Financial Analysis

1. The Situation (What is happening)

You are in a capstone finance course.

• You are acting like a professional business appraiser.
• You were assigned a secret, privately owned company (codenamed “Chemicals 29”).
• You have been given its private financial data (5 years of income statements and balance sheets). That PDF is that data.
• Your job for the semester is to figure out how much this company is worth.

2. The Immediate Assignment (Due 2/11 or 2/12)

You have a deadline today/tomorrow at 5:30 PM.

You must turn in two things:

A. A List of Comparative Companies

• You need to find publicly traded companies (stocks on the NYSE/NASDAQ) that are similar to “Chemicals 29”.
• Why? Since “Chemicals 29” is private, we don’t know its stock price. To figure out what its worth, we look at what the stock market thinks similar companies are worth.

B. A 4-Page Paper

• Page 1-2: Describe the companies you found. Who are they? What do they make? How big are they?
• Page 3: Describe how you found them (your research process).
• Page 4: Probably a bibliography or summary.

3. Decoding “Chemicals 29.pdf”

Do not panic. The file you attached is not blank.

When business valuation professors give you a private company file, they often strip the name out for privacy (or to make you work for it). Your file contains the raw financials.

What is in that file:

It looks like there are three pages of numbers.

• Page 1: Likely the header (Company: Chemicals 29, Date, etc.) – it appears blank here, but might contain the company name in your actual PDF reader.
• Page 2: Labeled “1”. This is likely the Balance Sheet. It will have lines for Cash, Accounts Receivable, Inventory, Equipment, Debt, etc.
• Page 3: Labeled “5 9 -“. This looks like a fragment of an Income Statement. The “5” and “9” might be years 5 and 9? Or line items? You need to open the actual PDF on your computerit will show the numbers.

Your immediate task: Open that PDF properly and look at the numbers. You need to understand what this company sells to find comparables.

4. How to Find Comparative Companies (Step-by-Step)

Step 1: Identify the Industry (SIC/NAICS)

You cannot just search “chemicals.” You need to know what kind of chemicals.

• Look at the inventory or sales on the balance sheet/income statement.
• Example: Do they sell industrial acids? Adhesives? Cleaning compounds? Fertilizers?
• Once you know the specific product, look up its SIC Code (Standard Industrial Classification). This is a 4-digit number. The syllabus tells you to do this.

Step 2: Use the Databases

The syllabus lists:

• (Actually, it’s ) – This is where public companies file their financials. You can search by industry.
• Million Dollar Directory / Wards (Often available through your college library website).
• Yahoo Finance () – You can screen for stocks by industry.
• S&P SIC Index (library resource).

Step 3: Select 3-6 Companies

You don’t need 50. You need a handful that look like your client.

• Criteria: Similar size (revenue), similar products, similar customers.
• Examples of Chemical companies: Dow, DuPont, Eastman Chemical, Huntsman, Cabot, etc. (But only pick the ones that match your specific sub-industry).

5. How to Write the Paper (The “4-Pager”)

Don’t overcomplicate it. The professor wants to see that you know how to research, not that you have the final answer yet.

Paragraph 1: Introduce your client (Chemicals 29) and state the SIC code you determined.

Paragraph 2-4: “Company A is XYZ Corp. They are publicly traded on the NYSE. They manufacture [Product]. They have annual revenues of $X. They are comparable to my client because…”

Paragraph 5: “I found these companies by first identifying the SIC code using [Source]. I then used [Database Name] to filter public companies in that code. I excluded companies that were too large or focused on different subsectors.”

Conclusion: State that this list provides a solid basis for the valuation multiples you will calculate in the next assignment.

6. Urgent Checklist (Right Now)

1. Open the PDF properly. Can you see the actual numbers on Page 2 and 3? If yes, identify what they sell.
2. Go to Yahoo Finance. Click “Screeners” > “Stocks”. Set Industry: “Basic Materials” or “Chemicals”. Browse the list.
3. Write the paper. Just get the words on the page. It doesn’t have to be perfect finance theory yet; it just has to prove you did the work.
4. Submit by 5:0. Missing this deadline will drop your final grade a full third (B+ becomes B).