The ratios that you should do an analysis (trend analysis as

Question

well as cross-sectional) of are listed below. You are welcome

to analyze more ratios, but these should be included in the

report.

A. LIQUIDITY ------- Current ratio, Quick ratio,

B. TURNOVER -------- Total Asset Turnover, Fixed Asset

Turnover, Inventory Turnover

C. PROFITABILITY -------- Net Profit margin, Basic Earning Power

ratio, Return on total assets, Return on Common equity

D. DEBT--------- Debt-to-Assets ratio, Debt-to-equity ratio, Times

Interest earned ratio

E. MARKET VALUE ----- P/E ratio, Price/Cash Flow ratio, MB

ratio

1. If you are using a stable growth model, the g cannot be

greater than the WACC. If you find that the growth rate

(g) of the FCFS is higher than the WACC, you will have to

reexamine your numbers (the excerpts below from

Damodaran's text can be helpful). You also have the

option of going with a variable growth rate scenario

rather than assuming a constant growth rate throughout.

2. Make sure to provide appropriate assumptions and

rationale in your report to back your forecasting/valuation

exercise.

3. Please include the sources from where you obtain data

for the risk-free rate, the market risk premium and the

beta if you use the CAPM to arrive at the cost of equity.