Using Industry Median Values to Determine a Company’s Financial Health

Using Industry Median Values to Determine a Company Financial Health
Using Industry Median Values to Determine a Company Financial Health

This assignment should take no more than seven to eight focused-hours to complete. It is designed to be a learning experience, so please do not hesitate to reach out to your TAs and myself whenever you have any questions. Start early so that you will maximize your learning without the stress of last minute work.

You will need to use BLOOMBERG {RV <GO>} to find the mean and median industry ratios for this project. I will run a tutorial session on Bloomberg and walk you through the steps to get the necessary information from Bloomberg.

You are evaluating a potential investment opportunity in Kellogg and need to determine its financial health by means of widely used accounting ratios you learned in class (i.e. Profitability, Efficiency (Asset Turnover), Liquidity, Solvency, and Market ratios). Your evaluation will be based on these ratios across time (from Fiscal Year 2016 to 2018) and cross section (i.e. compared to the industry median value of the ratio).

1. Pick a non-financial company (Kellogg) traded in NYSE, NASDAQ. Obtain the financial statements (Income Statement, Balance Sheet and Statement of Cash Flows) for fiscal years 2016, 2017, and 2018. Statements should be in standard format (i.e. as published in annual reports or 10-K if it is a U.S. company).  You can use Yahoo Stock Screener to help you with company selection.. https://finance.yahoo.com/screener/new. (Remember: there are more than 2,000 actively traded non-financial companies traded in the U.S. Pick a company which you would like to learn more about) 

2. You will compare your subject company’s financial health in Fiscal Year 2018 to Industry Median values

3. Calculate all ratios in the attached template for your subject Company Kellogg for fiscal years 2016, 2017 and 2018 (you will also need 2015 values for ratios which require “average values” in the denominator of the ratio. For example, Fixed Asset Turnover for 2016 will require Fixed Assets in 2015) Comment on each ratio and how it changes from 2016 to 2018.

4. Obtain the median and average industry values of all ratios for 2018 from BLOOMBERG. I will do a tutorial session to show you how to find the industry values. Comment on Kellogg’s ratios relative to the industry median values. The attached template also requires you to collect industry “average” values. You will use those for question 4 below.


  Kellogg Industry Median Industry Average
Profitability Ratios   2016 2017 2018 2018 2018
Return on Equity (ROE)*            
Return on Assets (ROA)            
Net Profit Margin            
Earnings Quality            
Asset Turnover Ratios            
Total Asset Turnover            
Fixed Asset Turnover            
Operating Cycle            
Number of Days’ Sales in Inventory            
Average Collection Period            
Number of Days’ Purchases in A/P            
Firms’ Operating Cycle            
Liquidity Ratios   2016 2017 2018 2018 2018  
Current Ratio              
Quick Ratio              
Solvency Ratios              
Times Interest earned              

Market Ratios
Price-Earnings Ratio**            

*     Apply DuPont Decomposition on ROE (For Company X for 2018 only) to show what is driving the ratio.

       Note that ROE = NPM * TAT * Financial Leverage (see p677 in course textbook for details of the DuPont Model)

**   For P/E ratio, you should use end-of-fiscal year price. For example, if fiscal year end is December 31, you need to use stock price on December 31.

      To save time, you can obtain P/E ratio from Bloomberg for fiscal year end.   ?

Conclusions (type your answers under each question)

1. What is your company’s main line of business and the primary industry it operates in? (Maximum 4 sentences)

2. Based on your time series and cross sectional ratio analysis, would you invest in your subject company and why? Your answer should be as complete as possible by linking all pieces together.  

3.Is the stock price performance of Company X consistent with their Financial Statement based ratios?(Hint: You can plot daily stock price of company X in the past 3 years and see if it matches with the trend in various relevant ratios and its relative performance compared to industry). On the same graph, also plot SP500 Index. Comment. (Hint: you easily plot this on Bloomberg)

4. What’s the Consensus Analyst Recommendation on Bloomberg (i.e. buy, hold, sell)? What’s 12 month target price? Do you agree the Analyst recommendation? Why or why not? 

5. Why do you think using Industry Median is a good idea to compare company X’s performance? Why not use Industry Average? Do you see any issues using Industry Median for comparison?

Using Industry Median Values to Determine a Company’s Financial Health

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