FIN 306 Individual Project

Part 1: Structured External Assignment

Assumption:You areafinancial analyst working for a major investment house. You have been given a major corporation (actually it’s your choice*) to analyze for its investment potential. You will choose a U.S. publicly traded retail or manufacturing company. It must have inventory. Choose something you are interested in if you can. The company choice will be submitted by the end week 2 in a discussion board. Only one person can choose each company so please review peer submissions before you make your choice.

You CANNOT choose the following as they are provided as examples: Wal-Mart, Dell or Ford.

*Do NOT choose a financial organization, stay with manufacturing or retail companies that are publicly traded.

Company Choice: SEPHORA

– A link to Sephora’s Annual Report:

DE&I Annual Report & Racial Bias in Retail Study – Sephora Newsroom

Competitor: ULTA Beauty, Inc

– Link to Ulta’s Annual Reports: Annual Reports :: Ulta Beauty, Inc. (ULTA)

Assignment: Based on your analysis of the firm’s financial statements and any relevant supplementary information you can obtain about the firm and its operating environment. Identify areas in which the company is performing well (strengths) and advise your boss of any problem areas (weaknesses).

Include in your analysis an assessment of how the firm’s strengths and weaknesses affect its credit worthiness and investment potential.

Data:The time period for the analysis should include a minimum of three full years (five is better) plus interim statements for the most recent year. In addition to the financial statements and other material in the annual and/or 10K reports, you should review relevant materials from other sources mentioned in class or found in your text. You will need to annual reports to get three years of information.

For comparison data use whomever you consider to be your major competitor. This means you will need their annual report as well to do the analysis for them.

Remember – your must usebothfinancial ratios and a common-sized income statements. You must show the formula, calculation and answer for all ratios.

Outline for PowerPoint Presentation:

The attached outline is provided for guidance, but the analysis should be adjusted, as appropriate, to conform to the individual characteristics of the firm. The categories listed in the outline should be included. If you have something you cannot find, before ignoring it, send an email to ask.

Note to students: please remember do not select a financial institution for your company.

For PowerPoints items in Sections 1 & 2 should be 1 slide each. For section 3 it’s your call. Cover those important ratios and significant issues found in the common-sized income statement and in your analysis of the capital structure of the firm. Remember however that PowerPoint slides are not meant to be an eye chart. If you have more than 6 typed lines on one slide – you needed another slide!

I. Introduction

II. Firm, Industry and Environment(please bebrief,this IS a finance and accounting course not a history class!)

1. Description of firm and its management
2. Discussion of the competitive environment
3. Economic climate and outlook
4. Other factors as appropriate, e.g. governmental regulations, labor issues, litigation pending

II. Evaluation of Financial Statements (note key word is “evaluation”)

1. Overview
2. Short-term liquidity
3. Activity Ratios
4. Financial Leverage (Debt Ratios)
5. Profitability and Market Ratios
6. Common-sized Income Statement Analysis (this means compare one year to another)
7. Discussion of the Company’s capital structure

III. Outlook,

Summary and Conclusions

1. Outlook for performance (investment potential, credit assessment, etc.)
2. Strengths
3. Weaknesses

Summary and Conclusions

**Your final submission must be a PowerPoint presentation – use as many slides as necessary but please don’t get carried away. Also, remember that PowerPoints are not meant to be “paragraph after paragraph” of writing, but rather the highlights of your findings which will be mostly in bullet-point format. You may need to explain some of your findings in more detail of course and I am looking for an analysis that would include the “so what” of your findings.

** PLEASE INCLUDE SCRIPT WITHIN SLIDE**

IMPORTANT! Be sure to give credit to any source you use. While this is not an APA exercise, the rules for plagiarism definitely apply.

