Your submission should be a one-page executive summary of what you found in your analysis with two external citations and a copy of the Microsoft Excel spreadsheet that you used to complete your analysis. Graphs and figures should be presented as appendices (i.e., not presented within the body of the executive summary).
Data Case (Modified – Instructions)
This is your second interview with a prestigious brokerage firm for a job as an equity analyst. You survived the morning interviews with the department manager and the Vice President of Equity. Everything has gone so well that they want to test your ability as an analyst. You are seated in a room with a computer and a list with the names of two companies—Ford (F) and Microsoft (MSFT).
3. For each of the four years of statements, compute the following ratios for each firm:
Calculate the Enterprise Value for each firm. For consistency purposes use the following formula: Market Capitalization of Equity + Long-term Debt + Short-term Debt – Cash, Cash Equivalents and
Price-Earnings Ratio (for EPS use Diluted EPS Total) (Stock Price / EPS)
Market-to-Book Ratio (Market Capitalization / Book Value of Equity)
(For debt, include long-term and short-term debt; for cash, include marketable securities.)
Note: Due to reporting inconsistencies, do not worry about this ratio.
Operating Margin (Operating profit/loss / Total Revenue)
Net Profit Margin (Net Income / Total Revenue)
Return on Equity (Net Income / Equity)
Financial Strength Ratios
Current Ratio (Current Assets / Current Liabilities)
Book Debt-Equity Ratio (Use Long-Term Debt) (LTD / BV of Equity)
Market Debt-Equity Ratio (Use Long-Term Debt) (LTD / MCAP)
Interest Coverage Ratio (Use Operating Income / Interest Expense Net of Capitalized Interest) (Interest / Operating Income)
Examine the Market-to-Book ratios you calculated for each firm. Which, if any, of the two firms can be considered “growth firms” and which, if any, can be considered “value firms”?
5. Compare the valuation ratios across the two firms. How do you interpret the difference between them?
6. Consider the enterprise value of each firm for each of the four years. How have the values of each firm changed over the time period?
7. In general, compare the ratios that you calculated for the two firms. Provide your overall evaluation of each highlighting strengths and weaknesses of each firm compared against the other.
Note: Some students had issues downloading the financial statements for Ford and Microsoft last semester; so, I am providing them to you all.
MSFT and F – Financial Statements (attached)