Solved by verified expert:Company: Johnson and JohnsonThis section of the assignment requires for the student to provide their insight on the financial analysis of the Johnson and Johnson company for the previous ten years (2007-2017). The financial analysis of the company must be explained in the following categories: brief introduction/background of the company’s financial analysis, return on equity decomposition, profitability, asset management, liquidity, debt and coverage, and sustainable growth.Additionally, financial analysis must have charts and/or graphs showing understanding of trends/patterns observed per the company’s previous ten years of financial reporting. Please see attached rubric guide and sample paper. We are in need of part 3 financial analysis. The requirements go based off the sample paper from page 27 Financial Analysis to page 43 Sustainable growth. The assignment doesn’t require 16 pages like the sample paper provided. It only requires 8-10 pages.
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FIU ACG 6175 Financial Reporting and Analysis
Week 1 – Group Project Chapter Linkage
Overview
The group project requires you to select a company and write a financial analysis document
encompassing five areas of analysis: (1) strategic analysis, (2) accounting analysis, (3) financial
analysis, (4) forecasting, and (5) valuation. The course readings and case assignments explore
each of these areas.
When turning in project components, select one person from your group to turn in all materials.
Week 2 Readings—Project Section No. 1
•
Chapter 1 in Palepu describes the nature of financial accounting and reporting, and how that
information is used in business analysis. The chapter essentially describes the nature and
content of this course.
•
Evaluation of the financial statements of a company is, in many respects, an attempt to
discern whether the enterprise is doing the right things the right way, doing the right things
the wrong way, or doing the wrong things. It is not possible, therefore, to competently
evaluate the financial statements of a company outside of the competitive context that gave
rise to them. Thus, the first component of the group project is a strategic analysis of the
company’s markets and competition. Chapter 2 in Palepu provides a framework for that
strategic analysis.
Week 2 Readings—Project Section No. 2
•
The next step in evaluating a company is to assess and, if necessary, recast the information
in the financial statements. Chapter 3 provides an overview of this exercise and chapter 4
describes specific areas that may be interest to the analyst.
Week 5 Readings—Project Section No. 3
•
After we have gained an understanding of the company’s strategic opportunities and
challenges, and evaluated (and, if necessary, adjusted) the accounting principles employed
in creating the financial reports, we need to find some benchmark against which to measure
the company’s performance. Financial—or ratio—analysis of the company’s performance in
comparison to that of its major competitors yields that measurement. Chapter 5 in Palepu
provides a background and methods for conducting this analysis.
Week 7 Readings—Project Section No. 4
•
Chapter 6 in Palepu provides a basic framework for forecasting corporate performance using
financial statements.
Week 7 Readings—Project Section No. 5
•
Chapters 7 and 8 in Palepu describe how to use forecasts to value corporate entities.
Criteria for Company Selection
In terms of company selection, you must abide by these five criteria:
1. At least $50 million of pre-tax earnings
2. Consistent earnings power and dividend history
3. Good returns on equity with limited or no debt
4. Management in place
2014 Florida International University
Page 1 of 3
FIU ACG 6175 Financial Reporting and Analysis
5. Simple, non-techno-mumbo-jumbo business
Organization of Paper
The paper should follow the outline shown in the “Grading Criteria” (below). Additional guidelines
include:
•
The Executive Summary should be followed by a Table of Contents that includes page
numbers for the referenced sections and subsections.
•
The discussion (text) should be double spaced.
•
The font should be reasonably sized (11 – 13 point depending on the type chosen).
•
References should be inserted in the text or as footnotes (not endnotes).
•
Tables and figures should be included in the body of the document, generally following the
paragraph where they are (first) mentioned.
