Competencies
In this project, you will demonstrate your mastery of the following competencies:
- Analyze financial and investment decisions that add value to the organization
- Analyze financing options to maximize investor value
Overview
This assignment is the last in the sequence that includes Final Project Milestones One and Two. In Milestone One, you introduced the business you chose. You examined its financial statements and financial health and reported its financial values. In Milestone Two, you made calculations based on the information found using Mergent Online about your company and compared the totals with those of one year ago. You then used those figures to decide whether short-term financing was needed to improve your company’s financial health.
In this final stage of your Final Project, you will use the information you’ve accumulated thus far and make decisions on whether any or all of the following are appropriate directions for your company. Review the assumptions about this company located in the Final Project Financial Assumptions document.
Note: All documents and resources that are needed to complete this assignment are linked in the What to Submit and Supporting Materials sections.
Scenario
The CFO of your company has asked for your support in preparing a report for the business’s board of directors. Many of the board members are new, and some of them have little background in finance. With this in mind, you will need to write a report that all board members can easily understand.
Directions
Specifically, you must address the following rubric criteria:
- Financial Analysis: In prior assignments, you calculated some of the financial formulas using quarterly financial statements from your chosen business and the Final Project Financial Formulas worksheet. For the financial analysis, edit prior work based on feedback and include it in this final project.
- Financial Calculations: Accurately calculate financial formulas to figure out the business’s current financial health. You must calculate the following:
- Working capital
- Current ratio
- Debt ratio
- Earnings per share
- Price and earnings ratio
- Total asset turnover ratio
- Financial leverage
- Net profit margin
- Return on assets
- Return on equity
- Working Capital Management: Explain the impact of working capital management on a typical business’s operations. Provide examples to support your claims.
- Why is it important for a business in general to carefully manage its working capital?
- Financing: Explain the options available for a company in general to finance its operations and expansion.
- Short-Term Financing: Explain how potential short-term financing sources could help any business raise funds for improving its financial health.
- Bond Investment: Discuss the risks and benefits of any business investing in a corporate bond. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.
- Capital Equipment: Discuss the risks and benefits of any business investing in capital equipment. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.
- Building: Discuss the risks and benefits of any business investing in a building, including leasing substantive physical assets like buildings. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis.
- Financial Evaluation: In this step, you will use the knowledge you’ve accumulated thus far and make decisions on whether any or all of the following are appropriate directions for your chosen company. Assume that the situations located in the Final Project Financial Assumptions document are true of your chosen company. For each of the options below, include the necessary ethical factors, appropriate calculations, and examples from previous milestones to support your analysis. Based on your company’s financial health, you should consider:
- Bond Investment: Determine if the bond investment is a good financing option for your chosen business’s financial health. Use your financial analysis and other financial information to support your claims.
- Capital Equipment: Determine if the capital equipment investment is a good financing option for your chosen business’s financial health. Use your financial analysis and other financial information to support your claims.
- Building: Determine if the building investment is a good financing option for your chosen business’s financial health. Use your financial analysis and other financial information to support your claims.
- Future Financial Considerations: Describe your chosen business’s likely future financial performance. Base your description on the business’s current financial well-being and risk levels. This time, do not consider the assumptions in the Final Project Financial Assumptions document. Use your chosen company’s most current financial information to support your claims.
Milestones
Milestone One:
In Module Two, you will submit a short paper that introduces your chosen company and summarizes the results of the company’s latest balance statement, income statement, and cash flow statement. This milestone will be graded with the Final Project Milestone One Rubric.
Milestone Two:
In Module Five, you will submit a short paper that compares your chosen company’s latest status with the values of one year ago. You will use this information to decide whether short-term financing can help improve your company’s financial health. This milestone will be graded with the Final Project Milestone Two Rubric.
Final Submission:
In Module Seven, you will submit a short paper that describes whether your chosen company should make specific investments based on its financial health. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. This submission will be graded with the Final Project Rubric.
What to Submit
To complete this project, you must submit the following:
Financial Analysis Report
Submit your completed Final Project Financial Analysis Report.
All sources should be cited according to APA style. This includes sources listed in your Final Project Financial Formulas workbook. Consult the Shapiro Library APA Style Guide for more information on citations.
teacher feed back
Submission FeedbackOverall Feedback
Excellent work, Jovan! All of the financials have been calculated on your chart and your narrative explaining the changes in the ratios over this time period was detailed.
When it comes to analyzing a company’s performance, whether as a potential investor or an internal financial manager, the key is to understand what each of the accounting statements (Income Statement, Balance Sheet, & Statement of Cash Flows) has to say about the financial condition and operating results of a firm. The easiest way to do this is through financial ratios which help expand the content of the financial statements and shows the relationships between all three as well as put the outputs (the ratios) in a common-sized analysis.
Investors, and financial managers alike, use these ratios to evaluate the company’s performance over time (trend analysis) and vs. other companies in the same line of business (industry analysis). At a glance, these ratios will quickly tell us if the company is improving results year-over-year and if they are performing better or worse than the industry avg. A lot can be gained from seeing how a company stacks up against its competition to see if it is well-positioned to take advantage of any unfolding developments.
As an individual investor, my personal favorite to first look at would be the Price/Earnings (P/E) Ratio which is a simple measure used to assess whether a stock is over- or under-valued, based on the idea that the value of the stock should be proportional to the level of earnings it can generate for its shareholders. All else equal a high P/E Ratio compared to the industry avg could be a red flag that the stock is priced too high whereas one that is under the industry avg could show a potential opportunity. I typically identify a list of companies with past (and future) P/E Ratios under the industry avg and then dive into some of the other key ratios before deciding which, if any, companies to invest in.