Accounting Assignment
You are all Equity Researchers for a financial services company in which I am a Portfolio Manager. Our firm is currently evaluating possible equity investments in a selected number of industries and I have organized you into teams to evaluate firms in each of these industries.
Group 1: Beverage Group 6: Beverage Group 11: Apparel
Group 2: Apparel Group 7: Apparel Group 12: Restaurant
Group 3: Restaurant Group 8: Restaurant Group 13: Technology
Group 4: Technology Group 9: Technology Group 14: Apparel
Group 5: Beverage Group 10: Beverage
For the industry your teamis assigned, select both a base company and one similarly-sized competitor (peer). You must send both the name and the ticker symbol for both companies to me for my approval. Once approved, you must obtain the threemost recent annual reports (Form 10-K) for both companies.
Each team is required to perform analysis and provide a recommendation to me. You must make one of five recommendations: a strong buy for your base firm, a weak buy for your base firm, a strong buy for your peer firm, a weak buy for your peer form, or no buy (i.e., we should not invest in either firm). The analysis and recommendation must be written in the form of a business memorandum from the Equity Research team (you) to the Portfolio Manager (me) and must include each of the following components. In writing the memo, use section headers to clearly delineate each of the following five sections.
i. Analyze three items on the income statement (or income statement-based financial ratios; see the list on p. 3) for your base company for the last three yearsand discuss whether the company's performance related to these items appear to be improving, deteriorating, or remaining stable. Justify your answer.
ii. Analyze three items on the balance sheet(or balance sheet-based financial ratios; see the list on p. 3) for your base company for the last three yearsand discuss whether the company's performance related to these items appear to be improving, deteriorating, or remaining stable. Justify your answer.
iii. Identifythe single largest adjustment (in absolute value) to reconcile net income to operating cash flow in the most recent year of your base company's statement of cash flows(contact me if they did not use the indirect method; also contact me if the identified item reflects something we haven't discussed in class before). Describe how and why the item arises- that is, broadly describe how it creates a disconnect between income and cash flows for your company. Then, assess the risk (low/medium/high) that this item adversely affects your base company's earnings quality in the most recent year. Justify your answer.
iv. Identify two items not included in (or derived from) the financial statements that you think would be important to someone considering whether to invest in your base company. Discuss your reasons for believing that these items would be important in making an investment decision. (Note: you will need to do some investigation to find these items for your company, and youwillneed to incorporate knowledge gained from other business classes.)
v. Compare your base company's financial statements with those of its competitor and provide an official recommendation.Justify and provide support for your recommendation.(Note: your answer in this section must include some financial issues, but your answer need not be limited to a discussion of financial issues.)
Format your assignment according to the following formatting requirements:
i) The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
ii) The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
iii) Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.