2014 Florida International University
Page 2 of 3
FIU ACG 6175 Financial Reporting and Analysis
Grading Criteria
% of
Grade
Executive Summary
Overall Recommendation
Summary Rational for recommendation
5
Specific considerations
Strategy
Assessment of SWOT, Societal Expectations & Corporate Culture
10
Accounting Analysis
Summary of Key Accounting Policies
10
Accounting Adjustments as necessary
Financial Analysis – Multiyear Analysis/Comparisons
Multiyear ROE Decomposition – Co. and Major Competitors
20
General Ratio Comparisons to Competitors and Industry Averages
Forecasting
List of Specific Assumptions used in forecasts
15
Forecasts for a 5 year time horizon
Valuation
Components of the WACC (with sources referenced) (5 pts)
DCF Model – Optimistic, Pessimistic & Expected (2 pts)
10
DAE Model – Optimistic, Pessimistic & Expected (2 pts)
DAROE Model – Optimistic, Pessimistic & Expected (1 pts)
Assessment of Solvency
Calculation of Altman’s Z
Estimate of Bond Rating based on ratios
10
Actual Bond Rating (if applicable)
Conclusions
Internal Consistency (recommendation must match analysis)
5
Recommendation (Buy-Sell-Hold)
Overall Presentation
Thoroughness/Depth of Analysis
Sentence Structure, Grammar, Syntax
15
Format and Graphical Presentations
2014 Florida International University
Page 3 of 3
Financial Reporting and Analysis of:
Intel Corporation
Stock symbol: INTC
Listed on the:
National Association of Securities Dealers Automated Quotation (NASDAQ)
Prepared for:
Dr. Clark Wheatley
Florida International University
In partial fulfillment of the requirements of the course:
ACG6175
Table of Contents
Page
Executive Summary ……………………………………………………………………………………………………………………. 3
Strategic Analysis ……………………………………………………………………………………………………………………….. 4
Company Overview …………………………………………………………………………………………………………………. 4
Industry Analysis …………………………………………………………………………………………………………………….. 5
Competitive Environment ………………………………………………………………………………………………………… 7
Competitive Advantage …………………………………………………………………………………………………………. 10
SWOT Analysis ……………………………………………………………………………………………………………………… 11
Values of Key Personnel ………………………………………………………………………………………………………… 14
Societal Expectation ……………………………………………………………………………………………………………… 15
Accounting Analysis ………………………………………………………………………………………………………………….. 16
Policies ………………………………………………………………………………………………………………………………… 16
Flexibility ……………………………………………………………………………………………………………………………… 19
Strategy ……………………………………………………………………………………………………………………………….. 22
Disclosure Quality …………………………………………………………………………………………………………………. 24
Red Flags ……………………………………………………………………………………………………………………………… 25
Distortions …………………………………………………………………………………………………………………………… 26
Financial Analysis ……………………………………………………………………………………………………………………… 27
Return on Equity Decomposition …………………………………………………………………………………………….. 27
Profitability ………………………………………………………………………………………………………………………….. 31
Asset Management ……………………………………………………………………………………………………………….. 34
Liquidity ………………………………………………………………………………………………………………………………. 36
Debt & Coverage …………………………………………………………………………………………………………………… 39
Sustainable Growth ………………………………………………………………………………………………………………. 42
Forecasting ……………………………………………………………………………………………………………………………… 43
Sales ……………………………………………………………………………………………………………………………………. 44
Income ………………………………………………………………………………………………………………………………… 45
Balance Sheet ………………………………………………………………………………………………………………………. 48
Valuation ………………………………………………………………………………………………………………………………… 49
Price Multiples ……………………………………………………………………………………………………………………… 50
Discounted Free Cash Flow …………………………………………………………………………………………………….. 51
Discounted Abnormal Earnings ………………………………………………………………………………………………. 53
Discounted Abnormal Return on Equity …………………………………………………………………………………… 54
Earnings Growth (Buffet’s Model) …………………………………………………………………………………………… 54
Assessment Of Solvency ……………………………………………………………………………………………………………. 56
Calculation of Altman Z-‐Score Model ………………………………………………………………………………………. 57
Estimate of Debt Rating …………………………………………………………………………………………………………. 58
Actual Bond Rating ……………………………………………………………………………………………………………….. 59
Conclusion ………………………………………………………………………………………………………………………………. 60
2
Executive Summary
Based on Strategy, Accounting, Financial, Credit and Prospective analysis of Intel
Corporation, it is undervalued at current price levels and is a BUY. The analysis suggests Intel’s
sustainable growth rate is 12%, with an expected earnings per share growth of 35% over the
next 10 years and year-‐over-‐year value creation of 6.5% to 14.7%. Finally, with 85%+ of the
microprocessor market, Intel is consumer monopoly allowing it to command a premium for its
products resulting in profit margins well above industry norms.