Part 2: You are to review/critique/analyze one other PowerPoint presentation. You may ask questions of the presenter, add additional information concerning the company and its performance the presenter may have omitted, or take issue with the presenter concerning any item of the presentation including the presenter’s analysis and conclusions. You comments – posted under the presentation you are evaluating is due no later than Sunday of week 6 at 11:59pm. Should a classmate comment on your presentation, ask questions of you or challenge your analysis or conclusions, you will have until the following Wednesday (week 7) to reply. Note your analysis/critique of one other presentation is part of your grade. (3-4 sentence reply)

Below are two course projects turned in by different students in a past course – one is very good the other is NOT – so this gives you some guidance on what to do and, just as important, what not to do.

Watch both and then ask yourself which of the two presentations actually told me something about the FINANCES of the company. Both look pretty, but this “ain’t” an art class.

As for Michele’s – she did a voice-over Powerpoint presentation. I am NOT requiring anyone to do a voice -over, actually I’d prefer that you don’t, but here I think it’s very useful as you can easily follow her analysis

I thought some examples would be helpful.

FIN 306 Course Project Grading Rubric
Organization
20 to >18.2 pts
18.2 to >16.5 pts
16.5 to >14.6 pts
14.6 to >13 pts
13 to >0 pts
Distinguished
Proficient
Satisfactory
Marginal
Unsatisfactory
Followed template
exactly – all topics
covered.
Followed template – with
minor modifications topics covered
Followed template in Some attempt to
general – most topics follow template covered
items missing
20 to >18.2 pts
18.2 to >16.5 pts
16.5 to >14.6 pts
14.6 to >13 pts
Distinguished
Proficient
Satisfactory
Marginal
Did not follow template
– missed important
topics
13 to >0 pts
Demonstrates
Demonstrated good
Limited command
Presentation of Data complete command of command of ratios and
of ratios and/or
ratios and common
common-sized IS. May
common sized IS.
size tools. Cross
have minor math errors. Math errors.
sectional analysis
Used both time series and Incomplete crosscomplete.
cross sectional analysis.
sectional analysis
20 to >18.2 pts
Distinguished
Evaluation
S&W
Recommendation
Unsatisfactory
Some ratios either
missing or incorrectly Key ratios and/or
calculated. Common common sized IS
sized IS incomplete. missing. Major math
errors. Lack of
Lack of crossunderstanding of
sectional analysis
topics evident
18.2 to >16.5 pts
16.5 to >14.6 pts
14.6 to >13 pts
13 to >0 pts
Proficient
Satisfactory
Marginal
Unsatisfactory
Makes appropriate Provides appropriate but Connections between Makes no connection
Makes thoughtful
connections
vague connections
financial topics lacking. between financial
connections between
between financial between financial topics. Lack of critical thinking topics. Ratios calculated
financial tools.
tools. Presents
Presentation shows
evident. Evaluation
but are left alone – no
Demonstrates
good command of some lack of
lacks support or
attempt to relate one to
command of topics.
topics.
understanding of topics. financial evidence.
another
20 to >18.2 pts
18.2 to >16.5 pts
16.5 to >14.6 pts
14.6 to >13 pts
FIN 306 Course Project Grading Rubric
Distinguished
Proficient
S&W: clear, logical
S&W: connected
connections with data logically to data
analysis.
analysis.
Recommendations
Recommendations
thoughtful – flow from appropriate.
analysis.
20 to >18.2 pts
Distinguished
Professional
Presentation/Writing presentation commands
attention. Writing
clear and concise error free.
Total Points: 100
18.2 to >16.5 pts
Proficient
Professional
presentation.
Writing appropriate
for audience. Few,
minor grammatical
errors.
Satisfactory
Marginal
13 to >0 pts
