Are insiders buying or selling stock?

Post 7: Liabilities and Off-Balance Sheet Financing – Examine the firm’s use of leverage and compare its use of leverage with its competitors. Compute leverage ratios and coverage ratios. Make a judgment about the firm’s financial risk compared to its competition. Does the firm utilize off-balance sheet financing? If so, estimate the value of this off-balance sheet financing and prepare a revised balance sheet recognizing this debt. Calculate the impact of this off-balance sheet debt on the leverage ratios and on your overall assessment of the firm’s financial risk. Does the firm have any pension obligations? Is any portion of these obligations unfunded?

Post 8: Equity Analysis – Examine the firm’s equity in comparison to its competitors. Does the firm utilize multiple classes of stocks and, if so, what are the differences in the classes. Examine stock transactions by insiders and institutional investors? Are insiders buying or selling stock? Examine the firm’s use of employee stock options and other stock-based compensation. Consider the dilutive effect of these transactions on future earnings per share. Examine the firm’s dividend policy and any stock dividends and splits over the past five years. Compare the firm’s stock performance over the past five years with its competitors and with an appropriate broad market index.

Post 9: Cost of Capital – Calculate the firm’s weighted average cost of capital (WACC). Consider the impact of any off-balance sheet financing in the calculation of the firm’s capital structure weights. Determine the firm’s cost of debt. What is the most reasonable proxy if your firm’s debt is not publicly traded? Estimate the firm’s cost of equity using the DCF, CAPM and Bonds plus risk premium methods.

Post 10: Free-Cash Flow Valuation – Estimate the value of the firm using the McKinsey Free Cash Flow model. Be sure to discuss your key assumptions and sources and justify your growth rates, key inputs (e.g., COGS percent, SG&A percent, CapEx percent, etc.) and your choice of time horizon.

Post 11: Alternate Valuation Models – Estimate the value of your firm using alternate valuation models including the Residual Operating Income (ROPI) model and market multiples approach.

Post 12: Examine your entire project and make a final judgment about the firm as a potential investment. What do you believe is the “true value” of the company and its stock? Make an investment recommendation.

Project evaluation will be based on the following criteria:

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