Fluent Essays

Comprehensive Investment Analysis - Part 3: Investment Recommendation Please review the Comprehensive Investment Analysis Overview to get familiarized with the project objective. Section Objective The objective of the final part is to provide an overall investment recommendation based on the analysis conducted in parts 1 & 2. You will need to prepare a well-written report titled “<Name of company>, Investment Recommendation”. Unlike Parts 1 and 2, you are not gathering data in this section of the report. Instead, you need to support your points with a comprehensive explanation incorporating sound reasoning. While the main focus of your investment recommendation should be on the financial indicators, you should also consider other non-financial factors in your overall analysis, including the overall strategic direction of the company and industry trends that were examined in part 1 of your project.  Instructions You need to address all the following topics: Inform your readers how part 3 objective aligns with the project objective. Identify 3-5 significant points that justify your recommendations. You should not repeat the history of the company covered in part 1 (unless the history is going to play a major role in your final recommendation). You should not include all the calculations covered in part 2, rather focus on the most important for your investment case. You should amalgamate the most important information from parts 1 and 2 to provide the basis for your conclusion. You should focus on both the strengths and weaknesses of the company and then provide a final justification for deciding to invest (or not to invest) in the company you have selected. You should also discuss the limitations of your analysis. The ‘Financial Statement Analysis’ chapter in your textbook provides examples of limitations of financial statement analysis (towards the end of the chapter). Submit a report that is 2-3 pages long. References must be appropriately cited. The format should be double-spaced, one-inch margins, using a 12-point Times New Roman font. Turnitin® This course has Turnitin® fully integrated into the course dropbox. This means that you should only submit your assignments to the dropbox below. Please do not submit your assignment directly to Turnitin.com. Once submitted, your assignment will be evaluated by Turnitin® automatically. You will be able to view an Originality Report within minutes of your first submission that will show how much of your work has been identified as similar to other sources such as websites, textbooks, or other student papers. Use your Originality Report as a learning tool to identify areas of your assignment that you may not have cited appropriately. You may resubmit your assignment through this dropbox as many times as you need to check to see if you have made improvements, until the due date of the assignment. However, once you have made your first submission, you will need to wait 24 hours after each subsequent submission to receive a new Originality Report. Plan accordingly as you draft your assignment. Once the due date has passed, your assignment submission will be considered final. Evaluation This assignment will be graded using the rubric located on the Course Rubrics page within the Start Here section of the course. Please review the rubric prior to beginning your work so that you ensure your submission meets the criteria in place for this assignment. The Case Study Project assignments, together, are worth 30\% of your final course grade. Comprehensive Investment Analysis Project Objective The Comprehensive Investment Analysis consists of three reports as assignments throughout the course. The project objective is to provide an investment decision recommendation based on the financial performance of a listed company. In order to achieve this objective, you will need to work on three reports that are connected to each other. This project will provide you with an opportunity to utilize business and accounting knowledge gained in this course in the context of business decision making. It is important to inform your readers of the project objective and the section objective of each report. The instruction of each report will help you to frame your report within the context of an investment decision analysis. So it is important to read through the full project requirements before you start the project. You will need to use a variety of resources to research your corporation. Data and Sources Company Selection First choose a company to research. • The company must be publicly traded. • It may be the company you currently work for, a company related to a hobby of yours, a possible stock investment, or simply sound interesting. As a starting point, the following link provides information on companies listed on the New York Stock Exchange. Note that if this link is not working you can always search for “NYSE company listings” in a search engine such as Google. The advantage of