Assignments must be typed and submitted before the start of class on the due date.
Pick a US company that belongs to one of the following sectors. You should stay with this company for the assignments that follow as well.
|Bridge Sector Symbol||S&P Sector Symbol|
You can find companies in these sectors by using the Telerate program in the G-PACT room (W404). Make sure that the market value of your chosen firm is at least 0.75 billion dollars. You can select your company as follows:
Open up the Analytics/Pages display in your workspace. On the command line, type in the Bridge or the S&P sector symbol followed by /ig. This will give you a list of all companies in that sector. Thus, if you wanted to choose a company in the S&P Consumer Cyclicals sector, you would type in !spcyc/ig. This would give you a list of companies in that sector, as well as some basic information about those companies -- the last column will give you the market value of the company in thousands of dollars (the t at the end stands for thousands). You can choose from this list.
If you type in one of the Bridge sector symbols followed by [bpc, you will get a list of the narrower S&P industry groups that comprise the sector. Thus, if you type in !spcyc.g[bpc, you will get a list of narrower industry groups, beginning with !sp120 (S&P Automobiles). If you now type in !sp120[bpc, you will get a list of the automobile firms in the S&P, viz. Ford Motor Company (F) and General Motors Company (GM).
What if you have a company that you wish to work with, and you want to know if it qualifies? First you need to know the company's symbol. To find the symbol for the company (which is usually the ticker symbol), type in /lu/company name. Thus, to find out the symbol for Goodrich, Inc., type in /lu/goodrich. You will get a list of entities, the last of which has the bridge symbol us;gr and is identifed as Goodrich Corporation. This is the one that we want. The others are either subsidiaries of Goodrich or other companies with a similar name. If there is any doubt, type in the suggested symbol, followed by /biz (e.g. us;gr/cf/biz or gr/cf/biz to get a business profile of the entity).
Next, type in sym/inx; this will give you the narrower industry groups and other indices that this company is part of.
If you want to know if this company is part of a particular sector, simply bring up the IndexWatch display on your Workspace, and at the top right, type in the ampersand sign, followed by the symbol for the sector (this will only work with the S&P group). Thus, if you type in &spcyc, you will see a list of 78 companies that make up this sector. If you right-click the mouse anywhere in the display, you will get a menu that will allow you to check "Company Names." This will replace the ticker symbols with the actual company name for easier identification. You can also use the following table to relate sectors to industry groups (Source: http://www.spglobal.com/gics1.html).
|Transportation||Capital Goods||Consumer Cyclicals|
|Air Freight||Aerospace/Defense||Auto Parts & Equipment|
|Airlines||Containers (Metal & Glass)||Automobiles|
|Railroads||Electrical Equipment||Building Materials|
|Shipping||Engineerng & Construction||Consumer (Jewelry, Novelties, & Gifts)|
|Manufacturing (Diversified)||Gaming, Lottery, & Parimutuel Companies|
|Consumer Staples||Manufacturing (Specialized)||Hardware & Tools|
|Beverages (Alcoholic)||Metal Fabricators||Homebuilding|
|Beverages (Non-Alcoholic)||Office Equipment & Supplies||Household Furnishings & Appliances|
|Broadcasting (TV, Radio & Cable)||Trucks & Parts||Leisure Time (Products)|
|Disributors (Food & Health)||Waste Management||Lodging-Hotels|
|Foods||Basic Materials||Publishing (Newspapers)|
|Household Products (Non-Durables)||Agricultural Products||Retail (Building Supplies)|
|Housewares||Aluminum||Retail (Computers & Electronics)|
|Personal Care||Chemicals||Retail (Department Stores)|
|Restaurants||Chemicals (Diversified)||Retail (Discounters)|
|Retail (Drug Stores)||Chemicals (Specialty)||Retail (General Merchandise)|
|Retail (Food Chains)||Construction (Cement & Aggregates)||Retail (Home Shopping)|
|Services (Employment)||Containers & Packaging (Paper)||Retail (Specialty)|
|Services (Facilities & Environmental)||Gold & Precious Metals Mining||Retail (Specialty-Apparel)|
|Specialty Printing||Iron & Steel||Services (Advertising/Marketing)|
|Tobacco||Metals Mining||Services (Commercial & Consumer)|
|Paper & Forest Products||Textiles (Apparel)|
|Textiles (Home Furnishings)|
Write a report on Corporate Governance at your company. Start your report by providing a brief description of the company (about half a page), taken from Bridge. Use another two to three pages to present a well-organized report on "Who own/runs your firm.
