Assignments must be typed and submitted before the start
of class on the due date. You can get much of the required information
from the Bloomberg machine in W404, the GPACT lab. You may also want
to download and print this
Bloomberg help file as a reference.
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 Bloomberg
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 publicly
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 http://biz.yahoo.com/hd/m/msft.html for
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? Please don't give lists of names that have
no independent meaning!
- 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?
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 of interest?
- 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 social obligations?
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 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
- Use the information on analysts at http://www.zacks.com
- 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 Bloomberg.
Explain the capital structure of a company satisfying
the conditions specified in the Corporate Governance Project (see above.)
Here are some kinds of information that you may want to
gather in accomplishing this project. However, if you simply present
your answers to the questions below, you will have failed in the objective
of the project and will not get a passing grade. The point is to use
the information below to understand why your company's capital structure
has the form that it has, to look into whether the current capital structure
is objective, and, if not, what needs to be done to correct it. All
of these need to be substantiated using the information you will have
collected in responding to the questions below.
The structure of the report should be focused on your
arguments. Simply providing data that is not relevant to your arguments
is pointless. Also, expressing financial platitudes without relating
them to your company is also a waste of your time and mine.
- Use information from Prof. Damodaran's website (Go to http://pages.stern.nyu.edu/~adamodar/;
click on Corporate Finance on the left-hand-side menu; choose Corporate
Finance (second edition); then pick Chapter 7) and information from
- For how to compute a debt-equity ratio, you can look at these problems
and their accompanying solutions:
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.
To value the stock of the company, Home
To begin with, go over the slides
on Firm Valuation, which can be found on the class website. You
may also want to read my webnotes
Then get the firm's 10-K
for the latest year. (Some of this information may also be available
on Yahoo or one of the other sites, as well as on the Bloomberg terminal.)
FCFE = Net Income + Depreciation - Capital Spending - D
Non-cash Working Capital - Principal Repayments + New Debt Issues
Information regarding Net Income can be found from the Income Statement;
Depreciation can be found in the Cash provided by operations part of
the Statement of Cashflows; Capital Expenditures can be found by looking
at the Cash provided by investments portion of the Statement of Cashflows;
Principal Repayments and New Debt Issues can be found from the Cash
provided by financing portion of the Statement of Cashflows; Change
in Noncash Working Capital can be found from the Balance Sheet.
(Historical FCFE can be computed using the information in the Statement
FCFE = Cashflow from Operations – Capital Expenditures –
Net Debt paid (short-term and long-term) + Changes in Cash
However, for forecasting purposes, the previous formula is more useful,
since we can forecast each component separately and relatively independently.)
(You will need 5 years of financial statements to compute FCFE for
4 years. You can get older 10Ks by going to my home page, clicking on
Economics/Finance on the Web from the top menu, then clicking on Filings
with the SEC; then choosing Search for Company Filings, then click on
Companies and Other Filers. Use the ticker symbol, HD and then you can
retrieve all SEC filings for HD, since they started filing. If you put
in a date in the cell to the right where it says "Form Type"
etc, you can go directly to the year that you're looking for. Keep in
mind that the filings will take place several months past the end of
the financial year.)
Forecast the FCFE for future years.