using the link above to search for companies is that it gives you a filter (on the left side), where you can search for companies by Industry and Market Cap. There are also other sources of companies provided through the library. https://www.nasdaq.com/screening/companies-by-industry.aspx?exchange=NYSE https://www.nasdaq.com/screening/companies-by-industry.aspx?exchange=NYSE http://libguides.excelsior.edu.vlib.excelsior.edu/bus500 Competitor Information You need to also identify a competitor of the company you research. Companies may be within the same industry. There are a variety of sources to get information on a competitor for the company you have selected. An online search on “competitors for <name of your company> is always a good starting point. Other sources include • Nasdaq: type the name of your company in the search area and search for competitors using the tab on the left. For example, the following link provides you with a list of competitors for PepsiCo. • Search online for “Yahoo Finance: Industry Brower” and select the industry that your company belongs to. This will provide you with a list of companies in the industry your company belongs to. While the above sources are good starting points, you will need to understand the environment in which your company operates in order to find a suitable competitor. Reading the Management Discussion and Analysis including the risk factor statements within the 10-K of your company will provide you with sufficient context on your company to help you in your choice. It is difficult to find a perfect match for a competitor and so your objective is to select a company that is similar (rather than the same) as your company to provide a useful benchmark. It is important that you have provided a reason for your choice of competitor in your report. Part 1: Overview of Company (Module 4) Section Objective You are going to write a report to provide your readers with the most pertinent information that will enable them to get an overview of your company and its position within the industry, before you analyze the financial performance of the company in Part 2. Instructions Research and then describe your companys primary business activities. You need to address all the following topics: 1. Inform your readers how part 1 aligns with the project objective 2. A brief historical summary 3. A discussion of competitors including the reason for the choice of competitors (rather than just a list of competitors) 4. The companys position within the industry 5. Recent developments within the company/industry 6. The key risk factors 7. The strategic direction of the company 8. Other items of significance to your corporation 9. Provide a brief summary of your findings in your conclusion and inform your readers of what your next steps are within the project objective. https://www.nasdaq.com/symbol/ https://www.nasdaq.com/symbol/pep/competitors https://www.nasdaq.com/symbol/pep/competitors In your report, utilize information from a variety of resources and select the most pertinent information. For example: • Start your research using the Library’s research guide. • Consult the Form 10-K filed with the SEC database. • Review the Annual Report and especially the Letter to Shareholders and the risk factor statement • Explore the corporate website including the investor relations website • Select at least two significant news items from recent business periodicals. Submit a written report that is 2-4 pages long. The report should be well written with introductory and concluding paragraphs. Include a complete bibliography. Part 2: Financial Statement Analysis (Module 5) Section Objective The objective this report is to analyze the financial performance of your company by computing and analyzing financial statement ratios. Instructions You need to address all the following topics: 1. Inform your readers how part 2 objective aligns with the project objective. 2. Select the most pertinent ratios from each category (Liquidity, Solvency and Profitability). 3. Calculate and compare ratios of the competitor. In order to aid your analysis, you should compare the financial performance of your company with at least one competitor over the past two years. 4. Discuss trends over time and in relation to at least one competitor. Discuss the reason for the change by referring to the context of the company and the industry in which the company operates. 5. Provide a brief summary of your findings in your conclusion and inform your readers of what your next steps are within the project objective. 