The specific purposes of this project are:
1) Apply to real company the fundamental knowledge and analytical techniques learned from our course.
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 outcomes with competitors.
4) Summarize or present the analyses and make investment recommendations.
You will be analyzing the given firms:
a) American Eagle Outfitters Inc (ticker: AEO).
b) Abercrombie & Fitch Co (ticker: ANF).
For such firms, download the most recent annual report to start your work, including financial statements, footnotes to the financials, and the management discussions and analyses. Alternatively, you might employ the 10-K report. You can download the 10-K from the company’s website or the SEC’s website (that is, EDGAR online https://www.sec.gov/edgar/searchedgar/companysearch.html).
Tips:
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 advantage of using EDGAR 10-K report is that you might quickly copy those tables into Excel. Employ the filter (filing type) to exhibit 10-K filings only. Click the “document” button and the first html file will be 10-K report.
3) Free reference is available at Yahoo finance (https://finance.yahoo.com) or Google finance (https://finance.google.com). Hoover’s is as well available (https://www.hoovers.com) for you to browse company information (other content is for paid users).
The needed tasks are described below:
A) Prepare vertical common-size balance sheets and income statements for both the companies.
Note: Evaluate for the most recent THREE years, i.e., 2009, 2010, and 2011. AEO’s 2011 report was issued on Mar 15, 2012 and ANF’s 2011 report was issued on Mar 27, 2012. 2
B) Make horizontal common-size income statement and balance sheet (in percentage) for both companies. You must calculate for the most recent THREE years.
C) Prepare ratio analyses (for the same THREE year time period) for both the companies. At least, you must comprise the given ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.
D) Comment on the analytical outcomes of the two companies. Your comments must concentrate on the trends across the companies. In addition to contrasting the ratios among 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.
E) Write a conclusive summary on the firms you have studied. Based on your conclusions, suggest the better performing firm for potential investment. Your conclusions must be based on, and specifically reference, the analyses prepared in this report.
F) Record a short presentation (around minutes) in which you briefly introduce the two companies and their industries, highlight some of your main findings from the above analyses, and conclude with the investment suggestion.