fundamental analysis

Trader’s log 3 – Fundamental analysis
Instructions
Choose three firms with different dividend, earnings, and cashflow situations. Using financilas available from Bloomberg, manually calculate intrinsic share values for three companies you chose. This assignment will account for 60 pts in your grade. You are required to submit a MS word document that contains all the details for your analysis as well as trader’s log 3 with your transaction information in it . Please refer to a detailed guide below. You may send messages to me if you have any questions regarding Bloomberg.
Fundamental Analysis Using Bloomberg Terminal Or you can use the 10K of each company (sec.org) 10K

Step 1: Choose three companies:
a firm that pays out dividends (firm A)
a non-dividend paying firm that maintains positive earnings (firm B)
a non-dividend paying firm that suffers from negative earnings (firm C)
Step 2: Dividend discount model for firm A
Manual analysis
o Enter firm A’s name or symbol in the command line, press the ‘Equity’ button or type equity, type ‘FA’, then press ‘GO’
o Click on the Income Statement Tab, tab number 2. Scroll down and obtain Dividends per Share
o Click on the Custom Tab, number 9. In the yellow ‘Enter Field’ box, enter DPS Sequential Growth to obtain the growth rate year on year
o In the Custom Tab, enter ‘Country Risk – Premium’ in the yellow ‘Enter Field’ box to obtain the market risk premium.
o In the Custom Tab, enter ‘Country Risk – Risk Free Rate’ in the yellow ‘Enter Field’ box to obtain the risk free rate.
o Type ‘BETA’ into the command line and press ‘GO,’ this will bring you to Bloomberg’s beta calculator. Adjust the date and other inputs accordingly and obtain firm A’s beta.
o Calculate discount rate with firm A’s beta, market risk premium and risk free rate.
o Calculate stock price as a PV of all future dividends

Do a dividend discount model using a built-in function in Bloomberg. Explain a potential reason for the disparity in two values between manual analysis and automatic function.
o Log onto Bloomberg
o Enter firm A’s name or symbol followed by ‘Equity’ and ‘DDM’ in the command line and then press ‘GO.’
o This is the Bloomberg Generated Dividend Discount Model with all relevant imputes.

Step 3: Residual income model for firm B
Log onto Bloomberg Terminal
Enter firm B’s name or symbol, then enter ‘Equity’ or press the ‘Equity’ key in the command line, then type ‘FA,’ then press ‘GO.’
Obtain book equity from B/S tab (tab number 3) and EPS from I/S tab (tab number 2).
From book equity and EPS values for the past three or more years, calculate the growth rate. EPS and book equity’s growth rate may be different. You may use average or you can just choose one growth rate.
In the Custom Tab, enter ‘Country Risk – Premium’ in the yellow ‘Enter Field’ box to obtain the market risk premium.
In the Custom Tab, enter ‘Country Risk – Risk Free Rate’ in the yellow ‘Enter Field’ box to obtain the market risk premium.
Type ‘BETA’ into the command line and press ‘GO,’ this will bring you to Bloomberg’s beta calculator. Adjust the date and other inputs accordingly and obtain firm A’s beta.
Calculate discount rate with firm B’s beta, market risk premium and risk free rate.
Calculate stock price as a PV of all future residual incomes.

Step 4: Free cash flow model for firm C
Log onto Bloomberg Terminal
Enter firm C’s name or symbol, then enter ‘Equity’ or press the ‘Equity’ key in the command line, then enter ‘FA,’ then press ‘GO.’
Click on the ‘C/F’ tab (tab number 4) and scroll down to obtain free cash flows
Go to the ‘Custom’ tab (tab number 9) and type ‘FCF Growth’ into the yellow ‘Enter Field’ and select the appropriate growth rate period
In the Custom Tab, enter ‘Country Risk – Premium’ in the yellow ‘Enter Field’ box to obtain the market risk premium.
In the Custom Tab, enter ‘Country Risk – Risk Free Rate’ in the yellow ‘Enter Field’ box to obtain the market risk premium.
Calculate firm C’s asset beta based on equity beta given in the ’BETA’ function for firm C. To display the asset, or unlevered beta, enter firm C’s ticker followed by ‘FLDS UNLEVERED_BETA’ and then press ‘GO.’ The unlevered beta is displayed in the ‘Value’ column.
Calculate FCF’s discount rate with firm C’s asset beta, market risk premium and risk free rate.
Calculate asset value as a PV of all future FCFs.
Calculate equity value using any financial ratio related to equity portion in the ‘Ratios’ tab (tab 5).
Divide equity value by number of shares.

Step 5: Write down all the details for your stock pricing procedure and submit it in MS word documents.
Step 6: Based on fundamental analysis, buy or sell firms A, B, and C. Record all relevant info in your trader’s log and submit it in MS excel.

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