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CASE #1 – Caterpillar (CAT) FINANCIAL STATEMENT RATIO ANALYSIS.

CASE #1 – Caterpillar (CAT) FINANCIAL STATEMENT RATIO ANALYSIS.

You may choose one of the following companies to analyze in fulfillment of Case #1:

• Home Depot (HD)
• Lowe’s (LOW)
• Caterpillar (CAT)
• Deere Enterprises (DE)
• Delta Airlines (DAL)
• Southwest Airlines (LUV)
CASE #1 – FINANCIAL STATEMENT RATIO ANALYSIS (75 Points)

Case #1 is a Financial Statement analysis of the company selected from the list on page 1. Structurally, the students will present the case as follows:

• Present a high-level financial statement analysis that identifies one key financial statement account that bears further investigation/additional weight in the ratio analysis. This is the account that you believe its behavior and impact on the ratios is fundamental to understanding the company as a whole. At this stage no analytical presentation is required – simply identification of material/significant account and why you believe it to be so. The analytical impact will be addressed in the next segment of the analysis: the ratio analysis, by class (as defined in the text).

• The student will identify which ratios (not necessarily all the ratios) in each ratio class will be selected for analysis. Each ratio class must be presented as part of the case. The ratio analysis should show at least a three period trend in order to adequately develop performance patterns. The financial statements to be source of the ratio calculations should be the most recent three fiscal years. If industry standards are available, they can also be presented only to complement the analysis. Comparison to industry averages should never be the primary measurement of relative performance or primary focus of the presentation. The use of charts, graphs, tables, etc. are strongly encouraged to present the data for analysis. Finally, within each class, a conclusion on overall financial performance will be presented. Within the overall context of the ratio analysis, there must be a logical integration of the significant accounts identified in the financial statement review to the selected ratios. In the overall presentation, the key concept to remember is that you should focus on the “why”, or “how come” or “what caused”, and not the “what was” of the ratio trend results.

• The student will then present an overall conclusion based solely on the overall financial performance presented, on the relative strength of the company. Finally, based solely on the financial performance of the company, as presented in the ratio analysis, the student will recommend to sell, hold or buy stock in the company.

CASE #1 – RISK EVALUATION (25 Points)

For the company you selected for the statement analysis, now prepare a risk analysis.

You risk analysis should include minimally below:

• Credit rating
• Beta value
• CAPM required return on equity investment
• CAPM rates to use:
Risk Free Interest Rate = 0.70%
Market Risk Return = 8.00%

OUTLINE

The following outline is simply an example of how the Case could be organized and presented (note that this is merely a suggestion; the student is encouraged to present the material how he/she wishes, as long as the material presented is logical, orderly and flows):

1. Introduction and Brief History of the Company Selected
2. Financial Statement (Balance Sheet & Income Statement) Key Account Identification
3. Ratio Analysis, by Class
4. Conclusion, with reason

5. Risk Evaluation

CASE #1 – Caterpillar (CAT) FINANCIAL STATEMENT RATIO ANALYSIS.

 

 

 

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