Company for analysis: John Deere
You are a financial analyst with the mythical High Technology Corporation (“HTC”). HTC is an established manufacturer of a line of electronic components for industrial-use machinery, which services an international market. A competitive technical and economic product evaluation has determined that John Deere (a real publicly-traded company) is the best potential candidate for a long-term commitment. John Deere is offering a competitively favorable deal. However, based on some serious general and economic concerns about the fallout of companies in the industry in general, the CEO has asked your CFO to conduct a financial analysis of John Deere to determine if it is prudent to commit to this company’s product line. The cost of cutting over to the new product line is significant and any interruption in support during the next few years would adversely affect HTC’s performance and profit. Specifically, the question is: will a commitment to John Deere be financially viable over the next two to three years?
YOUR SPECIFIC ASSIGNMENT
Your specific assignment is to research, analyze, and prepare a report for the CFO on the actual financial performance of John Deere for the last three years. In addition to reviewing the traditional financial performance indicators, you are also to review John Deere’s past and current stock performance for the last one year. Your report is to consist of three parts:
(1) An evaluation of John Deere’s financial performance for the last three years.
(2) An evaluation of John Deere’s stock performance for the last one year.
(3) Finally, a specific recommendation, with supporting rationale, as to whether or not John Deere’s recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment.
To assist you in your task, the CFO has provided the following general guidance. Since it is recognized that the industry is undergoing a major contraction in selected markets, it is very important to comparatively evaluate John Deere’s financial and stock performance trends against its Industry.
You may wish to include all necessary and relevant financial performance and stock information, trends, and projections in supporting your recommendation. These factors may include, financial ratio trends and industry comparatives, capital spending, stock growth, Beta values, credit rating service valuations, bond rating valuations, and management and investment reports – when these documents are available.
YOUR SPECIFIC ASSIGNMENT
Research and analyze the following information for John Deere:
Annual Balance Sheets for the last three years.
The Income Statements for the last three years.
Annual reports, 10K or 10Q
Analysts’ reports on performance
Management reports or press releases
Using this information the students have to develop evaluation of the financial performance for John Deere. (Totally 85% of the assignment grade)
Background and Industry (one short paragraph).
Select of most significant financial performance results for the company: Compare Revenue, net income, working capital, total assets for the last three years and other results of your choice of the company against the industry or main competitor. Present the table with this information in your report. Write about 1 page of the analysis of these financial performance results. (15% of the project grade)
Find financial ratios for the company and its major competitor in the Internet. Write about 1-2 pages of analysis of the ratio results you received. (15% of the project grade). Compare the ratio results against the industry or main competitor.
Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (10% of the project grade). Compare the company’s results to a major competitor.
Taking the information from the Income statements and the Balance sheets, calculate the company’s return on equity using the DuPont technique for the company for three years. Follow the formulas on pages 437-438 of the textbook. Show your calculation!
Write about 1 page of analysis of the results that you received. Compare the results to main competitor. If the management of the company would like to improve their return on equity, what should the management of these companies do?
Evaluate other areas of financial analysis: capital spending, stock growth, Beta values, credit rating service valuations (if possible), bond rating valuations (if possible), etc. Make an overall conclusion about financial performance of the company during the last years. Compare the results that you received against the industry or main competitor. Summarize the results that you received in 1 pages. What are the firm’s financial strengths and weaknesses? (10% of the project grade)
Collect and evaluate the data about stock performance of the assigned company’s for the last one year. Compare the results that you received against the industry or main competitor.
Write about 1 page of analysis of the ratio results you received. (20% of the project grade).
Develop a specific recommendation, with supporting rationale, as to whether or not the assigned company’s recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment. (about 1 page) (15% of the project grade)