Overview
I. Paper Format:
A.Introduction/background
B.Topic development (Use subheads to organize and divide the paper into logical sections.)
C.Conclusions/recommendations (It is helpful to list these and to support them with evidence from the paper.)
D.Reference list or bibliography
E.Appendix (charts, tables, supplementary materials, data, and Excel files)
The A, B, and C. parts of the paper must be no more than ten pages long with double-space, no less than 12 point font, and no less than 1 inch margins on all sides. Students must give reference or citation to the material or statements that are from other sources. Up to 25 percent of the paper grade will be deducted if students fail to reference properly.
II. Evaluation:
Papers (presentation) will be assessed on the basis of
(1)Topic development.
(2)Format, organization, and clarity of writing (presentation) style.
(3)Novelties in contents and presentation
(4)Visual Aids
(5)Efforts
III. Procedures:
- Each team is composed of a maximum of two students. Each team first picks two stocks with the following criteria:
a.Market cap >= $100 Million and =< $10 Billion.
b.They are in the same industry and they are the competitors.
c.Please exclude financial firms.
Ways to choose the stocks:
- Use a stock screener such as the one below:
- Pick a stock of your interest first (say Amazon - AMZN), then look for its competitor at:
http://screen.finance.yahoo.com/newscreener.html
http://finance.yahoo.com/q/co?s=AMZN
You may need to find out the companies ticker symbol using google and other internet search tools.
- Then submit the print out of Profile and Key Statistics pages of the two stocks chosen as shown in the links below:
https://finance.yahoo.com/quote/AMZN/key-statistics?p=AMZN
http://finance.yahoo.com/q/ks?s=AMZN
- Additional ratios may be calculated from the financial statements of the firm (Balance Sheet, Income Statements).You may need to obtain each firm’s annual reports and financial statements for year 2018 and 2019 from SEC’s official website (EDGAR online) at:
https://www.sec.gov/edgar/searchedgar/companysearch.html
In “Fast Search”, input the ticker symbol of the firm (i.e., AMZN for Amazon).Then filter your results by input “10-k” in “Filing Type”, and this will show you all annual report.If you would like to see quarterly report, use “10-Q”.
- After analyzing the two stocks, each team must decide to buy one and short sell the other stock. Please see the links about short selling:
http://www.investopedia.com/terms/s/shortselling.asp
- Each team then makes a presentation to the class and revises the paper based on the comments received during the presentation. Your paper is due one week after the presentation.
- Your analysis, class presentation and paper must include the followings:
A. Compare and analyze the trends of five categories of financial ratios of the two companies. Pick up at least one ratio from each of the five categories: Short-term solvency or liquidity ratios, Long-term solvency or financial leverage ratios, Asset management or turnover ratios, Profitability ratios, and Market value ratios.
For each ratio, please write down each ratio's definition, formula, and interpretations. The trend analysis should include at least five graphics (one for each category of the ratios) like the following:
You may need to use excel and other software to create the above chart.
B. Compare and decompose two firms’ ROE using the Du Pont Identity
ROE = PM * TAT * EM
Compare PM, TAT, and EM for the two firms and discuss why one firm’s ROE is higher than the other.
C. Based on the ratios and DuPont analysis, which company is healthier? Why?Please compare two firm’s liquidity, solvency, turnover,profitability, and market values.Which firm is best to invest in?
D. Discuss Business Prospective
Use corporate news, profiles to give the relative future business prospects of the two firms and indicate which firm will have higher growth.
E. Analyze PE ratios of the stocks. If PE ratio is N/A, use Price to Book ratio instead. Which stock is a better buy? Why? Discuss them in conjunction with item D above.
- Show a three-month comparison price chart from Yahoo! Finance. The link for the example below is: