Fundamental Financial Analysis of the Firm:
A term paper due (in my office H202, or in my mailbox in H116) by midnight, Wednesday 2 Dec 2009
1.  Select a company on which you can perform a fundamental financial analysis.  Select a publicly traded company that sells a tangible product and that has made a profit in the most recent accounting year.
2.  Copy the income statement & balance sheet from your company's annual report, generally available on-line at....  http://www.yourcompany.com or at finance.yahoo.com
2 a)  Make sure the financials are for the most recent year available, and are not quarterly results. Note the dates of the financials in your paper.
3.  Calculate ratios 1 through 8 (see below) for the two most recent consecutive years.
4.  "Discuss significance" (the full meaning of this phrase is discussed in class) of ratios 1 through 8, including:
    a) year to year comparison (include the actual ratios in your text)
    b) most recent year to industry comparison (again, include actual ratios)
    c) short discussion regarding the meaning of the ratio (a finance text may be helpful here)
5.  Report the PE ratio, and calculate the "Mkt to Book" using recent [within the last several days] data from the Internet and the most recent [last accounting year] financials.  The web site "quote.yahoo.com" usually has the PE ratio and market capitalization (MKT CAP) for most firms.  You'll need to know the "ticker tape symbol" for your company (found using the "lookup" routine in yahoo)  Then try looking under "fundamentals" or "chart" for the details.  Discuss the significance of these ratios relative to my quoted market standards (but do not do a  "year-to-year" comparison for ratios 9 & 10).
6.  a)  Include 1 or 2 pages of original text, single spaced, is usually sufficient to cover discussion of the the ratios.  Minimize the volume of paper.  Grade points will be subtracted if package includes pages not required.
     b) Include a copy of the income statement and balance sheet from where you got your data.
     c) Include a worksheet showing your actual calculations.  It is not required to type this worksheet, but it must be on clean 81/2 x 11 paper.  Suggestion:  Run your ragged worksheet through a copy machine and submit the copy. 
     d)Include a copy of the webpage from which you got PE and MKT CAP data.  This should be a single page.
     e) Cover pages, folders, and extra packaging are NOT appreciated.  One staple is sufficient to hold 6 pages. 
    f) Paper must be typed and proof read.
    g) Each paper must be a unique, original work, created by you.
    h) Regarding writing style:  Write in complete, grammatically correct sentences.  Focus on discussing the ratios.  Be professionally concise.  Avoid use of the "first & second person" (I & you).    Avoid irrelevant descriptions of the firm.  Do not offer a "buy" or "sell" recommendation.  
7.  Grades will be based on a subjective evaluation of your financial insight, professionalism in writing, editing, and presentation, with some regard toward the level of creative energy that went into the paper.

The Ratios:  = common models = models used in this course.  e.g. related to "plan" handout
1.  Current Ratio  =  current assets/current liabilities  =   (cash+A/R+inv)/A/P
2.  Acid Test  =  (current assets-inventory)/current liabilities = (cash+A/R)/A/P
3.  Inventory Turnover  =  Sales/inventory = Sales/inventory
4. Days Sales Outstanding (DSO) [a.k.a. Avg Collection Period]  = (A/R/Sales) * 365 =(A/R/Sales) * 365
5.  Debt Ratio  =  Total Liabilities/Total Assets  =  (A/P + Debt)/Total Assets
6.  Times Interest Earned (TIE)  =  Operating Profit/interest expense = EBIT/interest
7.  Profit Margin  =  Net Income/Sales =EAC/Sales
8.  Return on Assets (ROA)  =  Net Income/TotalAssets =EAC/TotalAssets
9.  PE  =  price per share/EPS
10. Market to Book = MktCap/ShareholdersEquity =  (price per share x no. of shares)/ [ Pref+ Common+ RE]

Industry Standards: (Use these data as if they were for your specific industry)
Current       2.0
Acid          1.8
Inv Turns     7
DSO           45
Debt Ratio     .50
TIE           3.0
Margin          2%
ROA            12%
PE             20
Mkt/Book       2.0

Common Errors:
1.  To say "2005 was better than 2006" is an evaluation of the earlier year (wrong).  Say "2006 was worse than 2005".  This is an evaluation of the most recent year.
2.  The "industry" is not the "market".  The "industry" is a group of firms selling the same stuff.  The "market" is where stocks are bought and sold.
3.  "Ten is greater than five".  Often this is miswritten as "Ten is greater then five."
4. "Their" is not "there" is not "they're".
5.  A "paper" means written on tree-killing paper.  It does not mean an email attachment.