Assignment
• What is your company's name and ticker symbol?
• What is your company's most recent fiscal year end (please give the exact date)?
• In what state is your company incorporated?
• When was your company incorporated?
• In what reportable segments or industries does your company operate?
• In what fiscal quarter does your company earn the greatest amount of revenues?
• What types of products and services does your company sell?
• Who are your company's main competitors?
• What major economic, industry, technology, and consumer trends affect your company's business? You might need to consult an online source (such as Mergent Online, available through the UST library system) for additional information.
General formatting requirements: Please construct visually attractive and easily readable worksheets. Round your calculated percentages to the nearest one tenth of one percent (e.g., 100.0%; 65.2%; 4.3%, etc).
• Use Excel to prepare a horizontal and a vertical analysis of the following selected income statement components: Net revenues, gross profit, SG&A expenses, and Net Income. The specific terminology and classifications will vary somewhat across companies. Use the three most recent years' income statement data to construct two horizontal income statement analyses and three vertical analyses.
• From your company's 10-K, locate management's discussion and analysis of year-to-year financial and operating results to identify the main reasons for the changes, trends, and relationships in your horizontal and vertical spreadsheets. Organize your analysis under four headings: Net revenues; inventory and cost of sales; SG&A expenses;, and Net Income. Your narrative should require approximately three pages. In your narrative, please refer to the specific horizontal or vertical percentages you are explaining, describe more than one factor for each income component, identify relevant offsetting factors when applicable, and quantify the impact of those factors.
From your company's Statement of Cash Flows, (a) list the dollar amount and sign (positive or negative) of your company's three or four major investing cash flows and three or four major financing cash flows for the most recent fiscal year reported, and (b) use the operating cash flow section to evaluate the quality of your company's earnings for the most recent fiscal year reported.
[Note: Some ratios require average balance sheet balances. In some cases this will require three years of balance sheet data. You may obtain the older balance sheet data from the 10-K filed in the previous year or from an Excel file available from Mergent Online through our UST library system.]
I. Analyze your company's short-term liquidity by calculating the Current, Acid Test or Quick, and Inventory Turnover ratios for the two most recent years.
• Show how you calculated these ratios, using the numbers reported in your company's 10-K.
• Explain in general terms what the ratios are supposed to measure (e.g., what do they tell us about the company's liquidity), and explain what caused the changes (if any) in these ratios across the two most recent years.
• Use the ratios to evaluate your company's short-term liquidity. Did the ratios improve or deteriorate over time? Regardless of whether the ratios improved or deteriorated, are the most ratios for the most recent year healthy or not healthy? Explain.
• How do the liquidity ratios compare to industry averages?
• Based on your analysis, would you sell on short-term credit to your company? Clearly explain why or why not.
II. Analyze your company's long-term solvency based on its Liabilities to Stockholders Equity (Debt to Equity) ratio and the Fixed Assets/Long-Term Liabilities ratio.
• Show how you calculated these ratios for both years, using the numbers reported in your company's 10-K.
• Explain in general terms what the ratios are supposed to measure (e.g., what do they tell us about the company's solvency?), and explain the changes (if any) in these ratios across the two most recent years.
• Use the ratios to evaluate your company's short-term liquidity. Did the ratios improve or deteriorate over time? Regardless of whether the ratios improved or deteriorated, are the most recent ratios healthy or not healthy? Explain.
• How do the solvency ratios compare to industry averages?
• Based on your analysis, would you extend long-term credit to your company? Clearly explain why or why not.
III. Analyze your company's profitability by calculating Ratio of Net Sales to Assets, Net Profit Margin, Return on Assets (ROA), and Return on Equity (ROE).
• Show how you calculated these ratios, using the numbers reported in your company's10-K and the balance sheet data on the next page in these instructions.
• Explain in general terms what the ratios are supposed to measure (e.g., what do they tell us about a company's profitability?). Did the ratios improve or deteriorate over time? Regardless of whether the ratios improved or deteriorated, are the most recent ratios healthy or not healthy?
• How do your company's profitability ratios compare to industry averages?
Footnote Review. Answer the following question based on Footnote 1 (Summary of Significant Accounting Policies) in your company's 10-K. If specific questions do not apply to your company include an explanation.
• When does your company record revenue from the sale of merchandise or services?
• How does your company account for sales returns?
• What cost flow assumption (e.g., FIFO, LIFO, or average cost) does your company use to measure and report its merchandise inventories?
• What method of depreciation does your company use for its property and equipment?
Investment Potential: Visit yahoo finance or other Internet source and obtain a stock listing for your company for a date within the year you are analyzing. Include a copy of the stock listing in your report, and use it to answer the following questions:
• How many shares were traded on the date you chose?
• What was the closing price (or the last trading price when you printed out the Web page)?
• What were the high and low prices of the stock for the last 52 weeks?
• What dividends per share have been paid, if any?
• What is the P/E ratio on the date you chose? How is the P/E ratio calculated? In general what does a high P/E ratio mean, and what does a low P/E ratio mean? What does your company's P/E ratio tell us about the market's assessment of Your company's future earnings growth prospects?
Assume that you are a financial advisor and your client has $10,000 to invest. Based on your above analyses and other recent information you may have obtained about your company, would you recommend they invest the $10,000 in your company's stock? Explain your answer in approximately 2 or 3 pages.
• Executive summary: Your opening paragraph should state your recommendation (in one sentence) and briefly describe the remainder of your report.
• The main body of your report should lay out the basis for your recommendation in a logically structured and concise manner. Use topical subheadings where you think they are appropriate to convey the topical structure of your report. Three or four subheadings usually are sufficient.
• The concluding paragraph should restate your recommendation and briefly summarize the basis for it.