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. You must confirm
your company selection with me before you start your analysis.
You can find companies in these sectors
by using StockVal or a similar program. The company that you choose
should satisfy the following conditions:
- Make sure that the market value
of your chosen firm is at least 0.75 billion dollars.
- It should have public debt, preferably
Write a report on Corporate Governance
at your company. Start your report by providing an executive summary.
Then, a brief description of the company (about half a page), taken
from Yahoo or another source. Use another two to three pages to
present a well-organized report on "Who own/runs your firm."
Make sure to put the important analyses up front; all detailed information,
including tables, particularly if they are long, should go at the end
as an appendix. If the table or the graph is small, then you can
include it up front, particularly if you're going to refer to the contents
of the table in detail. In any case, you should not include any
information in Appendices that you don't refer to at all in the text.
Keep in mind that you are analyzing
the company. Providing a lot of data is not valuable, in and of itself.
Also, using information and "analysis" indiscriminately from
the company's website is also not of much use. Ask yourself regarding
anything that you include in the report -- what is this telling me about
the company's corporate governance, viz. the structure of the company,
broadly defined, and how it affects the optimal working of the company.
And don't forget to use spell check
and grammar check!
Some of the questions that you should
think about in writing up your report:
- Who are the institutions holding
the stock? (Such information can also be found on Yahoo at
Microsoft -- msft; replace msft with the symbol for your stock.)
What conclusions would you draw from the quality and number of these
institutions, as well as the proportion of the firm's stock
that they hold?
- How many analysts follow the stock?
What implications would you draw from the quality and number of analysts?
- 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.) What conclusions
would you draw from this information?
- Are there major conflicts of interest
in the running of the company that have not been addressed by compensation
- Have there been major events in
the life of the company recently that are indications of conflicts
- Get information on the covenants/bond
indentures of the company. Can you conclude that the bondholders
are well protected from stockholder aggression?
- How does the company see its role
as a corporate citizen? For example, is it respectful of its
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:
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
- 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
- Search on Google using the company
name and relevant keywords.
- Use the information on analysts
- Use information that you may be
able to find at http://biz.yahoo.com
or at http://www.marketguide.com.
- You can get information from MoneyLine; for example,
you can get bond ratings by doing the following:
- log onto Moneyline
- click on US Markets from left menu
- click on Corporates
- click on Bond Ratings
- enter the information in the dialog boxes
Pick a company
satisfying the conditions specified in Assignment 1; as far as possible
stay with the company you have chosen in Assignment 1. Do
either part A or part B, whichever will allow you to stay
with your company. (If you need to switch companies, you have
to get permission from me beforehand.) Make sure that you provide
sources for all your data and other information. You can use http://10kwizard.com;
note, however, that access to 10kwizard.com is no longer free.
You can get the same information from the Library's databases, or from
Yahoo or Edgar Online (http://www.edgar-online.com/).This
assignment should be done in Excel. Make sure that you provide
sources for all your data and other information. You can get the
information from the Library's databases, or from Yahoo or Edgar Online
Please submit electronically
as an Excel spreadsheet.
- Go through the company's
most recent 10K . 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.
Explain all the assumptions that you make. In particular, justify
your choice of the amortized life of R&D for your company.
- Go through the company's
most recent 10K. 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.
Download historical price information
for a stock satisfying the conditions specified in Assignment 1 above,
using the information given below, and estimate a beta for your stock.
Your ultimate objective is to estimate
a beta using all available information. First of all, you should use
historical price information to estimate historical betas. Compute a
historical beta, first using daily data, and then using monthly data,
for the most current five year period for which you can get data. Then
split the period into two and compute betas for both subperiods. If
you get beta estimates that are very different, explain why the estimates
differ. Use the results of this analysis to decide how much data you
want to use for your beta computation and whether you want to use monthly
data or annual data.
In order to compute historical betas,
you need to compute returns. For this, you can use the following procedure.
Download daily closing price data on your stock for the periods required.
(You can get this information from Yahoo or other sources.) Do
the same for the NYSE Composite (^NYA) (If sufficient data is not available
for the NYSE Composite, use the S&P 500). Compute the return
on the stock and on the index. 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. Compute
monthly returns similarly.
You can get price data from Moneyline
by following these instructions:
Next, look at betas for other firms
in the industry that your stock belongs to, to figure out whether your
beta estimate makes sense. Compute fundamental betas or bottom-up betas,
where appropriate. (See Prof.
Damodaran's write-up on betas on his website for more details, as
well as the textbook, Chapter 7).
Use Excel to run the regressions; interpret
your results. (You can get more information on regression analysis from
website. You may also want to consult the solution to Q. 2
II for FIN 320 in Spring 2000.)
Compute the weighted average cost of
capital for the company satisfying the conditions specified in the Corporate
Governance Assignment (see Assignment 1 above.)
You can use the following exam problems
for hints on what sort of information you will need, as well as on how
to process the information.
Among other sources, you can also use:
Make sure your report is well researched,
well analyzed, based on theory, and written up in a form easy to understand. You
may submit an Excel spreadsheet to accompany your work, but the main
results of the report should be written up in a Word document.
You may use Damodaran's spreadsheets.
However, it will be your responsibility to explain each of the assumptions
that he explicitly or implicitly makes.