6. Include your calculations as an appendix to your report. Tools and Methods Your analysis should focus on the following financial categories as highlighted in the textbook under the chapter ‘Financial Statement Analysis’ • Liquidity • Solvency • Profitability The specific ratios and formulas for each of the three categories above are provided in your textbook reading. You can choose to calculate all the ratios provided in the textbook reading and include your calculations in your appendix. However, you do not need to discuss all the ratios in your main discussion. You will have to use your understanding of the company to select the most pertinent ratios. For http://libguides.excelsior.edu.vlib.excelsior.edu/bus500 https://www.sec.gov/edgar/searchedgar/companysearch.html example, while the inventory turnover ratio is a very common ratio it may not be applicable to a service company that does not deal with inventory. Calculating the Du Pont ratio is an excellent way to analyze the overall performance of your company. The Du Pont ratio is a way of disaggregating the Return on Equity ratio into the three categories of liquidity, solvency and profitability. A quick online search on ‘Du Pont Ratio’ will provide you with plenty of links on the Du Pont ratio. As an example, the Corporate Finance Institute is a useful source of information. Use the Library’s research guide. Submit a report that includes 4-5 pages of main discussion besides the appendix. Part 3: Investment Recommendation (Module 6) Section Objective The objective of the final part is to provide an overall investment recommendation based on the analysis conducted in parts 1 & 2. You will need to prepare a well-written report titled “<Name of company>, Investment Recommendation”. Unlike Parts 1 and 2, you are not gathering data in this section of the report. Instead, you need to support your points with a comprehensive explanation incorporating sound reasoning. While the main focus of your investment recommendation should be on the financial indicators, you should also consider other non-financial factors in your overall analysis, including the overall strategic direction of the company and industry trends that was examined in part 1 of your project. Instructions You need to address all the following topics: 1. Inform your readers how part 3 objective aligns with the project objective. 2. Identify 3-5 significant points that justify your recommendations. 3. You should not repeat the history of the company covered in part 1 (unless the history is going to play a major role in your final recommendation). 4. You should not include all the calculations covered in part 2, rather focus on the most important for your investment case. 5. You should amalgamate the most important information from parts 1 and 2 to provide the basis for your conclusion. You should focus on both the strengths and weaknesses of the company and then provide a final justification for deciding to invest (or not to invest) in the company you have selected. 6. You should also discuss the limitations of your analysis. The ‘Financial Statement Analysis’ chapter in your textbook provides examples of limitations of financial statement analysis (towards the end of the chapter). Submit a report that is 2-3 pages long. References must be appropriately cited. https://corporatefinanceinstitute.com/resources/knowledge/finance/dupont-analysis/ http://libguides.excelsior.edu.vlib.excelsior.edu/bus500 Overview of The Coca-Cola Company and its Position Within the Industry This essay is the first part of a series of reports. It aims to give an investor (potential or otherwise) the necessary details that would allow them to get an outline of the company and its situation within the industry. This information will prove pertinent before analyzing the companys financial potential described in the proceeding report. This is in line with the prime objective of offering an investment decision proposal based on a listed companys financial position. In 1886, a pharmacist for Columbus, Georgia, innovated the drink Coca-Cola. He initially sold the drink at his pharmacy before selling interest in the company to Asa Griggs Candler. Asa Candler acquired sole rights to the Coca-Cola formula, and within a year, he had raised sales substantially. His brother and a new partner, Frank Robinson, joined him to create the Coca-Cola Company. In 1919, the company initialized its IPO on the NSYE for $40 each share. As of 2016, the companys yearly report displays that shares have gone up, making its market capitalization approximately $180 billion, and it had had fifty-three successive dividend rises (In-house). The Coca-Cola Company is the most lucrative non-alcoholic beverage company on the globe. Its prime competitor is Pepsi Co, and it is no surprise that the two giants have had the most control of the non-alcoholic beverage industry in several places for a long time. Pepsi Co provides a broader assortment of soft drink beverages than the Coca-Cola Company; moreover, it also provides a variety of ready to consume packed snacks, unlike the market leader who only provides soft drinks. Both companies have been involved in ambush marketing to get ahead on brand image, and the hostile marketing often generated a stiff competitive environment in the market. Red Bull is the most popular and biggest energy drink brand in the world. The company has