Choose 2 companies...
By Nov6. Locate the basic financial statements on the SEC EDGAR site or company website by GOOGLE Search. Look up your 2 companies 10-K Interactive and print or make an electronic file of your Balance Sheet, Income Statement and Statement of Cash Flows. Other Documents such as company description and footnotes may be helpful too but you do not have to print/download these. Upload file(s) of the Basic Balance Sheet, Income Statement, and Statement of Cash Flows to D2L Drop Box by morning of July 5. If having problems … let me know in class.
Nov13. You should have begun computing your ratios in a spreadsheet. Submit EXCEL Sheet to Assessments/ Assignments Tab in D2L to prove you are making progress/nearly done with this phase.
Nov29. Project paper and Financial Statements and EXCEL to D2L drop box (even if you did not make changes from earlier drop documents, resubmit Financial Statement Files, and EXCEL REPORTS too here so the entire project is in one place).
Model format for financial analysis project A FINANCIAL ANALYSIS OF What Companies? Fiscal Years Ending? Your Name Date Due? Executive Summary This report uses financial ratio analysis to highlight key differences in operating performance between X? and Y Company? for fiscal year(s) ending ?? (respectively). The data is taken primarily from the financial statements that are publicly available from SEC filings. The report shows/demonstrates (vary your descriptors in the paper) that X is more/less liquid?, has greater debt?, higher/lower whatever than Y. This should be a very short paragraph giving the most significant findings. It is essentially a repeat of the conclusion section so busy executives can quickly decide whether to be happy with just the final conclusions or to read more to find out the details of why the companies differ. This page is formatted with 1.15 line spacing in the body to save paper. Leave the summary single spaced, but use 1.5 or double spacing for better readability of the body of the report. You can change this using the Paragraph button. The margins are 1 inch; these can be adjusted on page layout if needed. Use Insert tab then Page Number in Word to add page numbers centered at the bottom. Purpose and Organization of the Report This paper compares the financial status of X and Y for fiscal year (s) ending Month, Day XX (and YY respectively if they have different year ends). Financial analysis uses ratios of financial statement data rather than raw dollar amounts to make the information comparable across different size firms. The analysis begins with a brief description the two companies’ main business operations and their relative size followed by financial ratios which assess 1) Liquidity, 2) Solvency, and 3) Profitability. (These headings were chosen to match the ratios in your book. ) The paper concludes with an assessment of key strengths or weaknesses of the companies from their annual reports along with recent developments. The key point here is that the organization described in this paragraph should match the headings or subheadings used below. NOTE THAT THIS EXAMPLE PAPER IS USING ONE COMPANY COMPARING TWO YEARS IN ORDER TO MAKE YOU THINK HOW TO MODIFY THE REPORT TO SHOW TWO COMPANIES SIDE BY SIDE FOR A SINGLE YEAR. Company Description Co. X is headquartered in Delaware, USA. They offer a broad range of technology products including desktop and mobile computing devices along with networking, software, and data storage products. They sell direct to business, education, and individual consumers through telephone, online, and indirect sales channels. Add more for other company and probably a table of raw, non-ratio data showing relative size similar to below. Refer to any table in the written textual paragraphs by saying as shown in Table 1 below. You can use Insert Table and type directly into the table blocks, or do Excel sheet separately and Copy and Paste SPECIAL to get the highlighted information in into the report. Add lines as necessary to make sure your tables do NOT split across the page. An alternative is to leave all your tables in the Appendix, but it is much preferable to paste into the body of the report near your discussion. Table 1 Name of Table should be here such as Relative Size of X and Y for Fiscal Year 2012 in 1000s Description Co. X Co. Y Total Assets ?? ?? Total Debt Total Revenues Liquidity The current ratio (Current Assets/Current Liabilities) is commonly used to assess a company’s ability to settle basic debts as they come due. A current ratio of two to one is commonly cited as a target ratio for the current ratio as this would typically give a very safe margin of current assets to debts. However, for large companies a ratio below two is very common. Table 2 below shows some ratios different than those in your book. Please adapt this model to fit the ones from Chapter 13 that you choose to compute. You even have permission to leave out some of those in the book. For example, Inventory Turnover and Days in Inventory measure approximately the same thing. So you could put one in the table and discuss the other in this paragraph (or multiple paragraphs if needed) to show that you know what the ratio means. Example language would be to say Dell’s current ratio was well below 2 for both years, but improved in 2009. The model below is showing a comparison of one company for 2 years; you will modify your report to make sense for two companies for approximately the same year end. The dark border below was added in Excel then whole table was Pasted in. You are free to format in a way that