S&W: lack
S&W not focused on Unsatisfactory
consistency with data data.
Makes no connection
analysis.
Recommendations
between S&W and
Recommendations vague or unrealistic.
data/analysis.
reasonable overall.
Recommendations
unrealistic or
inappropriate given data
presented.
Recommendations not
related to data
16.5 to >14.6 pts
Satisfactory
Presentation
acceptable – meets
expectations. May
have a few
grammatical errors.
Writing may be
wordy.
14.6 to >13 pts
Marginal
13 to >0 pts
Unsatisfactory
Presentation not
Acceptable yet flawed
professional presentations – lacks
haphazard – difficult to
some professional
follow. Errors in
elements. May have
grammar distract from
grammatical errors.
presentation
Walmart Financial Analysis
Introduction
• Founded by Sam Walton in Rogers, Arkansas in 1962
• Walmart is broken down into three divisions:
• Sam’s Club
• Walmart International
• Walmart U.S.
• By 1990 Walmart had become the largest U.S. retailer
• Became the largest corporation in the world in 2001
• Began expanding into the e-commerce world in the 2010’s with the purchase of
startups such as Jet.com and Moosejaw
• What does Walmart Provide?
• Walmart’s mission statement is “Save people money so they can live better”
• Provides a variety of goods and services at discounted prices including:
• Gas, Groceries, Wireless services, Pharmaceutical services, and plenty of other things
• As of 2019 Walmart has over 4,700 different store locations in the U.S.A. and continues to
expand overseas
• Management’s Core Values
• Customer First
• Accountable
• Frontline focused
• Honesty
Competitive Environment
• Walmart has a unique competitive environment for a couple of
reasons
• Competitors in the discount retail industry
• Target
• Costco
• Walmart’s biggest competitors come from the e-commerce industry
Huge Growth Potential in the E-Commerce Industry
• Walmart is a Multi-Billion Dollar corporation that has long been atop
the retail industry and has since expanded into e-commerce
• The biggest competitors in terms of revenues are:
• Amazon
• Alibaba
• E-commerce has grown to 15% of the total retail market share
• The next step for Walmart is to become the top e-commerce retailer
Walmart’s Place Among its Peers
• Walmart ranks 11th in in brand value($67.867 billion) out of all the
brands in the world
• Amazon ranks 1st ($187.905 billion)
• Net global sales have grown considerably over the last couple years
• Up 2.9% over the last fiscal year
• A large majority of Walmart’s sales come from groceries do to their
adaption of online ordering and curbside pickup
Short-Term Liquidity
Comparing Walmart’s and Amazon’s short-term liquidity
• Walmart has a lower current ratio than Amazon, but it is right in line with the industry average. A lower
current ratio is fine for Walmart for a couple reasons:
• Walmart is extremely large and has thousands of stores around the world
• Most of their current assets are tied up in inventory which is good because of their high inventory
turnover rate
• Amazon’s current ratio is higher because they do not need to keep as high of an inventory and have less
debt wrapped up in property
Quick Ratio
• Walmart’s quick ratio is much lower than Amazon’s because Walmart must keep a much higher inventory
• Expect Walmart’s quick ratio to start trending upwards as they continue expanding into the ecommerce industry
Activity Ratios
Notable Differences
• Average collection period: Amazon > Walmart
• Total Asset turnover : Walmart > Amazon
What to Expect in the Future
• Average collection period for both will go towards
each other, since they are invading each others’
markets
• Walmart will always have a higher asset turnover
due to its business structure
E-commerce effect on average collection period
• Transactions are done online via credit card
• More cash transactions = less collection time
Inventory Turnover