generated a strong brand image by utilizing distinctive brand mascots and advertisements, making it a worthy adversary to the Coca-Cola Company (Ciafone). The company provides high-quality drinks, providing a broad variety of the most refreshing choices, each generating a positive experience for the consumer. As opposed to other brands, the Coca-Cola products prompt happiness, stimulating a positive difference in consumer lives, and the brand is extremely concentrated on the customers requirements. The Covid-19 pandemic has prompted enormous changes in shopping conduct, forcing the Coca-Cola Company to generate fresh opportunities ranging from brand launches and consumer campaigns. The company is set to cut back on brands that are not doing as well as the others and is remaining consumer-centric and trying to comprehend how the market is changing regarding the crisis. The company is confronting competitor risk generated by powerful forces of competitive rivalry, the power of the consumer and the menace of substitutes. Stiff competition in the industry threatens the companys varied market sections. It is fairly easy for a customer to switch to another brand making their bargaining power fairly strong. Consumers seem to prefer alternatives to the brand since they are relatively cheaper. The company has adopted a wide differential strategy, combining strong market capabilities, powerful brand image, high-quality drink, powerful worldwide presence and brand loyalty. Powerful consumer initiatives with a worldwide reach and capitalizing on the extensive promotional integration will improve the companys brand visibility and general competitive advantage. The company plans to introduce a new flavor to its sparkling water brand, an area of new interest. The company has been around for a while, and even with changing times and more aggressive competitors, the future looks prospective. With this overview of the company, the successive report will contain an analysis of the companys financial performance (Journals). References Ciafone, Amanda. Counter-Cola: A Multinational History of the Global Corporation. Univ of California Press, 2019. In-house. Directory of Corporate Counsel, 2021 Edition. Wolters Kluwer, 2020. Journals, Simple. 2021-2025 Monthly Planner: 60 Monthly Calendars with US Holidays, To-Do Lists, Goals, Notes and Reminders : Five Year Calendar January 1, 2021 - December 31, 2025 : Vintage Drink Coca-Cola Advertising Art Print. Independently Published, 2020. The success of a company is attributed to its financial health. If a company’s financial health is good, then it means that the company is generating enough income from its business activities. With adequate income, the company is able to take care of its obligations thus does not fall into debt. Therefore, the company will be eligible to creditors and investors. Coca Cola is one of the beverage companies that has been in existence for long. It is among the highly ranked companies in the beverage industry. The company faces much competition from its rivals Pepsi. However, Coca Cola has been able to maintain its competitive advantage over Pepsi due to its good financial health (Fatima & Nobanee, 2019). This paper will focus on the financial analysis of Coca Cola, comparing it with that of Pepsi through financial statement analysis. Financial Analysis The financial analysis of a company is the general examination of the company’s financial statements, through financial ratios. Financial analysis determines whether the company is eligible for loans from creditors and whether it is safe for investors to invest in the company. It also gives an overview of the yield of business activities in the company. Coca Cola is the top beverage company globally (Li, 2019). The company’s financials have been promising over the years thus attracting more investors into the business. The following is a financial analysis of Coca Cola in comparison to its competitor Pepsi. This includes computing the liquidity, solvency and profitability ratios. The objective of this assignment is to analyze the financial performance of the Coca Cola. This aligns with the course objective of determining the financial health of the company. Liquidity Ratios Liquidity ratios determine the ability of a company to pay off its debts without getting external capital. A company’s liquidity is the ability to quickly convert assets to cash in a cheap way. The common liquidity ratios include current ratio, quick ratio and day sales outstanding ratio. Current Ratio The current ratio shows the ability of a company to pay its current liabilities using its total current assets. The current ratio= current assets/ current liabilities. Coca Cola’s current ratio in the economic year ending June 2021 was 1.47 while that of Pepsi is 0.98. This means that Coca Cola is at a better liquidity position than Pepsi since its current ratio is higher (Fatima & Nobanee, 2019). Therefore, Coca Cola is able to pay off its short