See attachment. My company is Caterpillar (CAT).
Parkside Industries Introduction This assignment is based on performing a thorough financial analysis of the company assigned to you. Your company has been selected from companies that have a solid history of earnings and dividends. This analysis is to be based on the annual financial statements from Reuters, including the income statement, balance sheet, and the statement of cash flow. Gathering the data for this assignment will only take a few minutes. Just follow the instructions in the next section. Your report will focus on the company’s financial performance based on the ratios and other financial data you calculate. The purpose is not to evaluate the company as a stock to buy or sell. You are to focus on the company’s financial performance. My Company is Caterpillar (CAT). Instructions Data Collection: As a starting point, you should go to Reuters.com to find data on your assigned company. Once on the home page, type your company identifier into the search line. When the next screen comes up, your company and its identifier will show up highlighted in blue. If it isn’t listed, click on the “Companies” and it will appear there. In either case, click on your company and you will be taken to the “Profiles” screen for your company. You will need once piece of data from this screen. Below the graph of the stock price movement, in the right-hand column, you will see the number of shares currently outstanding. Note that number and then toggle over to the financials and select it. Here you can select the income statement, balance sheet, and statement of cash flow. Make sure you are looking at the annual information and not the quarterly financials. Print the income statement, the balance sheet, and the statement of cash flow. This will be the basis for calculating all of the required financial ratios. In addition to the three pages comprising the financial statements, you will need to note the stock price on the day you print the financials. This price will show up on the printed pages so you will have the price of the stock on the day you printed the financial statements. This will be the stock price to be used in your analysis. Please note that all the financial data is shown in millions. In addition to calculating three years of ratios for you company, you should compare the company’s ratios to industry ratios. For the industry ratios, go to csimarket.com. On the middle of the page you will see the symbol for a search. Use the “green” company search. Type in your company name or identifier. Once on the page for your company, select “Fundamentals.” Here you will be able to go to several screens and find the industry ratios to complete the table. Use the industry ratios labeled “Q4 TTM.” Under the “Profitability” screen you will find the operating margin and profit margin. Under the “Management Effectiveness” screen you will find the ROA, ROIC, and ROE. Using the “Financial Strength” screen, you will find the quick ratio and the total debt to equity ratio. Finally, under the “Efficiency” screen you will find the inventory turn and the total asset turn. Finished Product: The finished product must be word-processed. You may do your analysis in Excel and turn in your worksheet(s) as backup for your written analysis. Part of the assignment includes showing all your calculations. They must be clearly labeled. In addition, all required tables must still be included in the formats shown in the body of your paper. You must include all supporting data so that your conclusions can be substantiated. This project is due on April 12. Papers received after the 12th will be downgraded 10% if received by April 19th, and 20% if received by April 26. After that date, projects will not be accepted. Required Sections: The following sections are required and must be in this order. · Cover Page – Include your name, company name, and date of submission. · Introduction – Introduce your company by explaining its products and/or services and its industry, including the mention of two or three competitors. Explain how the company produces its profits. In other words, explain how it makes money. Write this so that any reader can clearly understand how the company sells its products and/or services to generate profits. (1-2 pages) · Ratio Analysis – The following tables must be included in your report in this section. Show your calculations in an attached Excel spreadsheet. This backup should include enough detail so that your calculations can be checked for accuracy. Formulas for each ratio should be based on the information found in Chapter 4 of the text, summarized in Table 4.2 on page 123. Two additional ratios have been added. First, calculate the total debt to equity ratio. This should be calculated with total debt equal to the sum of notes payable/short-term debt and the current portion of long-term debt and capital leases from the current liabilities section and the total long-term debt after the current liabilities section on the balance sheet. The total equity figure is near the bottom of the balance sheet. The second is the quality of income ratio, which shows the percentage of earnings that has been actualized into cash. It is calculated by taking the cash flow from operating activities from the statement of cash flow and dividing by the net income. A ratio of one or higher is good. · In the following table, the “most current year” should be the year of the most current data (i.e. 2019 or 2018). If your current year is 2018, the current minus 1 should be 2017, and the current minus 2 should be 2016. Your table should include the actual years, not the terms of current year. The stock price should be the price for the stock on the day you printed your financial statements and all ratios involving a stock price should be based on that number. Company: Stock Price: Shares Outstanding: Financial Ratios Most Current Year Current Year Minus 1 Current Year Minus 2 Industry Current ratio Quick ratio Inventory turnover Fixed asset turnover Total asset turnover Total debt/equity Total debt/total capital Times interest earned (TIE) Operating margin Profit margin Return on total assets (ROA) Return on common equity (ROE) Return on invested capital (ROIC) Basic earning power (BEP) Price/earnings (P/E) Market/book (M/B) Quality of income ratio In addition, the second table summarizes the ROE calculations using the DuPont format. The calculated ROEs in this table should match the ROEs from the table above with some rounding. (The calculated ROE = profit margin x total asset turn x equity multiplier.) Calculated ROE Profit Margin Total Asset Turn Equity Multiplier Current Year Current Minus 1 Current Minus 2 The third table summarizes the calculations of the annual EVA. For the cost of capital, assume 10%. Recall, that the NOPAT is equal to the EBIT (1-T). The EBIT is shown on the income statement as the operating income and the tax rate can be calculated as covered in the next section. NOPAT Total Invested Capital Cost of Capital EVA Current Year 10% Current Year Minus 1 10% Current Year minus 2 10% Note: In order to compute the company’s P/E and M/B, you will need a stock price. Use the price from the date you printed the financial statements and that is at the top of the first table under the company name. For this reason, you are only being asked to provide these ratios for the current year. You will need the number of outstanding shares of common stock, which you obtained with the financial statements from Reuters. To calculate the ROIC and the EVA, you will need the total invested capital. This should include the notes payable/short-term debt and the current portion of the long-term debt/capital leases from the current liabilities section, the total long-term debt, and the total stockholders’ equity. From this total subtract any short-term investments from the current asset section of the balance sheet. To calculate the NOPAT, use the earnings before interest and taxes (EBIT or Operating Income) from the income statement. You will need the tax rate. Calculate the tax rate each year by dividing the income tax expense by the income before tax found on the income statement. In addition to calculating three years of ratios for you company, you should compare the company’s ratios to industry ratios. The instructions for obtaining the industry averages are found in the data collection section. · Common size income statement – After the ratios and the tables for the DuPont equation and the EVA calculations, you must include a common size analysis of your company’s income statement that shows all three years of the data. This will provide additional insight for evaluating your company’s operating results. Once you show all the data, then you need to evaluate the company’s financial strengths and weaknesses. You can start by comparing the most recent year to the previous two years, utilizing the common size analysis as well as comparing the most recent years’ ratios to prior years’ data. You may also evaluate the company’s performance compared to its industry data. Finally, you may comment on the strength or weakness of the ratio itself. For example, an ROE of 15% or more is a strong indication of the company’s profitability regardless of how it compares to other data. Your overall assessment needs to focus on financial strengths and weaknesses identified, not on one or two poor ratios. This section of the report should be approximately 2-3 pages including the tables. · Conclusions and Summary Section – Summarize all previous data with two or three paragraphs that state clearly that the company is financially strong or financially weak. Your conclusions should be supported by your analysis. · Supporting Data – Attach your Excel spreadsheet or spreadsheets. You do not need to include the financial statements from Yahoo. Grading: This case analysis is worth 100 points. In addition to completing all the ratios, analyzing your data, and reaching conclusions, your report should be organized, written clearly, and have a professional appearance. While the quantitative information is important, subjective evaluation is also considered. When you are employed, your work will be evaluated on both its quality