Step 1: Pick Alibaba Group (BABA) to analyze and recommend purchase or sale of its stock in a memo. Find its investor relations website (using Google) and skim the most recent annual report (probably 2016). Find the interim (i.e. quarterly) reports or earnings press releases. Become familiar with your company using primary and secondary sources.
Alibaba Group (BABA)
Tencent Holdings ADR (TCEHY)
Step 2: Analyze your company’s most recent balance sheet, including at a minimum, measuring short term liquidity and long run leverage. Show these calculations on your one page of exhibits. Some companies above might have a Quick Ratio of more than 1.25, which allows you to declare no liquidity issues and focus your analysis on whether it has appropriate / efficient leverage. Do not restrict yourself to only the textbook calculations. Consider calculating market capitalization (i.e. the market value of its equity) and comparing to debt level. If the company has material debt load, you should calculate Times Interest Earned Ratio, but consider using EBITDA or OIBDA instead of EBIT. When performing calculations, always tell me where you found your numbers and explain your calculations so I can award partial credit if you’ve made a mistake.
Step 3: Perform 1 – 3 activity ratios to analyze whether management is efficiently utilizing its assets and whether efficiency is improving from prior years. Analyze the most recent period for which you have results. Pick the ratio(s) wisely. For example, inventory is more important and accounts receivable is less relevant to a retailer. Don’t restrict yourself to just the textbook calculations. Consider market capitalization when you’re assessing the relevance of book value of assets. Show efficiency calculations on your one page of Exhibits. Tell me where you found your numbers and explain your calculations so I can award partial credit if you’ve made a mistake.
Step 4: Perform profitability analysis. You are encouraged to extrapolate / estimate operating income for 2018 using historical growth rates and income in 2017. Explain your estimate for partial credit. At a minimum, I’d like a calculation of profit margin and P/E ratio. Explain your calculations so I can award partial credit if you’ve made a mistake.
Step 5: Compare your company to the 2 others in provided group. Use data from Yahoo Finance or a similar secondary source. Companies are different sizes and face varying challenges. For example, Facebook has a market cap north of half a trillion dollars. The market has already decided it is a more valuable company than Twitter with a market cap of less than $20 billion. However, I want you to judge whether the stock of your company will be higher or lower in the next year. Comparing your company to Yahoo Finance is essential for this type of analysis. Write a one page memo recommending either the purchase or sale of your stock.
Do not turn in more than two 8.5” x 11” pages. Your memo and calculations are limited to one side of page. In your memo, you can reference calculations shown on your page of exhibits.
Do not use a font smaller than 12 points. Margins should be standard. It’s not an exercise in formatting to maximize your word count.
Be concise and clear. Use bullets whenever possible. Proper grammar matters.
Explain your reasoning. Provide details on your calculations.
Cite your sources – Yahoo Finance.