Some of the questions that you should think about in writing up your report:
Who are the institutions holding the stock? Use the bridge command: sym/cf/inst. (Similar information can also be found on Yahoo at http://biz.yahoo.com/hd/m/msft.html for Microsoft -- msft; replace msft with the symbol for your stock.)
How many analysts follow the stock? This information can be found on Bridge (Use the bridge command sym/cf/nel.)
Who are the mutual funds that hold the stock? (Check http://biz.yahoo.com/hd/mf/m/msft.html; replace msft with the symbol for your stock.)
Are there major conflicts of interest in the running of the company that have not been addressed by compensation contracts, etc.?
You can use the following analysis of Disney, Inc. done by Aswath Damodaran, in 1997. Focus on the first two sections, Corporate Governance Analysis and Stockholder Composition. This is a very good model to use.
You can use the following general sources:
http://www.cii.org/links.htm (Council of Institutional Investors; use the links given there to obtain more information on how good corporate governance is at your firm.)
http://www.corpgov.net/ (Corporate Governance Network).
For company specific information,
You can search the Wall Street Archive.
You can use the Lexis-Nexis database from the Pace Library homepage (go to http://library.pace.edu, click on Databases, then choose Lexis-Nexis Universe from Complete Alphabetical Listings) to search for information regarding your company. You can select Business News, then search using your company name, as well as other useful keywords, such as executive compensation or shareholder rights, or other terms that you can come up with based on your reading of Chapter 2 and my webnotes/slides.
Search Lexis/Nexis, focusing on publications such as the Economist, Forbes, Fortune, etc. using appropriate keywords.
You can also look at the Annual Report of the company, which you can find at the company website (you can find the company website by searching on Google, or by going to http://biz.yahoo.com).
Search on Google using the company name and relevant keywords.
Use the information on analysts at http://www.zacks.com
(Use the same company, as for Assignment 1, if possible. If not, pick another company satisfying the conditions specified in Assignment 1.) Do either part A or part B, whichever will allow you to stay with your company.
Go through the company's most recent 10K (you can use http://10kwizard.com). Search for research and development expenses. If you find any, capitalize them, and make up a revised balance sheet, including the capitalized R&D. Also, show a revised income statement. (Include the original balance sheet and income statement, as well.) Leave out all the details of these financial statements that are irrelevant for the purposes of this exercise; i.e., do not itemize them. (Obviously, the left and right sides of a balance sheet have to match!) Present all relevant information from the 10K. If you need to go to any other sites, do so. Make as few unsupported assumptions as possible.
Go through the company's most recent 10K (you can use http://10kwizard.com). Search for operating lease expenses. If you find any, capitalize them, and make up a revised balance sheet, including the capitalized operating lease liability. Also, show a revised income statement. (Include the original balance sheet and income statement, as well.) Leave out all the details of these financial statements that are irrelevant for the purposes of this exercise; i.e., do not itemize them. (Obviously, the left and right sides of a balance sheet have to match!) Present all relevant information from the 10K. If you need to go to any other sites, do so. Make as few unsupported assumptions as possible.
