Assignment:
Financial Statement Reporting and Analysis
Financial Statement Analysis Project
You have done an excellent job for your company. The executives have been considering to promote you to a position with more responsibilities and higher pay. Whether you will have this promotion depends on your performance for this project the executives assign you to do.
The specific tasks are:
1. Collect a most recent 10-K for at least three years of financial data, including financial statements, their footnotes, and management discussion for ONE of the following primary firms: (Note: DON'T print out 10-K.)
a. Abbott Laboratories
b. Chipotle Mexican Grill Inc.
Then, you need to find one major competitor of the firm you select above, and also download its most recent 10-K with at least 3 years of data. You need to explain why you select this firm as the competitor for your project study. In addition, you need to collect industrial benchmarks or ratios for the ratios you need to calculate (See 3 below), and to investigate what formulas from which these benchmarks are calculated.
2. Summarize the management discussion and analysis. Pay close attention to the adjective terms in the description they use to excuse themselves from unsatisfactory performance. Do you think that the firm discloses its financial situation sufficiently?
3. For the two companies (the primary and the competitor), do numerical analyses on: their common-size (vertical and horizontal) ratios, year-to-year ratios, liquidity of short-term assets and related debt-paying, activity efficiency, long-term debt-paying ability or coverage, and the firms' profitability. Note: Do as many ratios as you can.
4. Comments on the major findings of the primary firm based on the analytical results in Item 3 above, in comparison with those of the competitor and industrial benchmarks.
5. Comment on the accounting treatments of the primary firms. To do this, you need to read management discussion and analysis and footnotes carefully. In general, your comments should concentrate on whether the firms are conservative or not for account classification and estimates, and whether there are accounting policy changes and why. If the firms use different accounting methods, such as for depreciation and amortization, you need to specify them. Your evaluation should be based upon the criteria we have learned in this course and the accounting quality hierarchy. Particularly, concentrate on the following issues:
a. Do the firms recognize their revenue and related expenses properly? Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes)
b. Examine accounting quality for fixed assets and intangible assets. Pay close attention to the valuation and estimation methods used. Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)
c. Review liability recognition and related expenses. Explain whether you agree or disagree with the treatment of the firms. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)
6. Select one company from the two companies studied, and explain why you select this specific firm for possible investment. Your selection should be based upon your ratio analyses and comments.
7. Do pro forma financial statements: Balance Sheet and Income Statement for the company you choose to invest in, and further do the ratio analysis (above Step 3) and explain (above Step 4) to confirm or refute your decision.
8. Cosmetic work. Your report from the project should follow the typesetting requirements, as listed on the next page.
9. Optional: Graphing major ratios of your analysis.
Other Issues:
a. Though not mandatory, I request you to submit your first draft of your project to me at least one week before the due date for my preliminary evaluation and comments. I will also give you a preliminary grade and point it out which parts you should make corrections and changes.
b. The deadline for submitting the project is December 16, Saturday midnight. If you have to delay your submission, you must give me a reason in advance.
Report Format Requirements
1. Report body requirements:
1. Cover page. It lists the title of the project, names of group members, and semester/year.
2. Abstract or Executive Summary. It is on a separate page. It should cover the purpose of the project, what are the major findings, and the conclusion. Provide recommendations and suggestions, if any.
3. Contents. It lists all numbered pages (except the cover page and abstract page).
4. Main body. It should list in the following sequence of the report content: Introduction, summary of management discussion and analysis, analytical section (ratio calculation), result explanation and discussion, and conclusion and suggestion. This main body should contain sections of above requirements Items 2 to 7. If you choose to put your tables in the Appendices, you should refer to which table or graph you are talking about.
5. Reference. List all major reference sources.
6. Appendices. List all your tables and graphs. For reference convenience, give a title to each separate item, such as Table 1. Note: do not put the original financial statements of the companies you choose to study into any part of the paper, including Appendices.
2. Typesetting requirements:
1. Use 12 font size. Time New Roman is preferred.
2. One and half space between lines.
3. Number all pages, but the cover and abstract pages.
4. Single side printing, if printout (Only if you must turn in the report in person).
5. One inch on all sides.
6. Total page numbers: 25. (No more than 35 pages)