"The Equity Analyst Project involves a total of four assignments:

1. Choose companies and industries: Delta and American Airlines
2. Comparison Analysis of Companies within an Industry Group: Air Freight/ Delivery Services
3. Analysis of Select Industry Groups: AAPL technology
4. Executive Summary

Total six pages:

The intent of the project is to simulate a three-stage approach to financial health analysis that proceeds with, first, a business ratio analysis comparison, then industry comparisons, and finally the analysis of individual companies within a particular industry. Here is justification for this approach:

The results of several academic studies have supported this technique. First, studies indicated that most changes in an individual firm'searningscould be attributed to changes in aggregate corporate earnings and changes in the firm's industry, with the aggregate earnings changes being more important...

Second, studies...[have] found a relationship between aggregate stock prices and various economic series, such as employment, income, or production...

Third, an analysis of the relationship betweenrates of returnfor the aggregate stock market, alternative industries, and individual stocks showed that most of the changes in rates of return for individual stocks could be explained by changes in the rates of return for the aggregate stock market and the stock's industry.1

The Corporate and Industry Project concludes with a final assignment. You are to put all three sections of the project together and provide a detailed conclusion of the financial health of the two companies selected for analysis based on the ratio and industry analysis. The company analysis is based on your chosen companies and industry selection. You are asked to determine which public firm classified within the industry you have selected as the most promising is itself the most promising individual investment within that industry.

You will be asked to prepare a final presentation via PowerPoint and providing ratio, industry and analysis for the two chosen companies and industry researched throughout the term. The final presentation must be professional and produced as if you were presenting to the company's board and stockholders. Also, you are to write a memo with an executive summary of your analysis to accompany your PowerPoint presentation. In conducting your analysis you are strongly encouraged to draw on the material in the textbook's Chapter 3, specifically 3.1 Financial Statement Analysis and 3.2 Ratio analysis; Chapter 6, Stock Valuation; and, Chapter 18 Short Term Financing. There is also ample support online. Here are a few possibilities:

-- http://www.investopedia.com/university/stockpicking/ -- https://www.fool.com/how-to-invest/how-to-value-stocks.aspx -- http://www.moneychimp.com/articles/valuation/stockvalue.htm -- https://corporatefinanceinstitute.com/resources/knowledge/modeling/working-capital-formula/

In your final memo/presentation remember that you are seeking to choose the stock of the company that represents the best investment, which may likely not be the best company in terms of revenue and earnings. The best company's stock may already be so highly valued that it provides limited upside as an investment. A poorer performing company, in contrast, may have a stock price that trades below its intrinsic value and provides better prospects of appreciation.

To assist in your deliberations and best ensure the common use of terminology, here are some terms and definitions that capture concepts in stock selection from the CFA Institute Level 1 2007 curriculum:2

Growth company: "... a firm with the management ability and the opportunities to make investments that yield rates of return greater than the firm's required rate of return" (p. 262).

2All quotes that follow are from Reilly, Frank K., and Keith C. Brown. (2007). Company Analysis and Stock Valuation.Equity and Fixed Income CFA Program CurriculumVolume 5(pp. 261-323). Boston: CFA Institute.

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• Growth stock: "...a stock with a higher rate of return than other stocks in the market with similar risk characteristics...because at some point in time the market undervalued it..."

(pp. 262-263).

• Defensive company: a company "...whose future earnings are likely to withstand an

economic downturn" (p. 263).

• Cyclical company: a company whose "...sales and earnings will be heavily influenced by

aggregate business activity" (p. 263).

• Cyclical stock: a stock that "...will experience changes in its rates of return greater than

changes in overall market rates of return" (p. 264).

• Speculative company: "...one whose assets involve great risk but that also has a

possibility of great gain" (p. 264).

• Speculative stock: a stock that "...possesses a high probability of low or negative rates of

return and a low probability of normal or high rates of return. Specifically...one that is overpriced, leading to a high probability that...it will experience either low or negative rates of return (p. 264).

• Value stock: a stock "...that appears[s] to be undervalued for reasons other than earnings growth potential... usually identified by analysts as having low price-earning or price- book value ratios" (p. 264). Please note that often a "growth stock" is defined not as we did above but in contrast to a "value stock" so that a "growth stock" sometimes is defined "...as a stock of a company that is experiencing rapid growth of sales and earnings...As a result of this company performance, the stock typically has a high P/E and price-book value ratio" (p. 264).

The authors conclude their discussion of definitions with the following useful advice for this exercise: The major point...is that you must initially examine a company to determine its characteristics and use this information to derive an estimate of the intrinsic value of its stock. When you compare this intrinsic value of the stock to its current market price you decide whether you should acquire itthat is, will it be a growth stock that provides a rate of return equal to or greater than what is consistent with its risk? (p. 264).

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Company and Industry Choice

For this part of the project, you will need complete the following:

1. Choose two companies within same industry for research (DELTA AND AMERICAN AIRLINES
2. Choose one additional company from a different industry APPLE
3. You will use the industry and one company from (a) DELTA and the industry and company from

APPLE(b) to complete the project.

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Comparison Analysis within an Industry

For this part of the project, you will need to calculate the financial ratios needed to determine your chosen company's current financial health. Once you have calculated these ratios, the results will be used to analyze the business's current financial position and help them make decisions about how to improve or maintain their financial health.

Using the Comparison Analysis Worksheet Formulas spreadsheet (See Excel File) and the balance sheet, income statement, and cash flow statement from Mergent Online which can be downloaded through the following link: https://links.franklin.edu/login?url=https://www.mergentonline.com/ for your chosen companies, calculate the financial ratiosfor the most recent fiscal quarter.Then, compare those ratios with the same ratios for the same fiscal quarter from one year prior in Mergent Online, and analyze your results.