Go to the G-PACT Room (W404). Download historical price information on the stock that you worked on for Assignment 1, using the information given below, and compute market betas as described below:
Go to the G-PACT site. Click on Using Bridge: Manuals and Other Help in the menu at the bottom. Then click on University of Illinois - Champaign/Urbana's Introduction to Bridge. This will bring up a website, managed by the University of Illinois, in a new window. Click on Excel Bridge Link in the menu at the bottom. Follow the instructions under Getting Started, from point number 2. (If you have difficulty in running Excel from Bridge, go to the Desktop and click on Excel directly. If you have any questions, check with the G-PACT aide on duty.)
Download daily closing price data on your stock for the last 3 years, starting from Dec. 29, 1997 to Dec. 29, 2000 (i.e. last trading days in 1998 and 2000). (Specify custom on the Create-Link History applet, and also specify a sufficiently large number of periods.). Do the same for the Dow Jones Index (&DJI), for the NYSE Composite (NYA), and for the Wilshire 5000 Total Market Index (TMW). Compute the return on the stock and on the indexes. If your stock pays dividends, get this information by using the command sym/CF/DIV/; to go beyond the time period shown on the first screen, use sym/CF/DIV/PG2, etc. Then compute the daily return by using the formula, R8/11/99 = P8/11/99/P8/10/99-1, where Rt, Pt stand for the return and price on date t. If a stock went ex-dividend on August 11, 1999, use the formula, R8/11/99 = (P8/11/99+Div8/11/99)/P8/10/99-1, where Divt is the amount of the corresponding dividend.
Similarly, download monthly closing price data on your stock and on the three indices for the period Dec. 1994 to Dec. 2000. Compute monthly returns, assuming that the dividends are paid at the end of the month in which they are actually paid.
Now run three sets of regressions:
Regress the daily stock returns on the stock against the three different indexes;
Regress the monthly stock returns for the months 1/95 to 12/97 on the index returns for the corresponding period;
Regress the monthly stock returns for the months 1/98 to 12/00 on the index returns for the corresponding period.
Use Excel to run the regressions; interpret your results. (You can get more information on regression analysis from my website. You may also want to consult the solution to Q. 2 on Midterm II in Spring 2000.)
Prepare a table as follows:
|Monthly data||Beg. 1995 - end 1997|
|Monthly data||Beg. 1998 - end 2000|
|Daily data||Beg. 1998 - end 2000|
Now plot beta pictures of your stock for the time-periods and indices specified above, using the Analytics Display in the Bridge/Telerate software (nine combinations in all), using the information below to structure the different commands:
The command us;dell/sc/bf(100*(ls-ls.1)/ls.1)/se/grd3/da/dt>jan-99/dt<oct-01/fc/tc12/sym=us;nya will generate a beta plot using daily data for dell from Jan. 1999 to Oct. 2001 against the New York Stock Exchange Composite. You will, in general, only need to change the items shown in red italics to obtain the different combinations. Instead of us;dell, input the symbol for your stock; instead of da, put in mo for monthly data; modify dt>jan-99 and dt<oct-01 to change the time period for the data; modify us;nya to change from the New York Stock Exchange Composite index to other indices.
Show the Bridge/Telerate beta pictures by copying them from the Analytics display and pasting them in your Excel worksheet. This can be done by clicking the right mouse anywhere in the Analytics display; this will prompt you to "Save Window as" a bitmap file. This file can then be inserted in the appropriate spot in the Excel spreadsheet using the Insert Object command from the pulldown menu and giving the name of the file where the beta picture was saved.
Compare the betas computed with respect to the different indexes.
Compare the betas computed with respect to a given index, using daily data versus monthly data, for the period 1998-2000.
Compare the betas computed with respect to a given index using monthly data for the period 1995-1997 versus the period 1998-2000.
If there are any differences, explain them. Keep in mind also, the R2s of the regression, the standard errors of the estimates, and the characteristics of the firm and the indices over time.
Submit your results in an Excel file. The first Worksheet should be the write-up, with Introduction, conclusions, etc. The actual work should be shown in other worksheets in the same file.
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