Post 1: The Company – Introduce the company and its businesses.
Post 2: Competitors – Determining which companies are most comparable to the subject company is a non-trivial exercise. Look at the companies that operate in the same industry segment as your company. How are they similar and how are they different? Are they comparable in size? How do their strategies compare? Do they serve similar market segments and geographic areas? Do these companies also operate in other businesses that may affect comparisons with your company?
Post 3: Strategic Analysis – What is the company’s strategy and how does it compare to that of its competitors? What is the company’s source of competitive advantage? Do an environmental scan and/or a SWOT analysis. Consider the industry and what it takes to succeed. Consider Porter’s five forces. Look into the future. How is the business and industry changing? Are there any disruptive innovations looming?
Post 4: Profitability Analysis – Examine the firm’s profitability over the past five years in comparison to its overall industry and to your selected competitors. Look at multiple metrics for profitability including gross profit margin, net profit margin, return on assets, return on equity and return on net operating assets. Use the DuPont equation to disaggregate the firms’ ROE and explain changes in the firms’ ROE over the past five years.
Post 5: Revenue Recognition and Operating Income – How does your firm recognize revenue and how does your firm’s revenue recognition policies compare to its competitors? Is there any evidence of aggressive revenue recognition? Consider the firm’s operating income and how it has been affected by “above the line” items including research and development expenses, restructuring costs, income taxes and foreign currency translation. Consider “below the line” components to income including discontinued operations and extraordinary items. Examine earnings per share and the impact of dilution from new shares (and potential new shares) and the anti-dilution effects of share buy-backs. Finally, consider the “quality of earnings” of your firm.
Post 6: Assets and Working Capital – Examine each of the major assets and working capital accounts. How does your firm account for each of these items and does the accounting method differ from the firm’s competitors. Examine the firm’s receivables. Is there any evidence of aggressive revenue recognition or earnings management through manipulation of the allowance for doubtful accounts? Examine the firm’s inventory methods and policies and compare to their competition. If the firm uses a different inventory accounting method (e.g., FIFO versus LIFO) than its competitors, calculate the impact on net earnings. Is there any evidence of excess or obsolete inventory? Examine the firm’s accounts payable. Is the firm paying within a reasonable time? How does this compare to the firm’s competition? Calculate asset management / efficiency ratios for the past five years for your company and its selected competitors including A/R turnover in days, Inventory turnover in days, A/P turnover in days, the cash collection cycle in days. Calculate and interpret liquidity ratios including the current ratio, quick ratio and cash ratio. Examine the firm’s fixed assets and related accounting policies including depreciation period and method. Examine the firm’s intangible assets. Look at the footnotes for evidence of impairments.
Post 7: Liabilities and Off-Balance Sheet Financing – Examine the firm’s use of leverage and compare its use of levera
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