seems to look good to you, but get a consistent look across your paper rather than having multiple formats as shown in this model. Table 2 Liquidity Ratios The days sales uncollected and accounts receivable turnover ratios suggest that customers were paying their bills faster (28 days vs. 36) in 2009 which aided liquidity. The lower number of days stock on hand for inventory and higher inventory turnover shows that the company was keeping a leaner inventory in stock. Either use all past tense or all present tense – is keeping vs. was keeping – just be consistent. Solvency Ratios Using debt can enhance profitability if the borrowings are reinvested at a higher rate of return than the cost of the loans. On the other hand, too much debt can become a burden if the company does not have enough earnings and cash flows to pay the fixed interest charges. Table 3 below shows that Dell carries a fairly heavy debt load with more than 80% of its assets based on borrowed funds. While the amount percentage level of debt was roughly the same or slightly lower in 2009, the times interest earned has dropped off sharply but is still within a very safe margin. Again you will change the columns to match at least some of the ratios in the book and you are free to not use all of them. Table 3 Solvency Ratios Profitability Healthy profits are necessary for corporate sustainability. Table 4 below shows that the Profit Margin (Net income as a percent of net sales) and the return as % of total assets were off slightly in 2009. Return on equity was off even more. Assessed in light of the debt ratios from the prior section these seem to indicate that the current level of debt is still manageable for the corporation it bears watching in the future. You will not be doing anything with OCI, but use ratios from the back cover of your book or inside Chapter 13. Remember that there is no need to compute Earnings Per Share yourself, it is reported by your companies. Table 4 Profitability Ratios Key Strengths or Weaknesses Highlighted by the Analysis Profit margins were off slightly for 2009, but due to good management of receivable collections and lean inventory levels, short term liquidity has actually improved. Though the return on assets and return on equity are still quite good, they have deteriorated during the year and bear watching in the future. This paragraph should be similar to what you put in the executive summary. You will make your conclusions match your results above. Please do NOT conclude that company X is a better buy than Y for investment purposes. Do talk about the areas that need management attention such as a slow collection of receivables or a low Times interest earned. Financial ratio analysis can highlight management strengths and weaknesses; we have not done anything in this standard report that would help us assess whether the company is over or underpriced as an investment opportunity. A well-managed company may or may not be the best investment if the price has already over-adjusted for those effects. Summary and Recent Developments You can make the summary and recent developments two separate sections if you like. You should search the internet for news about your company subsequent to the date of the financial report. Or, you could use the 8-K filings on EDGAR to find out new developments. Try to relate these new developments to the ratios you have computed above. Based on your analysis, were they having trouble paying their debts? If so, have they refinanced? Do they have new management? Have they launched a new product that could help them in the future? You will need some brief references of where this data came from such as (Business Week, Feb 20) and more detailed reference section at end. Don’t overdo it for this project -- maybe two or three references per company; we are not expecting you to be a financial analyst who devotes their whole life to following one or two companies. You may be able to find information about the company by searching for 8-K reports in EDGAR. You could also talk about anything unusual you saw in the footnotes or Management Discussion and Analysis section of the report either here or company background or strengths/weaknesses section as you feel is most appropriate. It is also appropriate to mention any limitations of the analysis such as the use of annual rather than more recent quarterly data or the omission of lease obligations from the debt ratios. References Smith, R. (2012). Title of Article, JOURNAL NAME, pp. 13-15 or available online as of 4/9/2013 at www.blah.blah Using hanging indent of .5 inches from paragraph formatting in Word. OTHER ISSUES: An appendix should be included that gives the spread sheet you used to compute your ratios. Or you can turn this in to the drop box as a separate file when you turn in your electronic paper. Do NOT assume in the body of the paper that readers will be turning to the appendix spreadsheet to find ratios mentioned in each section; repeat the specific ratio results you are addressing in a table for each sub-section of the paper. There is no bonus for writing a long paper. The purpose of the report is to highlight key issues in a summary format. You defeat the purpose if you are too long. Even a cover page is optional, but this paper is certainly too short to need a table of contents. Not counting the cover page and a few additional pages in the appendix, the typical paper will run about 6-8 pages when double spaced. This may vary a little depending on size of font or spacing, but generally if the body of the report goes over 10 pages the