Principles of finance

In order to determine if you can recommend buying or selling a stock, you first must understand how the company has performed recently. Would you want to invest in a company that has had negative earnings for the past 3 years? What about a company that has increased the amount of debt on its balance sheet? Or, would you prefer to invest in a company that has had consistent increases in revenues or net earnings over the past 3 years? As the equity analyst, your first task would be to determine the evidence of patterns in the recent financial performance. The financial analysis provides significant insight into the company’s strengths and weaknesses.

To fully understand a company’s financial performance, you cannot “evaluate performance using numbers alone. This level of analysis does not involve an understanding of the cause of performance…an analyst must look beyond the numbers” (Hickman et al., 2013, Section 11.3, para. 7). In the real world, an analyst spends extensive time and effort researching the business strategy, operations, marketing, and other elements that have contributed to this financial performance. For this class, you will limit your investigation of the company to the historical financial analysis, ratio and competitive analysis, and the valuation of the stock. This Week 1 assignment will become Section 1 of the Week 5 final project.

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