Investment Analysis Assessment
11
Preparation
An investment analysis has two fundamental components:
1. A financial analysis, such as reviewing current financial ratios within the company.
2. A nonfinancial analysis, which is reviewing a company’s strategic vision, employee satisfaction, et cetera.
For this assessment, imagine that you are looking into investing in a manufacturing company, such as a car company or a steel company. Your goal is to complete an investment analysis of this company. To do this, consider factors you would need to examine with regard to this company that would tell you how strong of an investment this company would be.
Instructions
After considering a potential investment in a manufacturing company, write an essay in which you address the following:
· What are some of the qualitative factors that must be considered when selecting a company in which to invest?
· What financial ratios would you examine, and why?
· What nonfinancial factors would you examine, and why?
Use research from at least two references to support your ideas.
Other Requirements
· Length: Your paper should be 1–2 typed, doublespaced pages. In addition, include a title page and references.
12 Forecasting Assessment
Instructions
The goal of forecasting the performance of a company is to estimate the financial performance of a company over a selected period of years. When forecasting a company’s performance, you look at both financial and nonfinancial factors. For this assessment, consider a hypothetical manufacturing company for which you might prepare a forecasting analysis. Write a paper that addresses the following:
· How would you forecast revenue, profitability, and asset management, such as inventory control and accounts receivable, for a hypothetical manufacturing company?
· What ratios would you analyze?
· What techniques would you use? Why?
· What nonfinancial factors would be important in your analysis?
Use research from at least two references to support your ideas.
Other Requirements
· Length: Your paper should be 1–2 typed, doublespaced pages. In addition, include a title page and references.
13 Unit 1 Problems Assessment
Instructions
For this assessment, complete Problems 1–4. You may need an HP 10B II Business Calculator to complete the following problems. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets.
Problem 11: Real RiskFree Rate
Current 30day Tbills are yielding 3.5 percent. Your accountant provided you with these interest rate premiums:
· IP = 1.5%
· LP = 0.6%
· MRP = 1.8%
· DFP = 2.15%
What is the real riskfree rate of return based on this data?
Problem 12: Expected Interest Rate
For this problem, examine Treasury securities. Considering the following numbers, what would the yield on 3year Treasury securities be?
· Real riskfree = 4%.
· Inflation expected at 1.5% for this year and 2% for the next 2 years.
· Maturity risk premium = 0.
Problem 13: Default Risk Premium
A Treasury bond maturing in 5 years has a yield of 4 percent. A 5year corporate bond has a yield of 7 percent. Consider that the liquidity premium on the corporate bond is 0.5 percent. If this is so, what is the default risk on the corporate bond?
Problem 14: Ratio Analysis
Using the XYZ Balance Sheet and Income Statement linked in the Assessment Resources and the table provided below, complete the following for XYZ Inc.:
1. Calculate the indicated ratios for XYZ.
2. Construct the DuPont equation for both XYZ and the industry.
3. Use your analysis to outline XYZ’s strengths and weaknesses.
4. Say XYZ had doubled its sales as well as its inventories and common equity during 2013. Do you think this would this affect the validity of your ratio analysis? No calculations are necessary.
Ratio 
Industry Average 
XYZ Inc. 
Current 
2.0x 

Quick 
1.3x 

Days sales outstanding 
35 days 

Inventory turnover 
6.7x 

Total assets turnover 
3.0x 

Profit margin 
1.2% 

ROA 
3.6% 

ROE 
9.0% 