Book Values, and what are the present Ratios of the stock Prices to Book Value. 2. Now look at the Fixed Assets (the Property Account). When you read Chapter Five of the little Graham book you will realize that assets are not always what they appear to be. Does either of your companies show Asset items that need explanation? What are they? How are they explained? You might have to go into the footnotes to the Financial Statement to find the answers.

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FINC 350 Business Finance Online

Course Project 3. Are the Non Current Assets material and how are they explained? Are there material Intangible Assets? (Chapter 8 in Graham) What would be material for companies the size of the two you are comparing? 4. Does either company have any Deferred Tax Accounts? How are they treating taxes? 5. Now take a look at the Current Assets. Are the companies maintaining adequate liquidity? Mr. Moovon is going to want to see the relevant ratios, so you had better calculate them and have them ready. 6. Mr. Moovon always says, You cant be sure about the Assets but the Liabilities are always real. Does either company have too much debt? If it does, CB&M will not touch it. Can either company carry significantly more Debt? How much more? CB&M always loads the companies it acquires with as much Debt as they can carry. That is how they finance the deal. 7. Are there any hidden assets? Now move on to the Income Statement: 8. Are the companies as profitable as they should be? What ratios would tell us that? OK! Now calculate them. Let me see those Efficiency Ratios. 9. Now that you have calculated the ratios, what can CB&M do to make them more profitable? What do you suggest? 10. As a double check run a DuPont Analysis on both companies. Now you had better try to put a value on both companies because Mr. Moovon expects to see a value. Calculate some valuation ratios like Price/Book Value, Price/Earnings per Share (make sure you use fully diluted share numbers), Price/EBITDA per Share. How do these ratios compare with other companies operating in the same industry? As an example, you might compare General Motors and Toyota to Ford, or Target and J. C. Penney to K-Mart and Wal-Mart. What is the current market value (debt and equity) of each of the two companies? Mr. Moovon will need to know this to formulate a reasonable bid (or walk away).

Final Thoughts
Keep in mind that Finance is often about the numbers, and this project is definitely no exception to that if you do not present, analyze, summarize, and use the numbers, you will not score well. However, that does not mean you should neglect your discussion of the topic and provide nothing but numbers. I do not want you to simply repeat material from the textbooks or some other source using quotations is ok, but I need to see that a substantial amount of the work is in your own words and demonstrates that you understand the material. Moovon is counting on you (or someone just like you). Do not let him down - good jobs are hard to find.

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FINC 350 Business Finance Online

Course Project

Bi-Weekly Submissions
Scoring details are provided as a guide only they are designed to help you focus on the correct content. The individual components (and the components graded) may vary.

Week One Financial Statements The purpose of this first weeks submission is to kick-start the project with some research, brief discussion, and a few ratios. Start by deciding which pair of companies you will be analyzing for your final project. Start doing your research on the two companies; in particular, look for the most recent annual financial statements for the year in which both companies are available (if the 2008 financials are available for one and the most recent on the other is 2007, you want to use the 2007 financial statements for both comparing one companys 2007 results with anothers 2008 results can skew things a bit, especially given current market trends and economic conditions). Next week we get into financial statement analysis in a much deeper way, but for now calculate a few simple ratios, like book value per share, current ratio, and profit margin on sales. Write a brief description of your findings and post it to the appropriate Dropbox. You will also post a copy of the financial statements for both companies in the Dropbox as well. You can submit a Word document containing links to the financial statements if that is easier just make sure the links work. Scoring: Appropriate Financial Statements for Both Companies Written Component: Quick Introduction to Both Companies Selection/Companies Calculation of Basic Ratios Brief discussion of initial thoughts/reactions Grammar, spelling, presentation (easy to read, follow, and understand) Total Points Possible Week Three History & Background This week I want you to do some research on the history of the two companies and then write a paper that tells me what you have learned. What do they have in common? How are the businesses different? This will take some deep digging. Post your paper to the appropriate Dropbox. Scoring: Detailed History of Both Companies Identification of key decisions/historical events showing strong adaptability and/or competitive position Discussion/conclusion highlighting thoughts, reactions, and any items that may result in one company being favored over the other. Grammar, spelling, presentation (easy to read, follow, and understand) Total Points Possible 6 pts. 7 pts. 7 pts. 5 pts. 25 pts. 10 pts. 3 pts. 3 pts. 3 pts. 3 pts. 3 pts. 15 pts. 25 pts.

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FINC 350 Business Finance Online

Course Project Week Five Financial Analysis Now is the time to do the detailed Financial Analysis of our two companies in preparation for submitting our recommendations in Week Seven. Make sure you calculate all of the ratios needed to evaluate the companies (Chapter 3 will be an invaluable resource for this, and it even gives you an example); these ratios should be based on the financial statements you submitted in Week One. In addition, show me the DuPont Analysis for each. Just calculating the ratios is only part of the submission also, tell me what they mean to you. Is one company stronger in a particular area than the other? Is one slipping in its ratios while another is gaining strength? Do the ratios highlight any other questions or concerns? This will help you focus on the recommendation you are going to make in two weeks. Scoring: Financial Analysis: Ratios shown, including data for last five years DuPont Analysis Written Component: Discussion of strengths/weaknesses of each individually and in comparison with each other. Discussion of thoughts and reactions Grammar, spelling, presentation (easy to read, follow, and understand) Total Points Possible Week Seven Summary & Recommendations You have finished the project and now it is time to bring it all together. I expect one final paper containing your recommendations, concerns, thoughts, and conclusions. Which is the more promising business? Which is the better buy? Post your project to the appropriate Dropbox. If you have made any revisions to the initial pieces of the project, resubmit them in the appropriate box for that portion of the paper. Your final submission should bring together all of the other pieces (with the addition of the summary and recommendations) and form a whole project. Scoring: All project pieces are tied together as a coherent whole Final Recommendation: Recommendation clearly presented Recommendation is well supported and justified Recommended purchase price is identified and justified Brief suggested action steps following acquisition are outlined Total Points Possible 25 pts. 15 pts. 25 pts. 25 pts. 10 pts. 75 pts. 100 pts.

15 pts. 10 pts.

25 pts.

9 pts. 9 pts. 7 pts. 25 pts. 50 pts.

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