Risk Management and Financial Analysis
Choose any US publicly traded company of your liking.
Risk management is the process of identifying, analyzing, and either accepting or mitigating uncertainty in investment decision making. Risk management occurs everywhere in the financial world: when an investor buys low-risk government bonds over more risky corporate debt, when a fund manager hedges their currency exposure with currency derivatives, and when a bank performs a credit check on an individual before issuing a personal line of credit.
As a financial analyst or advisor who may be advising organizations and/or individuals on effective investment strategies, it is crucial that you understand the sources of risk and how to avoid, minimize, or mitigate risk in order to achieve the investor’s objectives.
The purpose of this final project is for you to demonstrate what you have learned about risk management in a real-world context. You will demonstrate through this project your ability to comprehensively analyze a company as a potential investment opportunity, based on its level of risk and your knowledge of risk mitigation and management techniques.
This skill set will serve you well whether you are a managing within a firm, acting as an external consultant to an organization, or handling your own personal investment strategies.
In this assignment, you will demonstrate your mastery of the following course outcomes:
Determine appropriate asset allocation strategies for ensuring optimal portfolio diversification
Analyze organizational characteristics of potential investment opportunities for identifying investments that meet asset allocation and portfolio diversification needs
Assess risk associated with potential investment opportunities for ensuring informed investment decision making that balances risk with return
Propose risk management strategies appropriate to business-specific scenarios for maximizing return
Select appropriate long-term investments from potential opportunities that minimize risk while maximizing return
For this final project, you will research a publicly-traded US company of your choice to analyze it as a potential investment opportunity. In your analysis, you will examine risk and techniques for managing it, and synthesize your research and analysis in determining if the company is a feasible investment opportunity.
Specifically, the following critical elements must be addressed:
- Introduction: Provide a brief overview of the company you have selected with regard to its potential as an investment opportunity. Be sure to include the following items in your overview:
- a) What is the size of the company relative to other companies in the industry, both currently and historically?
- b) What is the company’s leadership position in its industry? In other words, is this company considered a leader or a follower? Be sure to defend your response.
c)What is the financial position and profitability of the company, both currently and historically?
d)Analyze the company’s major product lines. How important are these major products in generating the company’s revenues? What level of success have the products enjoyed in the marketplace? What is the implication of this on the feasibility of the company as a potential investment opportunity? Consider discussing the interrelationship among product lines, revenue, and investment potential, and be sure to defend your reasoning.
- Investment Analysis
- a) What is the perception in the market of this company’s stock?
- b) How would you view this stock as an individual investor? Why?
c)What asset allocation strategy might you recommend for including this company’s stock in a portfolio? Be sure to justify your recommendation(s).
d)How do you feel a portfolio manager would treat this stock and others from the same industry from an asset allocation perspective? What leads you to this conclusion?
III. Risk Analysis
- a) What is a specific risk that you have identified as relevant to this company, its product(s), and its industry?
- b) As which type of risk would you classify it? In other words, is it considered stand-alone, corporate, or market risk? Be sure to defend your reasoning.
c)What do you feel is the impact of the risk with regard to the company’s external environment (i.e., economic trends, regulatory landscape, and competition), as well as its internal environment (i.e., people, process, and infrastructure)?
d)To what extent do you feel this risk can be effectively balanced with return? Be sure to justify your reasoning.
- Risk Management Strategies
- a) What risk management technique do you feel would be most appropriately employed to minimize or mitigate the effect(s) of this risk? Why?
- b) Similarly, what strategies might you suggest for maximizing return in the face of this identified risk? Why?
c)What recommendations would you make in terms of determining the effectiveness of these risk/return management measures over time? Be sure to justify your recommendations.
- Feasibility as an investment opportunity
- a) Calculate one standard financial ratio from each of the broader categories of leverage, liquidity, operating, profitability, and solvency ratios for the company.
- b) Compare the ratios you calculated for your company to those of its competitors/industry average, and identify discrepancies that you find. For example, an analysis of Coca Cola should include a comparison with PepsiCo, since these two companies are similar in size and scope.
c)Analyze the ratio discrepancies between your selected company and its competitors, and explain why you feel these discrepancies exist, as well as their impact on the company’s potential as an investment opportunity. Be sure to defend your reasoning.
d)What do you feel are your selected company’s strengths and weaknesses as a potential investment opportunity? What is it doing well? What do you feel are some areas in need of improvement? Be sure to defend your rationale.
- Conclusion: Based on your overall analysis, would you recommend your selected company as an investment opportunity over its competitors? Be sure to justify your rationale.
Please see attached Rubric