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Equity Analysis Project
General

Sources and any additional explanations should be included in text boxes within the Excel workbook.

 

Macroeconomic Analysis

List the long run historical average, current observation, and your forecast of the following macroeconomic variables: GDP growth, unemployment, inflation, 1 yr treasury rate

 

Industry Benchmark

Find three comparable companies to benchmark against your firm. These firms should be in a common industry, be of roughly the same maturity, and have similar business models. For the firm and its comparables, report the following metrics for the most recent fiscal year or TTM:  P/E, P/B, P/S, P/CF, dividend yield, Gross Margin, Net Margin, ROE, ROA, Debt/Equity ratio, and Current ratio

 

Discount Rate

Estimate the required return on equity using the CAPM or Fama-French 3 factor model.

 

Financial Statement Analysis

Common size the last three years of income statements and balance sheets. Report a 3 or 5 step DuPont analysis of the historical annual data. Forecast 3 years of annual income statements using the percentage of sales method.

 

Valuation

Calculate 1 year price targets based on relative valuation ratios and the free cash flow to equity model. The valuation should utilize assumptions made in your forecasts. Report the current valuation using FCFE, the 1 year price target using FCFE, and the 1 year price target using relative valuation ratios.

 

Write-up

Write a 1 page single spaced investment recommendation based upon your analysis. The write-up should include a buy, sell, or hold recommendation and a single current valuation with justification. Ensure that all equity valuations use the same discount rate to place them in the current period.

 

Grading: 10% macroeconomic analysis, 15% industry benchmarks, 15% required return on equity, 20% financial statement analysis, 25% valuation, 15% write-up

 

Extra Credit: 5 pts for using FF4 rather than the CAPM, 5 points for FCFF valuation on a firm with debt, 5 pts for using quarterly data rather than annual data (not in macro-economic analysis), 5 pts for using both 5 years of historical data and a 5 year forecast period, 5 pts for having an awesome presentation

 

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