# Final Project: Financial Analysis Report

The final project for this course is the creation of a financial analysis report.

Financial analysis involves examining historical data to gain information about the current and future financial health of a company. Financial analysis can be applied in a wide variety of situations to give business managers the information they need to make critical decisions. The ability to understand financial data is essential for any business manager.

- Using this case study, prepare a financial analysis report for Home Depot Inc. For your calculations, use the Final Project Student Workbook, which includes tabs specific to each milestone. Be sure to include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. Also include a discussion of macroeconomic variables that might impact the company’s financial decision making and strategic objectives. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company’s finances with regard to the topics.

For this summative assessment, you will provide a financial analysis report for Home Depot Inc. based on the data in the case study provided (see link in prompt). You will be asked to take the topics that you have covered throughout the course and display your mathematical and conceptual mastery of them. You will conduct background calculations and provide managerial analysis for the following topics: time value of money, stock valuation, bond valuation, and capital budgeting.

Specifically, you must address the critical elements listed below. Most of the critical elements align with a particular course outcome (shown in brackets).

- Time Value of Money
- Calculate the following time value of money figures:
- Calculate the present value of the company based on the given interest rate and expected revenues over time.
- Suppose the risk of the company changes based on an internal event. Recalculate the present value of the company.
- Suppose that a potential buyer has offered to buy this company in five years. Based on the present value you calculated above, what would be a reasonable amount for which the company should be sold at that future time?

- What are the implications of the change in present value based on risk? In other words, what does the change mean to the company, and how would you, as a financial manager, interpret it? Be sure to justify your reasoning.
- Based on the future value of the company that you calculated, and being mindful of the need to effectively balance portfolio risk with return, what recommendation would you make about purchasing the company as an investment at that price? Be sure to substantiate your reasoning.

- Calculate the following time value of money figures:
- Stock Valuation
- Based on the figures provided, calculate each of the following:
- The new dividend yield if the company increased its dividend per share by 1.75
- The dividend yield if the firm doubled its outstanding shares
- The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above

- What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.
- To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.

- Based on the figures provided, calculate each of the following:
- Bond Issuance
- Assuming this company already has bonds outstanding, calculate the following:
- The new value of the bond if overall rates in the market increased by 5%
- The new value of the bond if overall rates in the market decreased by 5%
- The value of the bond if overall rates in the market stayed exactly the same

- What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.
- To what extent do you feel the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate your claims.

- Assuming this company already has bonds outstanding, calculate the following:

- Capital Budgeting Data
- Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items: 1.The net present value (NPV) of the project 2.The internal rate of return (IRR) of the project
- What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate your claims.
- What is the difference between NPV and IRR? Which one would you choose for evaluating a potential investment and why? Be sure to support your reasoning with evidence.

- Macroeconomic Items: The CEO of the company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince him otherwise based on the following:
- Analyze the implications of interest rate changes on any of the calculations you performed. Be sure to substantiate your claims.
- How might an issue (negative or positive) within the overall stock market impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management? Be sure your response is supported by evidence.
- Analyze the impact of any external factor (i.e., external to the company) discussed throughout the course on the company’s financial position. Be sure to justify your reasoning.