• Ratio’s are close, but Walmart’s inventory takes up
72% of their current assets while Amazons
inventory takes up 22% of their current assets
• Shows why Walmart’s quick ratio is so much lower
than Amazon’s
Debt Ratios
Walmart
Amazon
12/31/18
12/31/17
• Debt Ratios
• Both are on the higher side
• Walmart’s debt ratio is trending up
• Amazon’s higher debt ratio is
related to its low amount of equity
12/31/16
1/31/19
1/31/18
1/31/17
• Debt-to-equity Ratio
• Multiple ways to calculate
• Spike in D-T-E ratio indicates expansion/growth
• Neither company has preferred stock
• Times interest Earned Ratio
• Both companies are doing very well with this ratio
• Amazon’s downward trend happened during a year of
enormous growth
Profitability and Market Ratios
Profitability Ratios Walmart
1/31/19
1/31/18
Profitability Ratios Amazon
1/31/17
12/31/18
12/31/17
12/31/16
Gross Profit Margin
25.10%
25.37%
25.65%
Gross Profit Margin
40.25%
37.07%
35.09%
Operating Profit Margin
4.27%
4.08%
4.69%
Operating Profit Margin
5.33%
2.31%
3.08%
Net Profit Margin
1.30%
1.97%
2.81%
Net Profit Margin
4.32%
1.71%
1.81%
Earnings Per Share
$
$ 2.26
3.28
$
4.38
Earnings Per Share
$
$
20.14
6.15
$
4.90
Return on Total Assets
3.05%
4.82%
6.86%
Return on Total Assets
6.19%
2.31%
2.96%
Return on Equity
8.39%
12.19%
16.94%
Return on Equity
22.70%
10.71%
18.23%
Market Ratios
Market Ratios
P/E Ratio
M/B Ratio
Market Price Per share
Book Value per share
42.03
$
$
3.50
95.83 $
27.41 $
32.40
15.17
3.91
106.60
27.28
2.66
$
$
66.74
25.10
P/E Ratio
M/B Ratio
74.58
190.16
17.24
153.03
20.81
18.43
Income Statement Analysis
Outlook
• Walmart had a down year
• Still a good investment, lots of growth potential
• Must improve financial leverage
• Low risk low reward (conservative stock)
• Ratios are in good shape
• Amazon took a huge step forward
• Expect their growth level out a bit
• Low risk stock with high upside
• Can possibly take over as top retailer in terms of revenues
Walmart’s Capital Structure
• Debt Capital
• Long-term capital lease obligations and long-term debt total equal $50.203 billion
• Equity Capital
• 2.994 billion capital in excess of par paid on common stock(288 million shares outstanding) and retained earnings totals
$83.779 billion less accumulated comprehensive loss of $11.542 billion
• Total Stockholders’ equity: $72.496 billion
• Total Capital Structure: $122.699 billion; 41% from Debt & 59% from Equity
• 4.1% comes from common stock 54.9% comes from retained earnings
Amazon’s Capital Structure
• Debt Capital
• Long-term debt and other long-term liabilities totals : $50.708 billion
• Equity Capital
• 500 million shares outstanding of common stock and additional paid in capital totals: $26.796 billion and retained earnings totals $19.625
billion; less: treasury stock ($1.837 billion) and accumulated losses($1.035 billion)
• Total Stockholders Equity: $43.549 billion
• Total Capital Structure: $94.257 billion; 53.8% comes from Debt & 46.2% comes from Equity
• 28.4% comes from common stock and 17.8% comes from retained earnings
Strengths
• Larger company (Higher Revenues)
• High inventory turnover rates
• Investors have confidence
• Low cost of capital (not much
common stock equity used)
• Large market share
• Brand recognition
• Understanding that the market is
changing
Weaknesses
• Financial leverage
• Declining profit margin
• Sources of capital are unbalanced
• E-commerce
• Heightened competition
• Unforeseen losses
• Extinguishment of debt
• Other (gains) and losses
Summary and Conclusion
• Walmart has its work cut out for them if they expect to maintain or
increase their share of the market from Amazon. Amazon is ahead of
the curve when it comes to adapting to the changing market, but
Walmart has at least been attempting to keep pace.
• Putting pressure on their competitors is something that Walmart
