BAV PROJECT GUIDELINES

This group project aims at developing your understanding of, and practical skills in Financial
Statement Analysis and Valuation. Upon successful completion of the project you will have acquired
a working knowledge and practical skills in undertaking equity valuation using “leading-edge”
financial statement analysis techniques. From past experience, the final report often provides
excellent evidence of your analytical skills that can be presented to prospective employers when
applying for jobs.

The contents of the final project:

1. There is no lower limit to the length of the group project, but reports should not exceed 30
pages (excluding any exhibit, graphs and figures you may use to illustrate your arguments)
2. There should be a cover page that list names of group members, in alphabetical orders
3. Apart from the project report, each group is required to submit their original spreadsheet file
(excel file) containing the following information:
a. Historical data on the company for the selected period for analysis (5 year, 3 year…
depending on your time horizon of analysis) along with your analysis (financial ratios,
common-size analysis, trend analysis…)
b. Your prospective analysis (forecasted Income statement, Balance Sheet, and Cash
Flow Statement) for the forecasted period
c. Your “output” sheet – that lays out your assumptions for the model: WACC,
sustainable growth rate, terminal value…and a valuation price along with your
recommendations about the stock – BUY, SELL, or HOLD

Please note that the financial model is important itself, but a final say about a stock does not matter
to me as much as your assumptions (why you come up with that price). Anything is fully explained
and justified by your assumptions. Make sure they are linked to the strategy analysis of the company.
All of your assumptions for the model should be well explained in the report!

Suggested inputs for the project report:

1. Economic analysis: helps to develop better forecast of how a company would perform in the
future
Analysis tools: Production income, employment, consumption, investment activities, interest
rate, inflation…
2. Industry analysis
Analysis tools: nature of competition, market share for each company in the industry, labor
conditions, regulatory conditions, price elasticity of demand and supply, sensitivity of
demand to economic condition
In the analysis of an industry and a company, it is important to understand the sources of
value added. A firm creates value when it has a comparative or competitive advantage. When
 analyzing an industry and a company, the financial analyst must identify the comparative or
competitive advantage that provides economic profit and sustainable growth in the future.
One way to analyze these advantages is to use the five factors that are outlined by Michael
Porter :-
(a) Threat of new entrants – the industry/company may have an advantage if there are
barriers to new entrants.
(b) Bargaining power of buyers – the stronger the bargaining power of buyers, the less
advantage that a/an industry/company has.
(c) Bargaining powers of suppliers – the greater the bargaining power of suppliers, the lower
the economic profit.
(d) Rivalry among competitors – the more competitive the industry, the lower the economic
profits for any member of the industry
(e) Threat of substitutes – the greater the ability of competitors to imitate the products or
services of a company, the lower the potential economic profit. Patents, trademarks and
copyrights will lower the threat of substitutes.

As the analyst examines the industry and the company – past, present and future – these
questions must be addressed:

(i) What are the sources of the industry’s and company’s economic profit?
(ii) What are the sources of the company’s sustainable growth?

3. Company analysis
The analysis of a company requires looking closely at the company’s financial history and
recent events, with a goal of assembling the future prospects of the company. The types of
information that an analyst must gather include:
(a) Financial statement data and related disclosures;
(b) Major news items in recent years;
(c) Position and market share in the industry;
(d) International investment;
(e) Where the company is in its life cycle (i.e. high growth/ development, maturing,
declining);
(f) Contributions of major product, divisions or subsidiaries to the company’s performance;
(g) Research and development efforts;
(h) Sensitivity of company to commodity prices (e.g. oil); and
(i) Major litigation

4. Financial analysis
Projection assumptions can be supported by historical financial analysis.
Basic financial analysis tools include:
(i) Common size financial statements
(ii) Ratio analysis
 (iii) Trend analysis
(iv) Industry comparatives

Financial analysis tools and techniques can:

(i) Isolate trends (positive and negative).
(ii) Help identify strengths and weaknesses

5. Prospective analysis and valuation

Forecasts of the financial statements are then carried out based on the above fundamental
analysis about the economy, industry, and the company’s competitive advantage.
Then valuation is conducted based on the learned techniques.

Please note that I don’t accept a pure “multiples” or relative valuation as the main vehicle for
your analysis. I need a DCF valuation! Multiples valuation can be used as a reference tool for the
report, not the main tool 

The expected deadline for project submission: to be announced in class, but most likely the
date of the final exam
Reports submitted after the deadline would be deducted 10% of the total grades per day
The presentation sessions would be expected to fall on the week before your final exam