Accounting 10K analysis
chs13909587036
Form10KAnalysisProject-2.docxForm 10K Analysis Project (10KAP)
If you completed the ACT-101 course at Muhlenberg College, you performed a financial statement analysis of a US publicly-traded company that focused mostly on the financial statements from its most recently-filed Form 10-k.
This research memorandum assignment requires you to perform a broader analysis of a US publicly-traded company based on the totality of the material contained in the Form 10-k. This broader analysis will focus on “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Item 7 in the Form, which is also known by the initials “MD&A”) and also on the information contained in the Footnotes to Financial Statements. Despite this focus, you will need to read through the ENTIRE Form 10-k in order to identify information relevant to an investor’s perspective on the company’s financial condition and performance.
The structure of your report will follow the Typology known as “SWOT” analysis. That acronym stands for Strengths, Weaknesses, Opportunities and Threats. These are the four categories into which you must place your observations and analysis of the firm you have chosen.
These Investopedia excerpts may help start your thinking:
Using SWOT Analysis to Evaluate Investments
Most commonly used as a business-planning tool, you can also use SWOT analysis as an investment tool, giving you a handy snapshot of the potential advantages or disadvantages of buying stock in a company. Broadly speaking, the strengths and weaknesses should reflect "what is" about the company today, while opportunities and threats are more about what could happen to it.
Strengths are characteristics that form the basis of above-average performance potential of shares. Not only do strengths consider what a company does well, but why or how it does it well. With a mining company, for instance, a valuable mineral asset in a politically stable country may be a strength, while a major consumer company may have some of its greatest strengths in the value of its brands. It is important to note that above-average revenue growth or superior margins are not in and of themselves strengths – it is the popularity of the products or the relative efficiency of a manufacturing process that represent the real strengths.
Weaknesses are vulnerabilities to the company's competitive position and/or opportunity to post positive returns on investment. For example, an investor would consider an industry heavily burdened with competition a potential weakness of the firm.
Opportunities represent scenarios or options where the company can meaningfully improve itself. Introducing a significant product can be an opportunity as can a restructuring or acquisition. Another type of opportunity presents itself from an untapped customer demographic. For example, if an independent pizza restaurant introduces a delivery service, it can expand its customer base beyond only those living in the neighborhood.
Threats should answer the question "what could change for the worse?" with a particular company. Like opportunities, threats may be prospective or even theoretical, but they should offer more specificity than "something might go wrong." Increased government regulation, a failure to secure approval/acceptance for a major new product, or introducing a rival product/service would all represent meaningful threats to a company's competitive standing and returns. Threats can also refer to how economic conditions affect the company if it is especially sensitive to a change in interest rates, inflation, etc.
For the full article, see:
https://www.investopedia.com/terms/s/swot.asp
STEPS TO COMPLETION OF YOUR 10KAR
1. Read through your firm’s ENTIRE Form 10-k, noting each piece of information that corresponds to one of the four SWOT categories. You might sit down with a hard copy and four different-colored highlighters. That’s what I would do!
2. Compile a smaller list of SWOT items that is restricted to items that appear in or are reflected in the firm’s MD&A (Item 7) and Financial Statements, including Footnotes (Item 8). Identify items that are most closely related to elements of the current financial statements, rather than more abstract or speculative items.
3. Arrange what are—in your judgment—the most significant items in each SWOT category into a table. This table will be an Appendix to your final memo. An example I prepared for Muhlenberg College appears as an appendix to this assignment document. Without this step, your assignment will not be accepted for credit! I invite you to use mine as a template (or create your own). But having 2-4 categories for each SWOT area is a good way to provide some analytical organization to your SWOT! Like, “Financial” and “Competitive.” Or “Liquidity,” “Solvency” and “Profitability.” Or “Product Issues” and Financial Issues.” It’s OK to be creative! (Your SWOT analysis has preliminary due date (posted in Canvas) that will allow me to provide some feedback.)
4. Now, the WRITING begins!!! You will write a 3-5 page, single-spaced report in the form of a business memorandum with an appendix (in addition to the 3-5 pages) for your SWOT grid. The memo should begin with a brief introduction that identifies the 10K report you are analyzing and states the purpose of the memo. Following that, you will write a detailed discussion of the elements each of the four SWOT areas. Make sure to include appropriate paragraphing. Include appropriate sub-headings and charts or graphs (AT LEAST TWO), but the space occupied by charts and graphs is NOT included in your page count requirement! In a conclusion that synthesizes the rest of your analysis, please make a prediction about the company’s future performance, and say something about the degree of risk associated with that prediction. In other words, what would have to go right for the company, and what could go wrong? Assess the likelihood of both the positive and negative contingencies.
My evaluation of your 10KAR will critically depend on HOW WELL YOU CONNECT MD&A and FOOTNOTE ITEMS TO RELATED ELEMENTS OF THE FINANCIAL STATEMENTS. The purpose of this analysis is to EXPAND on your ability to evaluate financial statements, not to replace that evaluation with an evaluation of MD&A or Footnote disclosures as if they are unrelated!
