Homework: Real-World Financial Statement Analysis
I. Read Chapters 12 and 13 in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits.
II. Read Chapters 5, 6, 7, and 8 in the textbook, Warren Buffet Accounting.
III. Read pages 625-626 regarding horizontal analysis in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits.
IV. Read pages 629-630 regarding vertical analysis in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits.
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In prior weeks, you learned about the financial statements and financial statement ratios. This week, you will utilize that information, along with Chapter 13 from the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits, and tips from the textbook, Warren Buffet Accounting, to take a deep dive into one company.
Assume the role of a senior financial analyst who has been assigned to complete a thorough and detailed review for a company of your choice from the list below. Access the company quarterly financial statements (10-Q) for the past two quarters on EDGAR, which is available on the web page, EDGAR Company Filings.
Select one of the following companies:
Name Ticker Symbol
Home Depot HD
Bloomin Brands BLMN
Apple AAPL
Starbucks SBUX
Gap GPS
Verizon VZ
Target TGT
Cisco CSCO
Ulta ULTA
Dollar Tree DLTR
In your thorough and detailed review, analyze the company's quarterly financial statements (10-Q) for the past two most current quarters and perform the following:
I. Prepare a balance sheet and income statement horizontal analysis for the last two quarters.
II. Prepare a balance sheet and income statement vertical analysis for the last two quarters.
III. Prepare a liquidity analysis by computing and using the appropriate ratios to assess liquidity.
i. Compute a minimum of three ratios and show your supporting calculations.
IV. Prepare a solvency analysis by computing and using the appropriate ratios to assess solvency.
i. Compute a minimum of three ratios and show your supporting calculations.
V. Prepare a profitability analysis by computing and using the appropriate ratios to assess profitability.
i. Compute a minimum of three ratios and show your supporting calculations.
VI. Analyze the methods and tips provided in the textbook, Warren Buffet Accounting, to address the following questions:
i. What is your company's primary revenue, secondary revenue, and gains?
ii. What is your company's primary expenses, secondary expenses, financial activity generated expenses, and losses?
iii. What is the revenue trend? Does the 10-K or 10-Q discuss primary revenues, as well as other revenue types?
iv. What do the accounting policies say in the annual report (footnotes) regarding the cost of revenue? What are the drivers to the cost of revenue and the trends?
v. Are there any trends in sales and marketing expenses or research and development? Are these amounts reasonable for the type of business?
vi. Compare general and administrative expenses to similar companies. Are they reasonable?
vii. What is the ratio of net interest income (expense) to income from operations? Is this a safe ratio for the company? Why or why not?
viii. What is the income taxes trend? Is the effective tax rate reasonable over time?
Formulate your analysis on the above requirements to discuss the financial health, performance, strengths, and weaknesses of the company, as well as any identified positive or negative trends.
Format your homework 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 homework, 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.