Term Project

Term Project Description

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Term Project – Financial Statement Analysis 1. Choose one public company in the U.S. that you are interested in and find the industry

peer that closely resembles the target company's line of business.

2. Find the latest five years' annual reports of the firm. You should go to the SEC website

to search for 10-k filings instead of gathering financial information from some third-

party site.

3. Compile comparative financial statements in the latest five years. Apply year-to-year

change analysis on essential items of the financial statements. Construct the vertical

common-size income statement and common-size balance sheet by expressing each

item in the financial statements as a percentage of a relevant total within the same year.

Explain the change of trend in your analysis.

4. Calculate financial ratios for the target firm and the peer using the comparative

financial statements. The ratios should be grouped into five categories: Liquidity,

Profitability, Efficiency, Long-term solvency, and Investor-oriented ratios. These ratios

will provide the basis for analyzing the financial performance of the company. Based

on the financial performance, identify the issues related to the target company's

business operation, and make investment recommendations from long-term investors'

perspective.

5. Each student needs to write a report to summarize your findings. Key discussion items

could include but not limited to the following points:

a. Summary of the company. Write a brief description of the company that you

are analyzing. Identify the company's strengths, threats, and risk factors.

Term Project Description

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b. Use the year-to-year change analysis to identify the trend and kinks over time.

c. Refer to the vertical common-size income statement and common-size

balance sheet and compare each item change over time. Read the relevant

footnotes and find out the economic reasons that lead to the change.

d. Financial ratio analysis. Explain the trend of the ratio change by referring to

the corporate decisions in the footnotes. Comment on the business issues

implied by the change and make suggestions to managers. (Don't just state the

calculation formula; tell the story behind the ratios). Compute the same ratios

on an industry peer and use the industry peer as the benchmark for

comparison.

e. Explain the change of ROE in the DuPont analysis format. The improvement

or deterioration of ROE may be caused by financial leverage, sales efficiency,

and/or profitability. Which one is the main reason for the change? You can

use your analysis as a reason for the buy/not buy decision.

f. (bonus points) Apply Altman's multivariate model on the targeted company

and benchmark to predict bankruptcy.

g. Recent news. The news could be economic, industry, or company-specific.

Illustrate how the news might affect your decision to invest in the company.

Examples of company-specific news include recent acquisitions, management

change, earnings reports, lawsuits, or significant changes in operations, etc.

h. Recommendation to Buy or Not to Buy. Form an investment recommendation

based on the above analysis.

i. In the conclusion of your report, please list the operational issues identified by

referring to your analysis results. Please state your recommendation clearly

with relevant reasons. The reason should be consistent with your analysis

results. Be sure to check the grammar and spelling in your report, be sure to

write your name and student ID on the header.

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6. What should be included in your submission? I will create a submission link on the

course website. You need to include the following in your submission:

a. Term project report in word or pdf format.

b. Excel spreadsheet that includes the original financial statements, horizontal

and vertical analysis, common-size income statement and balance sheet,

financial ratios calculated in five categories, Dupont Analysis results,

Bankruptcy analysis results using Altman's model (bonus). Spreadsheet

results are what you used in the report.

c. Presentation video link you created using the instruction given in a separate

file.

d. Powerpoint file if used in your presentation.

Finally, have fun in doing your term project!