EXAMPLE SWOT—for inspiration only
Dated November 9, 2009
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Institutional |
Curricular |
Student Learning |
Faculty Development and Resources |
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Strengths |
US News 6 year graduation rate: 86% US News Frosh retention: 93% NSSE SCE scores Overall first year experience ARC Student Faculty ratio: 12:1 Community matters.
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10 year history of ¼ to 1/3 grads with double majors. Balance of pre-professional and liberal arts. Study abroad opportunities. Strong majors; nationally recognized programs. Some strong interdisciplinary minors Recent innovations have taken off: finance, public health, neuroscience, creative writing. Center for Ethics
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Culture of Integrating of theory and practice. Culture of strong co-curricular involvement (Centers and productions) Honors programs. Talented students who value the creative arts. Close faculty-student relationships. |
Faculty Center for Teaching Culture of Assessment Culture of “A small group of thoughtful people could…” Entrepreneurial spirit despite cultural and institutional impediments |
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Weaknesses |
Endowment relative to admissions overlaps.(Rank__) Culture of decentralized, uncoordinated programming. Lack of a Common Meeting Time. Lack of external recognition for academic program: US News Peer Assessment Score: 2.8 (lowest in top 85 LACs) Studio Art Space. Lack of sufficient OIT support for faculty, Registrar and Wescoe. |
Senior Survey data on diversity education and experiences. Incomplete curricular re-design process Lack of sufficient OIT support for pedagogical innovation. Over-programming of co-curricular acitivites (unmanged growth) Conflation of administrative departments with academic programs Gen ed advising is an afterthought. And programmatic oversight doesn’t exist |
NSSE EEE scores: FY & SR NSSE Academic challenge scores. Teagle data on engaging with diversity??? Culture of credentializing for its own sake Compartmentalization of academic and residence life Risk aversion, resistance to challenge Fragmented student culture (pre-health vs theater vs. other) |
Lack of junior faculty scholarship release program. Lack of coherent system for supporting faculty who support student research. Culture of faculty course overloads. Lack of programming for new faculty chairs. Lack of clear institutional place for faculty who identify strongly with interdisciplinary studies. limited FCT audience Ineffcient faculty governance Lack of leadership training and development for faculty who take on administrative roles |
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Opportunities |
$ Allentown $ Proximity to NYC and PHL Make regular transportation available for unstructured NYC and PHL day trips. Use Divisional Structure to streamline administrative functions/governance. Deputize distinguished/active alums to expand admissions reach. Revise scheduling grid to allow greater modularity and capacity use. Increase (and broaden) program-level recruiting. University charter allows for graduate degree programs.
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Emerging consensus on mission, goals and outcomes of general education. LVAIC, 3-2 programs. 3-year degree track for advanced learners. Allow students to retain gen ed advisers after declaring major. Develop distinctive distance-learning (modeled on executive MBA?) to reclaim summer transfer credits. Reinvest study abroad surplus in study abroad! Institute a “brown bag” lunch and lecture series for students—have Sodhexo prepare subsidized brown bags.
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Task Force has highlighted the issue of increasing academic challenge. Certify co-curricular activities for academic credit.. Living/learning—but with some creativity and outreach. Increase student ownership of/involvement in operation of behavior codes. Extend e-portfolios, email and other low-cost services to graduates. Engage students at June advising with a common reading. Develop low-price programs for seniors who wish to enroll in courses with excess capacity. Cultivate healthy academic competition with LVAIC and others. (Last year, Muhlenberg accounting students BURIED Moravian in a Quiz Bowl.) Kindle delivery of course materials Customizable portals
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Cohorts of recently tenured and recently hired faculty are deeply invested in the College. Increase hosting of academic gatherings (would require some administrative support) Measure courseload more flexibly to allow focused periods of research vs. teaching. Rationalize compensation for independent study and student research. Develop faculty exchange programs outside of LVAIC. Use technology (video) to increase developmental (not evaluative) peer class observations. e-portfolios for teaching |
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Threats |
Growth in students who require ARC services. ? Growth in overly involved parents. ?Lack of clarity about institutional responsibility for “life after M’berg.” Demographics within limited geographic market. Competition from lower-cost, placement-oriented institutions. |
Lack of clear process for investigating next set of curricular innovations. External certification requirements squeeze curricula (education, accounting) Study Abroad student costs. Middle States expects progress on program assessment and gen ed. Transfer credit for gen-ed courses effectively outsources what should be a vital function.
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NSSE Active and Collaborative Learning scores. Health services requirements (medication, counseling). Grade inflation. Student grade consciousness (driven by grad school admissions competition, etc.) Pandemic flu and the like.
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Lack of clarity about expectations for campus presence. Resources to attract and retain high quality faculty who can thrive at a SLAC. Faculty evaluation structured through disciplinary departments (undervalues cross/interdisciplinary program contributions). Sub-optimal uses of limited faculty time and energy (e.g. to perform administrative functions).
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