Investment Analysis

Course Project – Investment Analysis

In this group project, you and your group will pretend that you are financial managers for a firm looking to invest excess cash into securities, which would be a significant investment for a long-term period. You are going to pick one company to research and complete the following assignment on. Your company must be a public corporation with the following characteristics:

  1. Has been public in the market for approximately 5 years or longer
  2. Has been paying a relatively consistent dividend over the last 5 years
  3. Is a North American company (thus easier for you to understand their financial statements)
  4. Has some level of long-term debt, either as bonds, senior notes, or other long-term debt.

Your instructor must approve your group’s selection before you get started on the project. The following companies are examples (that can also be picked) of companies that likely meet these requirements:

  • Coke, Pepsi, Unilever, Proctor & Gamble (consumer packaged goods)
  • Rogers, Bell, Telus, AT&T, (telecommunications)
  • Enbridge, Fortis, Hydro One, Duke Energy, Chevron (utility/energy/oil companies)
  • Costco, Target, Walmart, Home Depot, Canadian Tire, American Eagle, Abercrombie & Fitch, Williams Sonoma, Gap Inc, (retailers)
  • TD Canada Trust, CIBC, Scotiabank, Bank of Montreal, National Bank (financial stocks)
  • Manulife, Sunlife (insurance companies)
  • Pfizer, Gilead, Johnson & Johnson, Merck & Co. (pharmaceuticals)

Note that some companies may have temporarily suspended their dividend during or after the COVID-19 pandemic to conserve cash.

It is recommended for the group project that you split the work between different members (which is why the components of the project have been split into parts). Which part(s) each member is responsible for should be highlighted in the introduction or cover page to your report. While you will be marked on a group basis, students that did not participate in the group project will receive a zero.

Part 1 – Company Overview and Description (1 to 2 pages)

This part should provide a one to two-page overview of the company. It should include information such as:

  • The firm’s competitive strategy (cost leadership vs differentiation)
  • What products/services it provides
  • Where it operates (national/global, online vs in-store, etc.)
  • Brief history of the company, including key events (such as buying another company, new CEO, etc.)

A good source of information on the company could come from the company’s website and investor relations, as well as the Management Discussion & Analysis (MD&A) section of recent quarterly or annual reports. Keep in mind that management will be biased towards their own product, so you should not just be regurgitating what they say but be objective in your analysis! There may also be other specialist reports available on your selected company that may give a slightly less biased opinion.

Part 2 – Industry Overview and Competitive Position (1 to 2 pages)

This part should provide a one to two-page overview of the industry and how the selected company positions itself. It should include information such as:

  • Who are the key competitors in the industry and some base information about the main competitors?
  • How is the selected company positioned (is it the leader in the market, a small player, a new player, etc.)
  • What are the key success factors in the industry?
  • What are some of the major risk factors?
  • Is the industry cyclical, defensive, aggressive, etc.?

It could be beneficial to include a Porter’s 5 Forces analysis on the industry (which can be included in the Exhibits).


Part 3 – Corporate Governance (1 to 2 pages)

In this section, corporate governance will be analyzed more closely in one to two pages. This should include the following:

  • What is the composition of the board and the key members?
  • Who are the main executives (CEO, CFO, others) and how are they compensated?
  • Is compensation structured in a way to reduce agency costs?

Annual reports or the investor relations website of a public company should include details on this.


Part 4 – Financial Statement Analysis (3 to 4 pages, including exhibits/visuals)

In this section, calculate traditional financial ratios from the financial statements to help measure corporate performance over the last three years. This should include at least the following:

  • Calculating and interpreting at least 2 profitability ratios (gross margin, profit margin, return on equity, sales growth, EBITDA margin, etc.)
  • Calculating and interpreting at least 2 solvency ratios (debt-to-assets, interest coverage, cash coverage ratio, debt-to-equity, etc.)
  • Calculating and interpreting at least 2 efficiency ratios (inventory turnover, receivables turnover, asset turnover, days in payables, etc.)
  • Calculating and interpreting at least 2 liquidity ratios (current ratio, quick ratio, cash ratio, etc.)
  • One ratio from each category (profitability, solvency, efficiency, liquidity) should be compared to a key competitor or industry average. For example, you could take the profit margin of Pepsi and compare it to the profit margin of its competitor Coke, and comment on the trends.
  • Visualizations of key ratios from each category.

You should include the calculations for ratios for your selected company but you are not required or will be marked for ratios from competitors (you can get those online from financial databases such as Morningstar, Yahoo Finance, or Google Finance).

This section should be 3 to 4 pages, including graphs and calculations which can be included here or as exhibits.


Part 5 – Capital Structure (1 to 2 pages)


In this part, you will dive deeper into the capital structure of the firm and market performance. It should include, at the minimum, the following:

  • Describe the company’s equity in detail. Are there one class of common shares or several. Are there preferred shares? How many shares are outstanding?
  • Comment and describe the company’s current dividend policy/payments as well as share buybacks.
  • What is the major debt that the company has – describe it in detail.
  • Estimate the cost of debt based off of information on long-term debt and interest rates in the financial statements.

This part should be 1 to 2 pages.

Part 6 – Market Performance & Valuation (2 to 3 pages)

In this section, you will review the performance of the stock over the last several years (3 to 5), comment on its performance, and value the company (with some assumptions). This should include, at a minimum:

  • Calculations for market performance, including market-to-book value and price/earnings ratio.
  • Comment on the history of the company’s stock performance (can relate back to key events in part 1 and their potential impact on stock price)
  • Value the company using a dividend discount model (make reasonable assumptions on growth and attempt to calculate the return); comment on your value versus the current stock price
  • Compare the company’s value to some of its peers using comparable ratios like price/earnings or market value to book value. Does it indicate if your company is undervalued, overvalued or fairly valued? Please explain.

This part should be 2 to 3 pages. Make sure to include calculations for your valuation.

Part 7 – Conclusion and Recommendation (1 to 2 pages)

In this last part, you are to conclude on your analysis and make a recommendation on the stock, ensuring to answer the following questions:

  • Based on your analysis, would you give the stock a buy, hold, or sell recommendation? Explain.
  • Would you recommend investing in any of its debt securities that are currently available or if it issued new bonds, assuming your company needed to invest in fixed income?
  • What are the biggest risks in your valuation and assumptions that if different than expected, might impact your decision process?


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