macroeconomic environment of Urban outfitters
CORE RESEARCH QUESTIONS AND VALUATION A. Background Information
This corporate research and valuation project, which is fundamental in essence, shall
be based on the “Top-Down” approach (any exception shall be justified and approved
by the instructor). This approach shall begin with an examination of the overall
macroeconomic environment and outlook, the industry of the selected company and
then draw some implications about the prospects for the future operations and
performance of the company.
1. Brief analysis of the overall macroeconomic environment.
a. Analyze the U.S. and relevant global macroeconomic outlook. Determine the
significant macroeconomic factors and developments that are most likely to
affect the firm’s operations and performance? Clearly explain the connections.
b. Identify whether the company’s operations or performance are cyclical or
non-cyclical (i.e., whether they are sensitive the overall economy or business
cycles? Why? (Some analysis of correlation, regression or the company’s
stock beta, β, may be used as identification strategy). For example, perform a
correlation analysis and a regression analysis relating “Sales growth rate to
GDP growth rate” or “Earnings growth rate to GDP growth rate.”
4. Corporate Performance and Other Financial Metrics
a. Time series analysis of the company share price. Plot monthly time series
(price against days) of the company’s share price over the most recent 60
months. The team may also conduct a trend analysis (regression) of the
company stock’s share price; estimate the average annual growth rate during
the period under consideration. Provide a plausible explanation of one or two
largest swings in the share price during the period under consideraton.
b. Describe whether the company is a value or a growth company (stock)? This
could be achieved by examining whether any of the following valuation ratios
– Price-to-Earnings (P/E), Market-to-Book ratio or Price-to-Book (P/B),
Price-to-Sales (P/S), Price-to-Cash Flow (P/CF) – is low or high. In addition,
the team shall examine whether the company’s revenues and earnings
growing, stagnant or falling, compared to peers and/or the industry?
c. Risk Analysis
– What is the firm’s general/overall risk profile? Business risk? Operating
risk? Financial risk (e.g., debt ratio)?
– What is the value of the company’s systematic risk, as measured by stock
beta? What does this value suggest about the sensitivity of the company’s
stock returns to the returns of the relevant market index?
– Where does most of the risk come from (market, firm, industry, economy,
– How has the risk profile changed over time? How?
d. Return Analysis
– What is the company’s return? Return on Equity (ROE), Return on Assets
(ROA), Return on Invested Capital (ROIC), and Economic Value Added
– What the return (Total Shareholder Return, TSR) one would have
earned if he/she had invested in the company’s stock, say 12 or 24 months
ago? Would have this investment under- or out-performed the market?
Would the performance be attributable to management or simply to the
overall market performance?
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