M3.5 Milestone 1: Investment Analysis and Recommendation
You are invited by a local investment services firm, Edge Equity Investments, to interview for the position of investment manager in their local office. The position requires you to identify and promote investment opportunities offering superior returns to clients. Returns are a combination of dividends and increases in share value over time. This position will expand your skills in financial analysis and move your career forward in an exciting direction, and the firm is offering you an attractive benefits package in addition to a comfortable salary.
Prior to the interview, you must produce a report determining whether to recommend investment in a Small to Mid-cap company of your choice listed on the New York Stock Exchange. Given the research you prepared as you invested funds received from a recent inheritance (in M2.3 The Big Picture), you have decided to research this same firm.
Your task is to produce an Investment Analysis Report (with a maximum of 2,200 words, tables/graphs not included) appraising the return on equity of the firm you selected for review over the past two years using the latest 10-Q and the corresponding 10-Q from the previous year (so if you are using the 3rd quarter 10-Q, the comparison should be the 3rd quarter 10-Q from the previous year). You are required to employ financial statement analysis to break down the return on equity into its key parts using the basic Du Pont formula. Please consider that the panelists are all busy professionals not interested in reviewing a long report; therefore, you will need to keep to the word limit. The panel has also asked that you focus on analyzing the issues rather than on purely describing information. Analysis requires you to focus on explaining and predicting implications of trends rather than merely describing trends. Plan to include the following two sections in your analysis:
Section A: Investment Analysis
- Company Overview & Firm-Specific Risks (max 200 words) [10 points]
- Profit Margin (max 500 words) [20 points]
- Total Asset Turnover (max 500 words) [20 points]
- Equity Multiplier (max 500 words) [20 points]
- Based on the above criteria, your investment recommendation to clients of Edge Equity Investments (max 200 words) [20 points]
Section B: Limitations
The task requires you to determine whether or not to recommend investment in this firm based on the preceding four categories of information. In the concluding section, you are to elaborate on the limitations of the above analysis, including what further sources of information you would like to use to make a more informed decision (200 words max). [10 points]
You will submit this report as two files. The first file should contain an Excel spreadsheet (you can use any other spreadsheet) with your ratio calculations based on information in the 10-Q. The second file should contain your investment report.