3
Strategic Analysis
Company Overview
Intel Corporation (Intel) is a multinational semiconductor chip maker headquartered in
Santa Clara, California. Founded by semiconductor pioneers Robert Noyce and Gordon Moore
and associated with visionary Andrew Grove, Intel combines advanced chip design capability
with state-‐of-‐the-‐art manufacturing capability1. Incorporated in 1968, Intel’s core business is
designing and manufacturing integrated digital technology platforms consisting of
microprocessors and chipsets2. These platforms are used in various computing applications
including tablets, smartphones, laptops, desktops, servers, automobile systems, medical
devices and factory machines. The company also provides mobile components such as WiFi
products, radio frequency transceivers, Bluetooth products, power management chips and
global navigation satellite system components. In addition, through various company
acquisitions, Intel offers network and content security as well as security software products for
consumer, mobile, and corporate environments. Intel sells its products primarily to
manufacturers in the computing and communications industries. Intel has over 107,000
employees and is the largest publicly traded semiconductor manufacturer by revenues with
sales of over $52 billion last year3. The following sections analyze the elements of Intel’s
success.
1
en.wikipedia.org/wiki/Intel
2
www.reuters.com/finance/stocks/companyProfile?symbol=INTC.O
3
finance.yahoo.com/q?s=intc
4
Industry Analysis
In order to understand the strategic avenues Intel may pursue, one must understand
the context of the semiconductor industry. The number of semiconductor components used in
our daily lives is constantly expanding. Chips form the core of the newest technological devices
such as smartphones and tablets. Semiconductors are also becoming more common in
automotive and industrial markets as well as consumer goods such as televisions and
appliances. As a consequence, the semiconductor industry has been growing for over 40 years,
in spite of economic downturns, the bursting of the internet bubble and the 2008–2009
financial crisis, with industry annual revenues of over $200 billion4. As shown below, two
companies dominate the semiconductor industry5.
4
www.pwc.com/gx/en/technology/publications/semiconductor-‐industry-‐analysis-‐and-‐projections.jhtml
5
www.isuppli.com/Semiconductor-‐Value-‐Chain/News/Pages/Semiconductor-‐Sales-‐Recover-‐in-‐2013-‐;-‐Micron-‐
Surges-‐to-‐Fourth-‐Place-‐in-‐Global-‐Chip-‐Market.aspx
5
It should be noted, however, that the semiconductor space is very complex. The
semiconductor industry is made up of four main product categories: memory, microprocessors,
integrated circuits and complex “Systems on a Chip”, where a single integrated circuit chip has
an entire system’s capability on it. Not all manufacturers participate in all categories. For
example, with the exception of Advanced Micro Devices (AMD), Intel dominates the
microprocessor segment with over 85% of the market share6.
Due to fierce competition and new technologies that lower the cost of producing
semiconductors, there is a constant need for semiconductor manufacturers to come up with
new and cheaper products. Thus, the semiconductor industry is characterized by rapid
technological innovation. Another characteristic of the semiconductor industry is the high
capital expenditures needed to support both growth and technological progress. Specifically,
the fixed costs and minimum scale associated with building a new chip fabrication facility is in
the billions7. Finally, the semiconductor industry has been characterized as being cyclical. This
occurs because semiconductor manufacturers face booms and busts in semiconductor demand.
This cycle coincides with demand for various electronic devices such as personal computers and
smartphones, which is in synch with consumer spending patterns. In other words, when the
economy is good, semiconductor manufacturers generally produce at capacity. However, when
the economy is struggling and computer sales are slow, the semiconductor manufacturers
struggle too8.
…
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