Assignment
Suggested Structure
1.0 Introduction
• What you are going to do
• Why are you doing it
• How you are doing it - brief overview of assignment
2.0 Body
2.1 COMPANY BACKGROUND
• Brief introduction about company and what it does
2.2 FINANCIAL STATEMENT ANALYSIS
2.2.1 COMPANY PERFORMANCE and POSITION
TREND ANALYSIS
• P + L -
- Discuss how the companies have performed over time.
- Include chart to compare; sales, COGS, Expenses and Net Profit as a %
- Compare with the other company and industry averages
• B/Sheet
- Discuss how companies have grown or contracted over time
- Compare with the other company and industry averages.
2.2.2 COMMON SIZE STATEMENTS
• P + L
- Discuss how companies have improved performance relative to sales (i.e. internal efficiencies)
- Compare to the other company and industry averages
• B/Sheet
- Discuss structure of company
- Discuss how financed etc
- Compare with the other company and industry averages.
2.2.3 RATIO ANALYSIS
• Profitability
• Efficiency
• Liquidity
• Stability
• Investment
• Cash
- Discuss what each group of ratios measures
- Include table with ratios (see below)
- Discuss the impact on company and how it would affect your investment decision
- Discuss whether good or bad
- Compare with the other company, ‘rules of thumb' and industry averages
NB. All of the above discussion points and comparisons are to be applied for all the ratios listed above in bold.
2.3 ACCOUNTING TREATMENTS AND METHODS USED
• Discuss any changes or problems that will/may occur as a result of the methods/treatments the company used and how it would change your analysis.
• What would the difference be if the company used a different method/rate etc?
• Important, this is where we try to see what games the companies have played.
2.4 USEFULNESS OF INFORMATION PROVIDED
• General Purpose Financial Statements (GPFS) are prepared for users to make decisions about the allocation of scarce resources
• Discuss how well information was presented
• Discuss how easy it is to use information given
• Discuss if information was hidden/buried in the reports
• What should be included
2.5 LIMITATIONS OF FSA
• Historic data
• Lack of information/disclosure
• Year end not typical
• Data not comparable - A/C methods, size & diversity
• Hidden supplementary information
3.0 Conclusion
• Summary of what you did
• Summary of results
• Implications
• Where to next/further research
General Comments
Appendices should be used for financial statements, trend statements, common-size statements and ratio calculations.
However, you can use charts, figures or tables in the body of your assignment to emphasise certain points. For example:
LIQUIDITY RATIOS
These ratios focus on working capital and are used to determine a company's ability to convert assets to cash such that it is able to pay liabilities as and when they fall due. Liquidity Ratios include the Current and Quick Ratios.
2015 2016 2017 2018
Current Ratio -Collins
- Dominos 2.0
2.0 2.1
2.1 2.2
2.1 2.4
2.2
Quick Ratio - Collins
- Dominos 1.0
1.0 1.1
1.0 1.2
1.1 1.4
1.2
Table 1: Company Liquidity Ratio and Comparatives
Current Ratio
The Current Ratio measures a company's ability to ....
As you can see from Table 1 above, the Current Ratio has increased from 2:1 in 2015o 2.4:1 in 2018. The ability of the company to pay its short term debts has improved and is better than the Industry Average, which only increased from 2:1 in 2015 to 2.2:1 in 2018 etc.
Note - Look behind the numbers and tell the story. Ask why they are telling you what they say. The "whats" are only the first step. Real insight comes only from the "whys". Avoid "elevator" analysis: "Sales went up, profits went down" means little without an explanation of the reasons. You may find the caution flags (see end of assignment) useful. Generally, individual ratios are not viewed in isolation. One ratio may help to support the results of another ratio.
Checklist ofCaution Flags
Adapted from Understanding the Corporate Annual Report Nuts, Bolts, and a Few Loose Screws (Fraser and Ormiston 2003)
Below is an abbreviated list of caution flags you may like to consider when preparing your financial statement analysis.
CAUTION FLAGS - INCOME STATEMENT
• Revenue and profit growing at substantially different rates or moving in opposite directions
• Large, unexplained reductions in discretionary items such as advertising, research and development
• Profit margins shrinking or growing dramatically or moving in opposite directions
• Taking large, one-time (special) charges against earnings
• Changing accounting estimates and assumptions
CAUTION FLAGS - BALANCE SHEET
• Reductions in the allowance for doubtful accounts when accounts receivable are increasing
• Sales and receivables growing at substantially different rates or moving in opposite directions
• Sales and inventories growing at substantially different rates or moving in opposite directions
• Excessive use of "other" for material, unexplained items
• Borrowings growing faster than assets being financed; debt rising when assets are decreasing
CAUTION FLAGS - STATEMENT OF CASH FLOWS
• Failure to generate cash from operating activities
• Large fluctuations in cash flow from operating activities over time
• Net profit and cash flow from operations not tracking closely
• Net profit and cash flow from operations moving in different directions
• Positive cash flow from investing activities because company is selling off assets to generate cash
• Positive cash flow from financing activities for several periods - possibly indicating borrowing needed to offset lack of internal cash generation
• Company highlights cash flow in shareholders' letter, especially in same paragraph discussing falling stock price
CAUTION FLAGS - COMPREHENSIVE ANALYSIS
• Changes in top company management
• Key financial ratios indicating deteriorating trends and/or weaknesses relative to industry competitors
• Cash flow from operations declining, negative, volatile, or not tracking with net income
• Lack of profitability in key operating areas
• Price to earnings ratio low relative to competitors
• Firm's earnings less than after-tax cost of debt
• Declining operating profits when debt is rising
Note: My role for this assignment is only company analysis, and that should include Word and Excel.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. 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.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
Attachment:- Company-Analysis.rar