Corporate Finance and Financial Statement Analysis
Equity Valuation and
Analysis of Credit Risk
Monday March 31
Prepared by Dr Natalia Isachenkova (Room 311
in Kingston Business School
This is an individual assessment contributing 50% of your marks for the module. You must
The deadline for submission is
Monday March 31
The assignment consists of two parts
carry equal marks. You
attempt both parts.
Part 1 of the assignment i
s intended to help you develop practical skills of Fundamental
Analysis. The assignment provides you with
opportunity to apply valuation technologies
that are commonly used in practice and that incorporate financial statement information into
uation models. The focus is on
or backward validation of alternative
for Part 1
You are required to provide
a valuation of the
(equity) in ANY ONE of
at the end of 20
, using the actual
reported by the firm in 20
ConAgra Foods, Inc.
Merck & Co. Inc.
United Technologies Corp.
Mart Stores Inc.
Your valuation should utilise TWO valuation technologies one of which MUST be
either Residual Earnings Analysis or Earnings Growth Analysis.
You should supply a commentary on the usefulness of the two techniques that you
use, substantiating your conclusi
ons with the results from the valuation.
You must prepare a concise written
for this part of the assignment
o include in your written report for Coursework Assignment 2
an appendix, the
set of all the annual
financial statements for the chosen firm
for the period 20
. Please note that NO other appendices are allowed.
must contain clear references to the relevant portions of the
financial statements for the firm being analysed, and
the relevant portions should be
validation means that you must explore the usefulness of the two valuation
technologies that you employ by comparing their respective
estimates of the
the end of 20
. That is, you need to look back and convert the financial statement numbers
valuation of t
provide your conclusion on which of the two valuation techniques that you utilise is more
powerful at predicting
the value of the firm at the end of 20
Please note that in this particular project there i
s no need for you to attempt forecasting pro
forma numbers, since you can treat the 20
statements as impeccable one
year projections that can be used for valuing the
Attention should be given to the valuation technologies that attempt to calculate the
fundamental (intrinsic) value.
The structure of the
for Part 1 of the assignment
will provide an executive
summary, a brief retrospective
environment, and then will concisely outline an appropriate specification of payoffs based on
an analysis of the available 20
financial statements, an
at the end of 20
, concluding with a discussion of the degree of usefulness of the two
valuation methods that you utilise from the perspective of a
n academic researcher.
Avoid applying equity valuation techniques mechanically, as the examiner will need to see
that you have the necessary understanding of the costs and benefits of alternative
technologies and are using the appropriate tools.
critically interpret the valuation results, using evidence in the argument.
You can bring in sensitivity analysis or reverse engineering, if appropriate, to inform y
You may round all computations to the nearest integer (or nearest percentage).
Part 2 of the assignment is intended to help you develop practical skills of credi
The assignment provides you with
opportunity to evaluate the financial status of a
potential corporate borrower, using ratio analysis of the financial statements.
for Part 2
You are required to carry out an analysis of financial statement ratios that indicate the
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