Equity Researcher

My project is over Pepsico and Coca-Cola. I was using PepsiCo as my main Investment.

You are an Equity Researcher for a financial services company in which I am a Portfolio Manager. Our firm is currently evaluating possible equity investments in the Beverage industry. Select both a base company to evaluate and one similarly-sized competitor (peer) and send both the name and the ticker symbol for both companies to me for my approval.* Once approved, you must obtain the two most recent annual reports (Form 10-K) for both companies. You are required to perform analysis and provide a recommendation to me. You must make one of five recommendations: a strong buy for your base firm, a weak buy for your base firm, a strong buy for your peer firm, a weak buy for your peer form, or no buy (i.e., we should not invest in either firm). The analysis and recommendation must be written in the form of a business memorandum from the Equity Researcher (you) to the Portfolio Manager (me) and must include each of the following components. In writing the memo, use section headers to clearly delineate each of the following four sections. 1. Analyze at least three items on the income statement (or income statement-based financial ratios; see the list on p. 3) or the balance sheet (or balance sheet-based financial ratios; see the list on p. 3) for your base company for the two most recent years and discuss whether the company’s performance related to these items appear to be improving, deteriorating, or remaining stable. Justify your answer. You must select at least one income statement and one balance sheet item.2. Identify the single largest adjustment (in absolute value) to reconcile net income to operating cash flow in the most recent year of your base company’s statement of cash flows (contact me if they did not use the indirect method; also contact me if the identified item reflects something we haven’t discussed in class before). Describe how and why the item arises – that is, broadly describe how it creates a disconnect between income and cash flows for your company. Then, assess the risk (low/medium/high) that this item adversely affects your base company’s earnings quality in the most recent year. Justify your answer. 3. Identify one item not included in (or derived from) the financial statements that you think would be important to someone considering whether to invest in your company. Discuss your reasons for believing that this item would be important in making an investment decision. (Note: you will need to do some investigation to find this item for your company, and you will need to incorporate knowledge gained from other business classes.)4. Compare your base company’s financial statements with those of its competitor and provide an official recommendation. Justify and provide support for your recommendation. (Note: your answer in this section must include some financial issues, but your answer need not be limited to a discussion of financial issues.)* While I must approve all company selections, I will generally provide broad latitude with them so long as financial statements for the companies are publicly available. ACCT 3309 Professor Jivas ChakravarthyAlternate Individual Project – Instructions Fall 2020 | Page 2 Additional Instructions: 1. Your memorandum can have no more than four pages of text and must be formatted as follows: double-spaced with one-inch margins (top/bottom/left/right), using Times New Roman 12-point font. The text of your memo should comprise the first four pages of your document (i.e., do not include a cover page). 2. All data used in the income statement, balance sheet, and cash flow analysis MUST be taken directly from the financial statements. That is, for these sections you may not use data obtained from external (e.g. internet) sources – the data must be sourced directly from the company’s annual financial statements. 3. Immediately after the four pages of text – on the 5th page of your document – you must include a worksheet in which you provide detail supporting all ratio calculations referenced in the text. Every financial value used must include a reference to the page of the annual report from which the number was extracted, and the relevant portions of the annual reports must be highlighted (see item 4 below). 4. Any referenced pages of the annual report (for both companies) must be appended at the end of the document (starting on page 6). Do not attach the entire annual reports – only the referenced pages. (Adobe Acrobat has a tool which can extract pages from one PDF and insert them into another PDF file.) 5. Your memorandum must also contain appropriate quotation marks for quoted material and appropriate citations for material taken from sources outside the financial statements. Financial or other values used in the Other items and Investment decision sections that are not sourced from the financial statements must include appropriate citations. 6. You must upload your memorandum to Canvas in PDF form by the start of Meeting #25 (as noted on the class schedule). – Instructions Fall 2020 | Page 3 The ideal memorandum is well written, free of grammatical and other writing errors, and well organized. The memo addresses each of the issues specified in the requirements, uses appropriate examples to illustrate concepts discussed, and integrates the annual report data with the narrative. The memo focuses on important items, demonstrates a thorough understanding of the relationships among financial statement data, and is cohesive.

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INCOME STATEMENT AND BALANCE SHEET RATIOS While you are not limited to the financial statement ratios we covered in class for your income statement and balance sheet analysis, if you choose to use them, please use the following classifications.


Income Statement-based ratios:




-Interest coverage

-Change in revenue


Balance Sheet-based ratios:

-Asset turnover




-D/E ratio, Net working capital, Current ratio, Quick ratio

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