finance report

FIN 350: Final Project Outline

This project involves analyzing financial statements. The goal of the project is to give you firsthand

experience in analyzing a set of financial statements, making adjustments to the statements as we will

discuss in class, review a company’s trends over time and compare the financial statements to a comparable

firm. This project is to be performed using a company assigned to you by the instructor. The instructor will

also assign you a comparable firm. The comparable firm will be assigned after the first exam.

To complete the project, you will need to gather a substantial amount of information (just as a good analyst

would). The 10-K filings can be retrieved from the SEC Edgar system or the firm’s website. You need a

minimum of three balance sheet and income statement years starting with the most recent year. The project

is best done as we go through the semester. A hard copy of the final project write-up is due in my office no

later than 10 December 2018 at 930am with no extensions whatsoever. Your score on the project will be

based on the content and your ability to follow the guidelines set out in this outline, and will be assessed

based on the final work submitted.

Assume you have been asked to perform a general evaluation of the financials of the company by examining

its financials and comparing them to another set of financial statements. Imagine you are doing a

combination of credit analysis and analysis of the firm for equity investment purposes.

The following is a suggested outline:

1. Executive Summary (Maximum 2 pages). You will write this last and use it to communicate your findings

after the analysis. Include in your write-up a summary of your sense of the quality of the firm’s financial

reporting, the choices used by the management and whether they tend to be aggressive or conservative.

Do you think the firm’s earnings are persistent?

2. Brief Economic Analysis and brief overview of your firm (Roughly 1 page). This should focus on the

general economic outlook, the economic outlook for the firm, its business model, industry, strengths and

competitive position.

3. Financial Statement Analysis. Compute a common size balance sheet, income statement and statement

of cash flows for your firm and your comparable firm. Discuss the main differences between your firm

and the comparable firm. Analyze trends for your firm and discuss these. You may employ tables, graphs

and charts in addition to your written content to articulate the trends and differences.

4. Ratio Analysis. Using Excel, compute some of the firm’s ratios for the most recent three or four years.

Discuss the ratios you think would be most important to an equity or a debt investor. Compute the ratios

after you make the adjustments we discuss in class many of which are listed below and compare the

ratios before adjustments and after adjustments to the ratios of the comparable firm. Don’t make

adjustments to the comparable firm. In your final write-up embed mini-tables that clearly show the

ratios before and after adjustments and the ratios of the comparable firm in each sub-section where you

discuss the adjustments.

5. Balance Sheet Analysis: Adjustments. (Have a sub-section for each of the adjustments you make).

a. Inventories – Identify and discuss the inventory cost flow assumptions. Make any necessary

adjustments based on the inventory discussion in class and discuss how ratios would be

impacted by these adjustments.

b. If the firm has capitalized construction interest, make the appropriate adjustments and discuss

the impact on ratios.

c. Is the firm involved in research and development? How do they account for it on their financial

statements? Make any adjustments and discuss impact on ratios.

d. Identify depreciation and amortization methods. Use ratios from long-lived assets to determine

if the firm expects to have significant capital expenditures in the near future to replace aging

assets.

e. Is the firm involved in acquisitions? How much goodwill do they recognize on the financial

statements? Discuss the impact of acquisitions and goodwill on ratios.

f. Does the firm have any asset impairments? Analyze these based on class discussions and discuss

the impact on ratios.

g. Review the footnotes on liabilities to find any discussions on contingent liabilities and possible

recognition. Discuss the impact these contingencies may have on the financial statements and

ratio analysis.

h. Deferred taxes. How were they created and how do they impact earnings? What is the likelihood

of reversal?

i. Discuss the firm’s use of off-balance sheet financing and operating leases. Make necessary

adjustments and discuss how these impact ratios.

6. Income Statement Analysis

a. Identify the revenue recognition methods used and discuss the firm’s choices.

b. What does the firm expect the impact of the new revenue recognition standard to be on its

financial statements? What is your assessment of it?

c. Discuss the following line items (if any) on the firm and any impact they have on the ratios:

Gains/losses, write-offs, unusual or infrequent items, discontinued operations, changes in

accounting principles, changes in accounting estimates, prior period adjustments

d. Discuss the difference between your firm’s net income and comprehensive income. What are

the items that bypass the income statement and are reported in comprehensive income?

7. Cash Flow Statement

a. Reclassify interest and dividend cash flows.

b. Analyze the operating, investing and financing activities: What are the sources of cash for the

firm? What are the main uses? Is the cash flow sustainable?

c. Calculate and discuss the free cash flow to the firm and the free cash flow to equity.

Be thorough and professional in your analysis. Use nothing less than 10-point font and double space your

write-up. Label all graphs, charts and tables clearly and reference them in your write-up. I expect you to

properly format your work, not simply putting all the tables at the end or having tables that bleed into a

second page without clear labels and titles. Avoid excess “fluff” in your writing and go straight to the point.

Penalties will be assessed against work that is unprofessional. Clearly cite your sources. Distinguish facts from

your opinion and articulate clearly the basis of your opinion or any assumptions you make in your report.

If you wish, you may complete the project in a group of no more than 2 students. Only one submission will be

necessary if you work as a pair, and both students will receive the same score on the project. If any of your

work is copied from someone else or another group’s work, it will be considered a very serious violation of

academic honesty. The project is worth 80 points, equivalent to a full test. Do not wait till the last minute,

follow the proposed schedule in the project mileposts.