Summarise recent financial data from the company’s “tear sheet”. What is the P/E ratio and P/B ratio?
Can you find and summarise a recent analyst’s report?
Do analysts believe the company’s shares are cheap, expensive or reasonably priced (SELL, BUY or HOLD?)
What do recent news reports say about the company? Are there any statements that you do not understand?
Also refer to the lecture slides 1-42 to 1-49 regarding “Know the Business”.
Part Two: The Financial Statements
Familiarise yourself with the financial statements in summary form. Do not worry about the detail, but make sure you can identify the primary financial statements and appreciate their main features. Look for the comparatives (the same figures for the previous year).
Reconcile the Cash Flow Statement with opening and closing cash on the balance sheet.
List the assets and liabilities on the balance sheet and identify those that you think are reported close to their fair or market values.
Identify any assets that you think the company might own that have been excluded from the balance sheet.
Part Three: Market values and market multiples
Using the notes to the financial statements and the reported market price of shares on the balance sheet date, calculate the total market value of equity at the balance sheet date.
Calculate the premium at which the company trades relative to book value.
Calculate the price-to-Book ratio and the Price-to-Earnings ratio.
Using the enterprise valuation equation, estimate the company’s enterprise value.
Use multiple sources of information (annual report, Facebook, corporate website, FT.com, news comment, search engines, academic databases). Don’t forget to include something about competitors and the industry generally and find out what professional analysts and the City are saying about your chosen company.
Also, For your company, calculate the value of equity using the discounted cash flow exercise.
Forecast free cash flow to time horizon and discount to present value.
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