financial statement analysis

Financial Statement Analysis Project ACC 202 Summer 2017

Purpose: ACC 202 introduced you to the basic concepts that make up the financial statements, but most of us will never do another

debit or credit again. The main use of this knowledge will come in the form of financial statement analysis. This project is designed to

give you an introductory experience to this.

Deliverable: You will prepare an analysis of one publicly traded company that will be no more than six pages long, in 11 point font, 1.5

spaced. Citations are required for all sourced material, including the financial statements.

Requirements:

1. Obtain the electronic copies of the 10-K for the assigned company.

a. Method 1: Go to the company’s website and look for the Investors page.

b. Method 2: Go to the SEC’s database, EDGAR and search for your company.

2. Compile the report,

a. Research your company using a library database such as Business Insights: Essentials or IBISWorld. Write up a brief,

one paragraph summary of the company, their industry, and their primary competitors.

b. Prepare a two to three paragraph introduction that explains your company’s background, where they are in the

industry (oldest, largest, 10th largest, etc.), and what they do.

c. Describe their primary risk factors. This list can be pages long. Please limit to the two or three that you think are the

largest risks.

d. What is the company’s largest asset? Liability? Is this expected?

e. How many shares of stock are authorized? Issued? Outstanding?

f. Did the company repurchase any shares this year? How many?

g. When does your company record revenue? If they have multiple revenue streams, you only need to do their primary

revenue stream. (This is a footnote disclosure)

h. If your company has inventory, what method do they use? (This is a footnote disclosure)

i. Ratio Analysis.

i. Calculate the following ratios for each company for the current year and the prior year. Be sure to show

your math for each.

1. Current ratio

2. One or two appropriate profitability ratio(s)

a. Why did you choose the ratio(s) that you did? Were there other profitability ratios that

you considered?

3. Debt ratio

4. Cash conversion cycle ratios

5. If there are industry specific ratios that you think are important, please feel free to calculate them

here. Examples include occupancy rates for hotels, number of visitors to theme parks, etc.

ii. Comment on the ratios above.

1. Do not give me a truism about how the ratio works (e.g., the debt ratio of company A is higher

because they have more debt.) Instead, I want to know WHY the debt is higher (e.g. Company A

had a higher debt ratio because during the year they took out three note payables to finance an

expansion into the Canadian market).

2. Comment on whether the change (or lack of change) is good or bad and why.

j. Calculate the estimated stock price assuming a 5% discount rate. Be sure to remove any one-time items.

i. For any one time items, prepare a listing of the items you removed and why each was removed.

ii. Go to Yahoo!, Google Finance, or MSN Money and find the market cap and current stock prices for the

company. Compare this to the amount that you calculated. Comment on any differences. If there is a large

difference, what is causing it? Usually large differences are due to error in calculation and changes in stock

such as splits.

k. Review the Statement of Cash Flows for the company.

i. Identify the two largest items in investing activities. Do you agree with their use of cash?

ii. Repeat for financing activities.

l. Through your company’s website, reading news articles, and the 10-K, identify two NON-FINANCIAL items for each

company that might impact the decision of an investor. These items should not be about revenues, expenses, etc. I

am looking for items that do not show up in the financials immediately such as planned mergers, acquisitions,

expansions, community involvement, awards, lawsuits, store closings etc. Be sure to discuss why these items are

important to investors.

m. Using the entire analysis thus far, would you recommend that an investor BUY, SELL, or HOLD this company? What

were the two or three key factors that influenced your decision?

3. Review

a. Prior to submitting this, please take a moment to check your calculations, your assumptions, and reread your

paper to ensure that it is coherent and free of major errors.

4. Submission

a. Submit your written report to TurnitIn on Blackboard.

b. Submit your sources to the Blackboard link

i. PDF the following items from the 10-K

1. The basic financial statements

2. Any page that is referenced in your report

ii. PDF any reports or articles that you use

NOTE: I reserve the right to require a phone or in person interview to discuss your paper. If you cannot demonstrate your

understanding of the company and your analysis in the interview, you will receive a 0 on the paper AND possibly an academic

integrity violation.

Grading Rubric Points Unacceptable

<60% Acceptable

60-75% Good

76-90% Excellent

>90%

Background 25 Severely incomplete, inaccurate or not taken seriously.

Less than 90% complete and/or has significant errors in information and assumptions.

Complete but has notable errors

Complete with only minor errors, if any.

Ratio analysis 25 Severely incomplete, inaccurate or not taken seriously.

Less than 90% complete and/or has significant errors in information and assumptions.

Complete but has notable errors

Complete with only minor errors, if any.

Other analysis items

25 Severely incomplete, inaccurate or not taken seriously.

Less than 90% complete and/or has significant errors in information and assumptions.

Complete but has notable errors.

Complete with only minor errors, if any.

Word writing, grammar, spelling, punctuation, and citations

25 Major errors noted. Significant errors. Minor errors noted. No errors.