Specifically, you must address the following rubric criteria:

Financial Calculations:Calculate accurate financial ratios to assess the business's current financial health. Specifically, calculate the following ratios:

oWorking capital oCurrent ratio oDebt ratio oEarnings per share oPrice/earnings ratio oTotal asset turnover ratiooFinancial leverage

oNet profit marginoReturn on assetsoReturn on equity

Fiscal Quarter Comparison:Using Mergent Online, summarize the differences between the results from your financial calculations of themost recent fiscal quarterand the results of the same financial calculations of the same fiscal quarter froma year beforefor your chosen business.

oFor example, if the most recent fiscal quarter available is the 3rd quarter in 2020, then you will compare those results to the same financial calculations from the 3rd quarter in 2019.

Comparison Analysis:Explain what the results of your calculations and your comparison indicate about the business's current financial health, providing examples to support your explanation. You might consider the following questions:

oDo the results indicate the business is financially healthy or financially unhealthy? Which results indicate this?

oWhat might be the cause(s) of the business's financial success or failure? oIs more information needed to determine the business's financial health? If so,

which pieces of information might still be needed?

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For Submission: You are asked to write a 5-10-page paper providing your analysis of the ratios for each of your chosen companies and status of the financial health based on the ratio analysis. Also, submit the Excel file to accompany your write-up. You will be building on your analysis throughout the term. It is important to know that ratio analysis alone will not give you the entire financial health of a company.

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Analysis of Select Industry Groups

This analysis that requires you to analyze a select group of alternative industries to determine which is most likely to perform best in terms of growth and earnings over the next 12 months.

In this stage you are asked to choose two different industries and one company within each industry. You will be determining the financial health and performance of these industries based on your analysis. To simplify the exercise, you are encouraged to choose either an industry with 5 to 15 firms or limit your consideration to only the largest firms in your chosen industry by market capitalization, which you can accomplish on each industry page listing the firms. You should choose an industry with at least 5 public firms currently listed at the site.

To guide this second stage analysis, you are asked to rely on the Industry Groups available at Mergent Online. Examples of business sectors/industries are as follow:

• Basic Materials:
• Conglomerates
• Consumer Goods:
• Financial
• Healthcare
• Industrial Goods
• Services
• Technology
• Utilities

Industry Averages

• Choose two companies in different industries (One of the companies may be the same company you chose for the Comparison Analysis section of the project).
• Choose five financial ratio calculations to complete for the two companies and the two separate industries chosen in this section (One industry may be the same as you used in the Comparison Analysis section of the project).
• Choose the same date range for each company and industry.
• Add the additional company and industry to the Comparison Analysis Worksheet
• Ensure the accuracy and organization of your data.

After the data is pulled and ratio calculations prepared you will determine the following:

• How is each company's financial health?
• How do these two companies compare to one another?
• What financial strengths and weaknesses do these companies and industries have?

Consider addressing the free cash flows and ratios you calculated.

• Analyze how the data differ between the two companies and industries based on

calculations and research

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• Are the companies considered growth or value companies? Why?
• Which company's stock is the better investment? Consider supporting your answer with

data.

Following each name is the company's ticker symbol in brackets. See http://www.investopedia.com/terms/s/stocksymbol.asp or http://www.investorwords.com/4968/ticker_symbol.html for brief definitions of stock/ticker symbols. Please note that on occasion the ticker symbol may also be followed by letter such as PK or OB (see http://www.investopedia.com/ask/answers/04/022004.asp). It is recommended that we ignore stocks so designated in these exercises.

The goal of this second stage in our equity analyst project is to select one industry in one sector whose performance prospects you determine are best over the next year. Here are some factors to consider when comparing industry groups:3

• Degree of Competition in the Industry
• Supply/Demand Dynamics for the Industry's Products
• Industry Cost Structure
• Degree of Government Regulation-Favorable or Not
• Exposure to the Business Cycle
• Relative Financial Norms and Standards

You are asked to write a 5-10 page paper providing your analysis of the company and industry selection process that you conclude is most likely to prosper in the coming months and your justification of your choice of that industry.

3Source: Rosa, Mark. (2016).Equity Analysis. Class pdf.

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EXECUTIVE SUMMARY

The Equity Analyst Project concludes with a Final Assignment. The Comparison Analysis part of this project required you to use your knowledge and skills to evaluate ratios of two companies within the same industry. The results were used to analyze the business's current financial position and help them make decisions about how to improve or maintain their financial health. The Industry Analysis required you to analyze a select group of alternative industries to determine which is most likely to perform best in terms of growth and earnings in the future.

The final part of the project is to provide overall conclusion. You are expected to take the results from each of the three parts: Comparison Analysis and Industry Analysis; and prepare an overarching conclusion based on the analysis for your chosen companies and industries project. This conclusion will be in the form of an Executive Summary (see "How to write an executive summary" and the "Sample Executive Summary" (obtained from the University of Arizona Global Campus).

You will prepare a 3-5 page written Executive Summary providing a conclusion of your findings from the comparison analysis and industry analysis and what this analysis predicts for the companies and industries. The Executive Summary will provide your overall professional recommendations supported by facts. The final submission will be the combination of all the parts of the project presented as one report with attachments (Excel Workbook). The rationale behind completing the project in this manner is that you will be asked to work on projects throughout your career and make a final presentation to colleagues and management. This project will help you in understanding how the process and how to make the presentation appropriately. "