must keep doing. Continuing their expansion into e-commerce while
at the same time retain their profits generated from brick and mortar
stores is key.
• The retail industry has been dominated by Walmart for years, and I
have no reason to believe they would let anyone change that
Walmart. “Form 10-K.” SEC Archives, 2019,
www.sec.gov/Archives/edgar/data/104169/000010416919000016/wmtform10kx1312019.htm#s6EB4B4E54DED54A7BC64CAC319ACC3EA.
Citations
Amazon. “Form 10-K” SEC Archives, 2019,https://www.sec.gov/Archives/edgar/data/1018724/000101872419000004/amzn20181231x10k.htm#s292EB9EA1A9C5F7E944E30FEBED45ABB
Walmart Inc. (WMT) Income Statement. (2019, December 4). Retrieved December 2, 2019, from
https://finance.yahoo.com/quote/WMT/financials?p=WMT.
Amazon.com, Inc. (AMZN) Income Statement. (2019, December 5). Retrieved December 4, 2019, from
https://finance.yahoo.com/quote/AMZN/financials?p=AMZN.
Walmart Income Statement 2005-2019: WMT. (2019). Retrieved December 4, 2019, from
https://www.macrotrends.net/stocks/charts/WMT/walmart/income-statement.
Amazon Income Statement 2005-2019: AMZN. (2019). Retrieved December 4, 2019, from
https://www.macrotrends.net/stocks/charts/AMZN/amazon/income-statement
Tikkanen, A. (2019, March 4). Walmart. Retrieved December 4, 2019, from
https://www.britannica.com/topic/Walmart.
. Msa. (2019, October 11). Walmart Mission Statement 2019: Walmart Mission & Vision Analysis. Retrieved December 4, 2019, from
https://mission-statement.com/walmart/.
Duncan, E. (n.d.). Topic: Walmart. Retrieved December 4, 2019, from
https://www.statista.com/topics/1451/walmart/.
Amazon Net Profit Margin 2006-2019: AMZN. (2019). Retrieved December 5, 2019, from
https://www.macrotrends.net/stocks/charts/AMZN/amazon/net-profit-margin.
Appendix
Appendix
DELL
Michelle Fleming
DELL
• American multinational computer technology corporation
• Intense competitive environment
• Many merges and acquisitions have given competitors advantages
• Foreign competitors are penetrating free markets
• Poor economic climate has only slightly negatively affected Dell
• Government’s focus on electronic waste may affect Dell’s costs
Financial Source
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Financial Source
Liabilities & Stockholders’ Equity
SHORT TERM LIQUIDITY
HP Financial Source
ACTIVITY RATIOS
HP Financial Source
FINANCIAL LEVERAGE
HP Financial Source
PROFITABILITY RATIOS
HP Financial Source
MARKET RATIOS
HP Financial Source
COMMON-SIZED INCOME STATEMENT
Financial Source
CAPITAL STRUCTURE
• Long-term borrowing cannot be used to finance operations
indefinitely
• Debt as a proportion of total assets and equity was relatively
stable
DELL
Strengths
Weaknesses
•
Decreased debt ratio
•
Unpredictable average payment period
•
Investors willing to pay more for Dell
•
Increased long-term debt
•
Increased profitability ratios
RECOMMEND TO INVEST IN DELL
• Increased Revenue
• Assets covering debts
• Favorable investment potential
AN EXAMPLE OF WHAT NOT TO DO!
•
This presentation might look pretty – but – it deserves an “F” ! Why? If you already
looked at Michelle’s you already know – if not: this is a financial analysis assignment.
The problem with this presentation (and, yes, it was an actual project) is there isn’t any
analysis! Can you tell my how well or poorly Ford is doing based upon this presentation?
•
I didn’t think so. Neither could I.
PURPOSE
• To show the financial stability and growth potential of Ford.
• To provide information for investment
• To provide a comparison of Ford and Chevrolet for investors
BRIEF HISTORY
•
15 July 1903: Ford makes first sale
•
1922 Ford buys Lincoln brand
•
Ford played a major role in developing and operating NASA’s Mission Control Center for
the Gemini and Apollo space programs
•
During World War I Ford built 60 Eagle Boats ( Submarine Chasers)
•
During WWII Ford Built more than 8600 B-24 Liberator Bombers
