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 companiesFord (F) and Microsoft (MSFT). You have 90 minutes to complete the following tasks:

1. Download the annual income statements, balance sheets, and cash flow statements for the last four fiscal years from MorningStar (www.morningstar.com). Enter each company's stock symbol and then go to "financials." Copy and paste the financial statements into Excel.
2. Find historical stock prices for each firm from Yahoo! Finance (http://finance.yahoo.com). Enter the stock symbol, click "Historical Prices" in the left column, and enter the proper date range to cover the last day of the month corresponding to the date of each financial statement. Use the closing stock prices (not the adjusted close). To calculate the firm's market capitalization at each date, multiply the number of shares outstanding by the firm's historic stock price. You can find the number of shares by using "Basic" under "weighted average shares outstanding" at the bottom of the income statement.
3. For each of the four years of statements, compute the following ratios for each firm:

Valuation Ratios

Price-Earnings Ratio (for EPS use Diluted EPS Total)

Market-to-Book Ratio

Enterprise Value-to-EBITDA (For debt, include long-term and short-term debt; for cash, include marketable securities.)

Profitability Ratios

Operating Margin (Use Operating Income after Depreciation)

Net Profit Margin

Return on Equity

Financial Strength Ratios

Current Ratio

Book Debt-Equity Ratio

Market Debt-Equity Ratio

Interest Coverage Ratio (EBIT Interest Expense)"

4. Obtain industry averages for each firm from Reuters (www.reuters.com/finance/stocks). Enter the stock symbol at the top of the page in the

"Symbol Lookup" and then click the "Financials" button, and then click "Search."

• Scroll down to "Valuation Ratios," and compare each firm's ratios to the available industry ratios for the most recent year. (Ignore the "Company" column as your calculations will be different.)
• Analyze the performance of each firm versus the industry and comment on any trends in each individual frim's performance. Identify any strengths or weaknesses you find in each firm.

5. Examine the market-to-book ratios you calculated for each firm. Which, if either, of the two firms, can be considered "growth firms" and which, if

either, can be considered "value firms"?

6. Compare the valuation ratios across two firms. How do you interpret the difference between them?

7. Consider the enterprise value of both firms for each of the four years. How have the values of both firms changed over the time period?