term obligations through converting its current assets to cash easily (Li, 2019). Quick Ratio This ratio is a measure of a company’s ability to take care of its short term debts with the available assets without including its inventories. It only considers the current assets available for the company. The quick ratio = (current assets- inventory-prepaid expenses)/ current liabilities. Coca Cola’s quick ratio as of 2020 was 1.26 while that of Pepsi was 0.77. This means that Coca Cola is in a better place to pay for its short term obligations using its current assets than Pepsi (Li, 2019). Cash Ratio The cash ratio is defined as the measure of the ability of a company to pay off its obligations using the available cash and cash equivalents. The cash ratio= (cash + cash equivalents)/ current liabilities. Coca Cola’s cash ratio is 1.32 while Pepsi’s cash ratio is 0.41 (Fatima & Nobanee, 2019). This means that Coca Cola is at a better position than Pepsi to take care of its short term obligations using its cash and cash equivalents available. Solvency Ratios The solvency ratios are a measure of the ability of a company to take care of its long term debt using its cash flow. These ratios determine the likelihood of a company to default on long term debts. The difference of liquidity and solvency ratios is that liquidity ratios focus on short term debts while solvency ratios focus on long term obligations. Examples of these ratios include equity ratio, and debt to equity ratio. Equity Ratio The equity ratio shows the level of a company is funded by equity and not debt. This means that most of its business activities is funded by shareholder’s equity or investment and the company does not rely debts to run its activities. The equity ratio= total shareholders’ equity/ total assets. Coca Cola’s shareholders’ equity ratio is 0.257 while that of Pepsi is 0.195. This is an indication that Coca-Cola is funded mostly by its equity while Pepsi is funded by debt from creditors. Therefore, Coca Cola is more likely to settle its long term obligations than Pepsi (Fatima & Nobanee, 2019). Debt to Equity Ratio The ratio is a measure of how a company is funded by debt. This ratio shows how much of a company’s debt can be paid off by its equity in a case when the company requires liquidation. The debt to equity ratio= debt outstanding/ equity. Coca-Cola’s debt to equity ratio is 2.22 while that of Pepsi is 5.03. This means that Pepsi is at a higher position to default on loans from creditors than Coca Cola. Therefore, Coca-Cola is more eligible for loans as it does not have much debts like Pepsi (Li, 2019). Profitability Ratios Profitability ratios are financial metrics that show the ability of a business to generate income. The most common profitability ratios are return on assets and the profit margin ratios. Profit margin ratio This ratio indicates the company’s profitability on different levels of cost such as the gross margin, net profit margin and the pretax margin. The profit margin= (total revenue- total expenses)/ total revenue. Coca-Cola’s profit margin is 30.2\% as of 2020 while that of Pepsi is 13.9\% (Fatima & Nobanee, 2019). This means that Coca Cola is making more profits from business than Pepsi. Therefore, Coca Cola proves to be more profitable than Pepsi (Li, 2019). Return on Assets ratio This ratio is an indication of the ability of a company to generate profits from its assets. The return on assets ratio shows the efficiency of a company to utilize its assets to make profits for the company. Return on asset= net income/ average total assets. Coca-Cola’s profit margin ratio measured as a percentage is 10.3\% while that of Pepsi is 9.1\% (Li, 2019). This is an indication that Coca Cola utilizes its assets more than Pepsi. While Pepsi’s outcome from assets is 9.1\%, that of Coca-Cola is 10.3\%. Therefore, investing in Coca Cola is more profitable than Pepsi. Conclusion The beverage industry is a competitive industry. Customers always value quality and health benefits over the cost of beverages. It is clear that Coca-Cola is more profitable and in a better financial health than Pepsi. Therefore, it is important for Pepsi to find loopholes in its business activities such as weaknesses and threats and work on them to gain a competitive advantage over Coca cola. References Li, X. (2019). Financial Analysis of Coca-Cola Company. Fatima, M., & Nobanee, H. (2019). Ratio Analysis of PepsiCo. Ratio, 2018(2017), 2016. Appendix Current ratio. Coca Cola= 22.48/ 15.30= 1.47 Pepsi= 23001/ 23372= 0.98 Quick ratio Coca Cola= 19.2/ 16.49= 1.26 Pepsi= 17955/ 23372= 0.77 Cash ratio Coca Cola= 87296/ 66012= 1.32 Pepsi= 9551/ 23372= 0.41 Equity ratio Coca Cola= 22.25/ 86.381= 0.257 Pepsi= 15.3/ 78.55= 0.195 Debt to equity ratio Coca Cola= 42793/ 19299= 2.22 Pepsi= 76.99/ 15.30= 5.03 Profit margin Coca Cola= (33.014-23.057)/33.014= 0.302 Pepsi= (70.01-60.292)/ 70.01= 0.139 Return on assets Coca cola= 8920/ 86412= 0.103 Pepsi= 7120/78097.5= 0.091