Start by providing a brief description of the company: the products or services it sells, characteristics of its markets, any recent changes in the company's operations or management or ownership, any other significant news (over the last three years only).  This should be about a page or two.  (Please put together your own write-up; do NOT lift it from some web page or other published source.  Do not quote without attribution.  Acknowledge all sources.)

Analyze the company's financial statements.  Your objective is to identify the company's strengths and weaknesses, and to analyze how or why it came to have the performance it has (and the financial condition it has).

In analyzing its financial statements, look at how various ratios have changed over the last three years (i.e. consider the last full year, and the previous two years).  Pick a competitor, and compare your company to it over the same three year span (not allowed to pick Kmart as a competitor).  Also compare your company's ratios to the industry average.  (You will not get industry average data for all the ratios; work with those you find.)

Please note that you should compute your own ratios from scratch using the information contained in the financial statements.  Except for the industry comparison described below, do NOT use pre-computed ratios from Reuters or any other web page.

Remember that a financial statement analysis involves a lot more than just computing ratios, and stating which ratios went up, or which ratios are lower than the competitor/industry average.  Ultimately, the financial statements tell a story about the company's performance.  You are trying to reconstruct this story.

Industry ratios can be obtained from www.investor.reuters.com.  Following the same instructions as you did to obtain the financial statements, if you click on "Ratios" in the left column menu, this will pull up a comparison (for selected key ratios) of your company's ratios with the average ratio for the industry.  (Reuters may compute a given ratio differently from how you did it.  Don't worry about this.  Use your computed ratios for the basic analysis, and for comparisons between your company and its competitor.  Use Reuter's ratios only for the industry comparison.)  (Please note that TTM means trailing twelve months and MRQ means most recent quarter.)

Attach to your report the Reuters printouts of all three financial statements for your company as well as for the competitor firm.  Also attach a table containing the ratios you computed. 

Track the change in your company's stock price over the last 12 months.  Focusing only on significant ups and downs, discuss why you think the stock price changed.  There are two aspects to this.  One, what type of news was responsible -- economy-wide, industry-wide or firm-specific?  Two, can you identify the specific news item causing the price change? In each case, try and identify whether the news would tend to affect future cashflows or risk.  

Provide a graph of stock price movements in your report.  Yahoo Finance will allow you to put both stocks on the same graph, along with the S&P500 index or the Nasdaq index or the DJIA.  ( Check out "compare" under "Chart".)  Use whichever index seems most appropriate for your stock.

Estimate what proportion of the company's current stock price is based on future growth opportunities.

Compare the company to the competitor firm, and see which has greater growth opportunities.  (Would you have guessed this from the financial statement analysis done earlier?  Include a brief discussion explaining why or why not.)

You need to compute the PV of the existing assets.  The difference between the current stock price and this number is PVGO.  To compute the PV of the existing assets, you will need required return and expected future earnings.

For required return:

	Get beta from yahoo, or any other web site; cite your source.  (On yahoo, enter ticker symbol and "Go".  Choose "Key Statistics" in the left column (under "Company").  Beta will show up in the second column when you scroll down, under "Stock Price History".)
	Use 3.5% for the riskfree rate (This is an estimate of the long-term risk-free rate, as opposed to the t-bill rate, which is an estimate of the short-term risk-free rate.)
	Use 9.5% for the risk premium on the market portfolio

For expected future earnings, you can go to Reuters or www.morningstar.com

	On Reuters, choose "Financial Highlights" from the left column menu, and look at the Consensus Estimates for EPS for the current year.  (It is not a good idea to use the number you find under "Overview" because that pertains only to the next quarter, and the annual number can be quite different from next quarter times 4.)
	On Morningstar, look at the menu bar on the left, and scroll down to "Earnings Estimates"

Make sure you fully explain your work.  This includes stating clearly any assumptions you made, and defending those assumptions (i.e. explain why you assumed what you did)

Estimate WACC and asset beta both for your firm and the competitor firm you have chosen.

Discuss the meaning of the WACC number.  Under what conditions should it be used to evaluate a new investment project?

Please remember the following:

	In class we considered only equity and long term debt, but you will need to include other sources of capital also if the firm uses them (e.g. preferred stock or convertible debt)
	You will need to decide whether short-term debt should be included or not
	For each source of capital, you will need to calculate market value and required return.  While equity is straightforward, other sources of capital will require you to make certain assumptions.  Continue to assume that the riskfree rate is 3.5% and the risk premium on the market portfolio is 9.5%.