Please select one of the S&P500 companies and include answers to at least 3 of the nine questions?
1. Revenue recognition. Read the notes to the financial statements. For each company, what is the company's revenue recognition policy? Is the company aggressive in revenue recognition? What is the level of receivables compared to sales? Analyze the allowance for doubtful accounts. Do the companies' bad debt expense and allowances consistent over time? Please compare your two companies' revenue recognition policies.
2. Expenses recognition. For each company, what are the significant expenses on the income statement for the most recent years? Are total and specific expenses as percentage of sales similar over time? This analysis requires you to use the common-size income statement and trend analysis.
3. Statement of cash flows analysis. Discuss firm’s product life cycle according to operating, investing, and financing cash flows. Are the free cash flows positive or negative? Do accounts receivable and inventories grow faster than sales? Are there any significant and unexplainable decline in capital expenditure? Are there any reductions or elimination of dividend payments?
4. Financing policies. For each company, what is the company’s financing policy? Does the company recently issue new stock? Long-term bonds? Borrowed money from bank? What is the interest rate? What is the company’s dividend policy? Are there any changes regarding its dividend payments in recent years?
5. Investing policies. For each company, what are the company’s equity investments using fair value methods, equity methods, and consolidation as a percentage of total assets? Could you list examples of investments as non controlled affiliates and controlling interests as reported on the balance sheets? Does the company report minority interests? What is total fixed assets as a percentage of total assets? What depreciation method does the company use for financial reporting purposes? What is the estimated average useful life of depreciable assets? What is the average age of the PPE? Relative age? When will the long-lived assets be replaced? Does the company report dramatic changes in the useful lives of depreciable assets over time?
6. Inventory valuation method. What are the inventory methods that the companies use? Do the two companies use same inventory valuation methods? Will the inventory methods used make the financial statements more conservative or less conservative? Can you convert LIFO to FIFO if the inventory methods of your companies are different?
7. Deferred Tax Liability. As an analyst, do you consider deferred tax liabilities as liabilities or equities or ignore them? What are the impact on financial statements for different assumptions?
8. Leases. Are there any operating leases? Calculate the present value of discounted companies’ reported future commitments on operating leases. What are the impact on companies’ financial statements if operating leases have been converted to capital leases?
9. Pensions. Does the company offer defined contribution plan, defined benefit plan, or both? For defined benefit plan, is the company’s pension plan underfunded or overfunded? Compare the companies' actuarial assumptions regarding discount rate, rate of salary/compensation increase, expected return on plan assets for determining their projected benefit obligation and pension expense. What are the impacts of the above assumptions on projected benefit obligations and pension expense?