The specific aims of this project are:
1) Apply to actual companies the fundamental knowledge and analytical methods.
2) Make vertical common-size financial statements, horizontal common-size financial statements and various profitability and risk ratios.
3) Detect the time trend of the firm’s profitability and riskiness and compare the computed results with competitors.
4) Summarize the analyses and make investment recommendations.
You will be analyzing the given firms:
a) Costco Wholesale Corp (ticker: COST).
b) Wal-Mart Stores, Inc (ticker: WMT).
For these firms, download the most latest annual report to start your work, comprising financial statements, footnotes to the financials and the management discussions and analyses. Alternatively, you might use the 10-K report. You can download the 10-K from the company’s website or the SEC’s website that is, EDGAR online:
1) Public companies generally publish annual reports at investor relation web pages.
2) You might search EDGAR by company name or by trading ticker symbol. The benefit of using EDGAR 10-K report is that you might quickly copy those tables into Excel. Use the filter (filing type) to show 10-K filings only. Click the “document” button and the first html file will be the 10-K report.
3) Free reference is available at Yahoo finance (http://finance.yahoo.com) or Google finance (http://finance.google.com). Hoover’s is as well available (http://www.hoovers.com) for you to browse the company information (other content is for paid users).
The required tasks are described below:
1) Prepare vertical common-size balance sheets and income statements for both companies.
Note: Calculate for the most recent THREE years, i.e., 2010, 2011, and 2012.
2) Make horizontal common-size income statement and balance sheet (in percentage) for both companies. You must calculate for the most recent THREE years.
3) Prepare ratio analyses (for the same THREE year time period) for both companies. At least, you must comprise the given ratios in your computations:
a) Current ratio
b) Acid-test ratio
c) Receivables turnover
d) Inventory turnover
e) Asset turnover
f) Profit margin on sales
g) Rate of return on assets
h) Rate of return on common stock equity
i) Earnings per share
j) Payout ratio
k) Debt to total assets ratio
l) Times interest earned
m) Cash debt coverage ratio
n) Book value per share
4) Comment on the analytical results of the two companies. Your comments must concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you must interpret the numbers and make suggestions as to why the ratio of one company might be higher or lower than the other.
5) Write a conclusive summary on the firms you have studied. Based on your conclusions, recommend the better performing firm for potential investment. Your conclusions must be based on and specifically reference, the analyses prepared in this report.
6) Record a short presentation (about 10 minutes) in which you in brief introduce the two companies and their industries, highlight some of your main findings from the above analyses, and conclude with the investment suggestion.
Report Format Requirements:
A) Report body requirements:
a) Cover page. List the title of the project.
b) Abstract or Executive Summary. This is a separate page. It must cover the aim of the project, the main findings, and the conclusions or recommendations, in summary form.
c) Table of Contents.
d) Main body. Use the given sequence for report content:
• Introduction to the two companies and to the aim of the report
• Analytical section. This must comprise all your numerical analyses. This is where you will describe the results of, comments on, and conclusions regarding the vertical and horizontal common-size statements and the ratio analyses for both companies.
• Comparisons of companies and all other analysis (observations and/or interpretations). (You might combine b and c if you wish, as long as both are well covered.)
• Conclusions and recommendation for investment.
e) References. List all the main reference sources.
f) Appendices. Comprise tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item.
B) Typesetting requirements:
a) Use size 12 font. Times New Roman is favored.
b) Single space between lines.
c) Number pages in accordance with the APA style guide.
d) One inch on all sides.
e) Do not right justify text. Use left justify.
f) Minimum length: 8 pages.
g) The submitted work must be in ONE file with a word or pdf format. An Excel spreadsheet file is NOT acceptable.