•
In 1914 Ford doubled wages to $5 dollars a day. This helped build the U.S. middle class
•
Ford is currently one of the top 100 Global Innovators on Thomson Reuters List
MANAGEMENT MISSION AND GOAL
THE FUTURE OF THE AUTO INDUSTRY
•
Ford’s business strategy is embodied in our ONE Ford plan. ONE Ford expands on our
Company’s four-point business plan for achieving success globally. The four-point business
plan consists of the following:
•
Aggressively restructure to operate profitably at the current demand and changing model mix.
•
Accelerate development of new products our customers want and value.
•
Finance our plan and improve our balance sheet.
•
Work together effectively as one team.
•
Building on this plan, ONE Ford encourages focus, teamwork and a single global approach,
aligning employee efforts toward a common definition of success. It emphasizes the importance
of working together as one team to achieve automotive leadership, which is measured by the
satisfaction of our customers, employees and essential business partners, such as our dealers,
investors, suppliers, unions/councils and the communities in which we operate. We have
defined a set of behaviors that are expected of all employees to support the ONE Ford plan.
FUTURE CONT’D
•
The goal of ONE Ford is to create an exciting and viable company with profitable growth for all. The output
of ONE Ford is:
•
Great Products, defined as those that are high quality, green, safe and smart.
•
Strong Business, based on a balanced portfolio of products and global presence; and
•
Better World, accomplished through our sustainability strategy.
•
As detailed in the Financial Health section, Ford has made a remarkable turnaround over the last several
years, fueled by disciplined adherence to the ONE Ford plan and resulting in the reinvention of our
Company as a highly competitive force in the global automotive industry.
•
Looking ahead, industry-wide vehicle sales are expected to rise significantly in the next few years, driven by
accelerated expansion in developing markets, recovery in mature markets and sales of smaller and more
fuel-efficient vehicles. We expect our sales to increase to about 8 million units by mid-decade, up about 50
percent from 5.3 million units in 2010. By 2020, nearly one-third of our sales will come from the fast-growing
Asia Pacific and Africa region, more than doubling the current percentage of global sales volume we achieve
in that region.
INCOME STATEMENT
2011/2012
•
3rd quarter Total Revenue-132.4B
• Net Income- 17.68B
• Cash Flow- Financing 4.591B
• From Investing- -16.66B
• From Operations- 9.171B
BALANCE SHEET
• Cash- 35.54B
• Long Term Debt- 100.60B
• Total Assets- 184.68B
• Liabilities- 165.79B
• Shareholders Equity- 18.89B
RATIOS
• Current Ratio
• Total liabilities/ Total
Assets
• 1.911
Debt to Equity
Ratio
5.327
COMPETITION
• Ford
Chevrolet
• Did not take gov’t bail out
Took tax payer money to avoid
bankruptcy
• Market Cap- 42.34B
• Current Stock Price $11.01
per share
• Current Volume- 1,410,000
Market cap- 38.54B
Current Stock Price- $24.61
Current Volume- 9,661,308
CONCLUSION
• Ford has always been an American Company and a
success story
• Through continuing innovation and engineering Ford is
increasing its market
• Good investment for the long run. Steady movement.
• Using Green technology is a positive in today’s world.
CONCLUSION CONT’D
• When compared to other manufacturers there is a lot of
competition out there.
• Other companies are sprinting toward technology and eco
friendly break through as well
• Through a good plan and hard working people this company will
be around for many years to come.
• Good Credit and no tax payer funds makes a good argument as
well.
RESOURCES
•
http://corporate.ford.com/
•
www.gm.com/company/investors/sec-filiings.html
•
www.marketwatch.com/investing/stock
•
Finance.yahoo.com