answer the question on the file i uploaded
Navigating and analyzing corporate annual reports In order to complete this assignment, you will need to download a public company’s most recent 10-K. I have provided several examples on our Blackboard website. You may pick another company if you want. The only requirements are: · that it must be a public company, a C-Corp (Not an S-corp) · it must have net income for at least one year (so we can better interpret the ratios) · and you must be able to download the official 10-K that is filed with the SEC. You can find these on corporate websites or the SEC. Do not use Yahoo Finance or something like that. What is the difference between and annual report and a Form 10-K? The Form 10-K is filed with the SEC. It has strict requirements about the organization and content. You will be using Items 6, 7, and 8. Item 6 contains a summary of financial data over a 5 year period. Item 7 is Management’s Discussion and Analysis. Item 8 includes the auditors’ report, the financial statements, and the notes to the financial statements. An annual report is, often, a more visually appealing version or a summary of the 10-K. The annual report is provided for investors, creditors, and other external users. It may be identical to the SEC filing, but not always. A good hint if you want to find any public corporations annual report or SEC filings is to go to the corporation’s website and click on a link that is often called “investor relations”. For our assignment, you will create a Word document that answer the questions on the following pages. You should use complete sentences when describing your answers. Some of the answers require calculations. You are welcome to organize data into tables if you prefer. In your essay portion of the answer, you should refer to any tables. In other words, your answers are to be in essay form (except where noted), but, you are welcome to add tables to summarize data. Finally, do NOT copy and paste any portion of the 10-K to your word document. The answers should paraphrase or summarize the content. ******************************************************************************** Go to Management’s Discussion and Analysis (Item 7). Skim the contents. In the MD&A, you will find a general discussion of business items, followed by comments on liquidity, capital resources, some other subjects, following critical accounting policies and estimates. Summarize or comment on the following. 1. (5 points) Discuss at least one major point that is communicated by management in the general discussion of this section. Your answer should be a paragraph long, with at least four sentences. For example, management may discuss changes in revenues, profitability, strategy, or new initiatives. 2. (5 points) In the liquidity section, provide a paragraph summarizing your understanding of one key point management communicated in this section. 3. (5 points) In the critical accounting policies and estimates. Describe one area that is discussed and explain it in a few sentences. Remember in this section, management is communicating the items that require professional judgement and have a material effect on financial statements. Go to the Auditor’s report (Item 8). 4. (5 points) Write a couple sentences that indicate which firm audited the financial statements, along with the type of opinion (unqualified, unqualified with explanatory paragraph, etc). Remember the auditor’s must report on two things: internal control and financial statements. Include the opinion on both. Go to the financial statements and answer the following questions (Also in Item 8). These are short answer questions (not essays). One to two sentences should answer most of these questions. 5. (10 points) Income statement. a. Describe the format used. Did the company provide a statement of net income and a statement of comprehensive income or did it provide a combined statement? b. How did the income statement differ (or how was it similar to) the multiple-step income statements that you prepared in chapter 5 homework? c. What was the total amount of revenues and the total amount of net income (or loss) in the most recent year? Remember to look at whether the numbers that are provided to you are in “thousands” or “millions”. This is indicated at the top of the financial statement. d. What is the profit margin? Hint: if there are two or more types of revenues listed, combine them. For example, Costco has membership fee revenue and sales revenue. 6. (5 points) Statement of stockholder’s equity. List the account titles that are included on the statement. If you remember, in your earlier accounting courses, we only had two stockholder equity accounts to keep track of (Common Stock and Retained Earnings). Corporations often have additional columns including different types of stock, treasury stock, AOCI, etc. Just list the accounts for this question. 7. (5 points) Balance sheet. a. What is the total amount of Assets in dollars (you may use millions or thousands? b. What is the largest current asset, largest long term asset, largest current liability, and largest long-term liability? Answer the “largest” question by providing the percentage of total assets (applying our vertical analysis). For example, “inventory was the largest current asset and accounted for 15% of total assets….” 8. (5 points) Statement of cash flows. a. Which format did the company use (direct or indirect)? b. Review the three different sections of the statement and look for trends over the years. Are operating flows increasing, investing flows or financing flows increasing/decreasing? c. Comment on one major source or use of cash in the investing or financing section over the three year period. If it relates, connect your comment to your answer to number 2 (liquidity discussion in the MD&A). Go to the notes to the financial statements (still in Item 8). 9. (5 points) How many notes and how many pages of notes are there? What method(s) of depreciation and what method(s) of inventory (FIFO, etc) does the company use? Go to Item 6. This section gives a 5 year summary of certain financial statement items. 10. (10 points) Do a horizontal analysis on total assets, net income, and total revenues over the five year period. For each year you present, you are showing the percentage increase or decrease relative to the prior year. Based on the trends you see, do you think this company would made a good investment. Explain your answer.