GuidelinesThe purpose of this assignment is to apply the knowledge that you learned during the semester to conduct a comparative analysis of public companies within the same industry, describe their governance, capital structure and payout policy, performance over the past 2-3 years, and suggest some changes you would make if you were the CEO.
Selecting your companiesChoose an industry that you find interesting and would like to analyze. Select a group of 3 peer companies that operate in that industry, preferably, one international.
The following selection criteria must apply:
- all companies must be publicly traded but can be listed on any exchange in the world;
- companies must have at least one year of stock market information, as well as financial statements filed with the SEC;
- banks, insurance companies, REITs, and other firms in financial services, as well as firms that have any segment in such industries, must be excluded (SIC codes XXXXXXXXXX).
Try to have some diversity in your group of companies, if possible, in terms of firm size, age, geography of operations etc.
Guidelines for the AnalysisYou need to conduct a similar analysis for each company in the group and make comparisons across firms. The results must be presented for the whole industry group.
Your analysis must cover the following points.
- A brief presentation of the selected industry and the companies, some firm characteristics or information that you think are important, including industry/company age, growth opportunities, and how the companies manage their public image.
- Analysis of Corporate Governance
This part of your analysis must be focused on the degree of separation of ownership and control in the company and the quality of its governance. In particular, you must
- Describe the boards of directors in terms of size, proportion of insiders/outsiders, proportion of members related to the CEO, the presence of influential stockholders on the board and assess the degree of board independence;
- Describe the power of the CEO in the company. You can base your assessment on his/her age, tenure as CEO, connections, compensation and other factors that you see as important. How well aligned do you think are the CEO incentives with those of the shareholders based on the structure of CEO’s compensation package and CEO’s ownership of company shares?
- Describe the composition of the shareholder pool. Are there any influential stockholders, individual or institutional or the shareholder pool is mostly diffuse? What is the size of their shareholdings in the company?
- Analysis of Capital Structure
This part of your analysis must be focused on describing the firms’ use of leverage and its implications for the cost of capital. In particular, you must
- Use leverage ratios to describe the capital structure of the company and its ability to service debt (total debt ratio, debt/equity ratio, coverage ratio)
- Provide the current rating for the company’s bonds
- If you can find, provide the beta of the company’s equity
- Comment on the level of leverage for each company, whether it is too high or too low relative to the rest of the group, discuss whether you think the company could reduce its cost of capital by changing its capital structure
- Analysis of Payout Policy
This part of your analysis must be focused on how the company returns cash to shareholders. In particular, you must describe
- What part of its earnings the company has been paying out to the shareholders
- The primary method of payout
- What the management does with the retained earnings (invest, accumulate, other)
- The level of accumulated cash holdings (financial slack)
- Stock performance
In this section, please describe the company’s stock performance in recent months, as well as for the past few years.
- Your suggestions
Discuss any suggestions you have for the management that you think could increa