Instruction
Assignment 4 – Submit One (1) Hard Copy per TeamContinue your price per share estimation process for KO.Use the RV spreadsheet and follow the RV valuation methods presented in class in order to answer the following questions. You MUST show all of your calculation in the questions below is order to receive credit for any numerical answers. All five questions are worth 20 points each (20 x 5 = 100 points). Relative Valuation ModelsApply Relative Valuation models to Coca-Cola (KO) using the following three (3) popular relative valuation ratios - Price/Earnings, Price/Book, Price/Sales (call these three ratios Price/”X” ratios). Rather than attempting to forecast earnings, book value and sales, simply use the current ratios that can be found on the websites that are mentioned below. Select at least three (3) comparable firms and use the median or average (your choice) P/X ratio for the group of comparable firms in your valuation analysis. Be careful about how you handle any outliers. An outlier is a firm with a P/X ratio that is far from the other comparable firms you have chosen. Would it be better to avoid outliers? Perhaps more importantly, how do you select comparable firms? Q1.LIST your comparable firms and provide at least one sentence for EACH comparable firmthat EXPLAINS why you believe it is comparable to KO. Q2.COMPARE and CONTRAST the magnitude of the specific median or average P/X ratio for the comparable firms to the same P/X ratio for KO. For EACH of the three (3) ratios, state whether you believe KO is under or overvalued relative to the comparable firms you have selected. Q3. Based on the magnitude of three P/X ratios and looking at all three of the P/X ratios collectively (not individually), state whether you believe KO undervalued or overvalued? Provide a short paragraph (at least three sentences) that EXPLAINS your reasoning. Q4.Multiply the median or average per share “Price/X” ratio of the comparable firms by the per share value of “X” for KO. COMPARE and CONTRAST the price per share estimates that result from EACH Price/X ratio. For EACH ratio, state whether you believe KO is under or overvalued relative to the comparable firms. That is, COMPARE and CONTRAST the resulting RV price per share estimate for KO to the current observable market price. Q5. Overall Consensus Valuation EstimateBased on ALL of YOUR price per share estimates from Assignments 2, 3 and 4 (the DDM, FCFFM and RV methods), provide an least two (2) short paragraphs (at least three sentences each) that DISCUSS whether you believe KO is currently undervalued or overvalued in the market? The following websites are examples of where you can find company financial statements, current ratios, analyst forecast and more. Do not forget that you can always form your OWN expectations using historical data, trends, new firm information about products and competition, your views on the industry, and your views on the economy. In short, do not always rely on someone else giving you all of the information you need just so that you can be the one who plugs numbers into a formula.The Stock Market Watch: http://thestockmarketwatch.com/markets/today.aspxMSN Money: http://money.msn.com/investing/Yahoo Finance: http://finance.yahoo.com/The MSN Money link can be useful in finding the P/E, P/B and P/S ratios for firms that are comparable to KO in order to complete the Relative Valuation section of Assignment 3.Click on http://money.msn.com/investing/Type KO in the Quoted Search boxClick on the ANALYSIS tabClick on the PRICE RATIOS tab and you will find the current P/E, P/S and P/B ratios for KOClick on the RELATED tab and you will find a list of firms in the same industry sector as KO*Be careful as we discussed in class, these might not all be “comparable” firmsYou can also do a wider search for “comparable firms” (by doing a browser search using key words such as “Industry AND Beverages AND Soft Drinks.” Just because a firm produces soft drinks does not mean that the firm is a good “comparable” firm for the purpose Relative Valuation. Consider firm size, total consumer product line, geographic location, domestic or international, etc. A firm that operates only in a foreign country or in a few States in the U.S. would not be a “comparable” firm to KO.