1. ECONOMIC ANALYSIS
• What is the state of the overall economy?
• Describe key economic measures such as GDP, interest rate, inflation, consumer spending, etc.
2. INDUSTRY ANALYSIS
• What is the nature of the industry?
• Who are the major competitors in the industry?
• How important are technological developments?
• Which economic forces have the most impact on the industry?
3. COMPANY ANALYSIS
Collect the income statements and balance sheets of the company and a major competitor.
• Calculate the liquidity, efficiency, financial leverage and profitability ratios for the company for 2011
and 2012 and the competitor for 2012.
• Evaluate the financial condition and operating results of the company using both time-series and cross-
sectional analysis.
4. ESTIMATING BETA
• Enter the data into Excel.
• Calculate the monthly return of the stock and the market index between January 2008 and December 2012.
• Estimate the beta of the stock using regression analysis.
5. ESTIMATING THE INTRINSIC VALUE OF THE STOCK
• Collect the dividend per share paid by the company in 2012.
• Estimate the constant dividend growth rate of the stock for the foreseeable future. You need to justify
this rate based on your economic, industry and company analyses.
• Determine the required rate of return on the stock using the Capital Asset Pricing Model. You may use 13%
as the market return and 8% as the risk-free rate.
• Estimate the intrinsic value of the stock using the constant growth dividend valuation model.
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