Determine if there is a future for the new product the company is proposing. What is the management style of the company?

You will demonstrate your valuation strengths in the term paper by determining whether the business you are studying is fairly-valued, over-valued, or under-valued. If it is a publicly-traded entity, make a buy, sell, or hold recommendation on the stock. If it is a private entity, you may evaluate the company from the perspective as to how you perceive it would be valued as a publicly traded firm.

1) The first criterion is financial analysis, including ratio analysis and risk analysis. Are you evaluating this company from a macro-economic or big-picture perspective in which you look at broad-based economic and industry trends in relation to how the company will capitalize on those trends OR are you examining the company from an operating / on-ground perspective and its individual business prospects and financial outlook (with less importance accorded to macro-trends)?

Is it a high risk, low risk or medium risk situation? For example, a company that focuses on growth and reinvests all its profits into the core business typifies a growing, risk-taking enterprise. An example of a conservative operation is a company that generates surplus cash [pays a dividend if publicly traded] and is noted for stable, steady growth.

2) The second criterion is qualitative research. For example, determine if there is a future for the new product the company is proposing. What is the management style of the company?

 

3) The third criterion is financial research. You’ll need to find any research about the industry your company is in from analyst recommendations found in Value Line, Dun & Bradstreet, Morningstar, etc. If you studying a private business entity, then analyst reports on publicly traded comparable firms may provide an applicable standard of comparison by which you are able to arrive at your valuation conclusion.

4) The executive summary should begin with the valuation conclusion. Is it fairly valued, overvalued, or under-valued? [If publicly traded, then you must write a buy, hold or sell recommendation.] The rest of the paper should explain the reason for your recommendation. A table of contents may also be included if the report is lengthy or has multiple sections and subheadings.

5) Calculations and support documentation should be included in the appendix, but relevant statistical support (i.e., bottom line figures such as rates of return, valuation, and so forth) should also be included in the body of the text.

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