PROJECT- FINANCIAL STATEMENT ANALYSIS
Analyze a company’s financial statements in terms of liquidity, profitability and long-term solvency, and cash flows from operations.
Prepare in good form a written presentation of the results of the financial statement analysis.
Apply basic technology tools including the internet, word processing and spreadsheet software.
(1) Select a company and copy/paste its financial statements
Select a public corporation (other than a financial institution or utility such a telephone, electric or gas company), and find its financial statements at http://moneycentral.msn.com. Avoid companies that show Net Losses in either of the last two years:
On the menu of topics at the top, click on “Investing”, “Stocks”. In the “Name or Symbol” box, type in the name or the stock symbol of the company you have selected. Under “Research” and “Financial Results” in the column on the left, select “Statements”. In the dropdown menu select each of the three financial statements and copy/paste them onto separate pages of a single Word document.
(2) Calculate selected ratios and obtain industry averages for comparison
For each of the financial statement ratios listed below calculate the ratio for the current year and for the prior year. (Note that in most textbooks, some of the ratios call for averaging the beginning and ending balances. However, for this project, use only the year’s ending balances.) After calculating the ratio, compare your calculations with the industry ratio as shown in Moneycentral’s “Key Ratios” under “Financial Results”. Note that there are six or seven groups of ratios in which these ratios might be contained:
a. Current Ratio
b. Inventory turnover
(not applicable to service companies)
Debt to Equity ratio (Total liabilities divided by Total equity)
Net Profit Margin (Net Income as a percentage of Sales)
Return on Equity
f. Price earnings ratio (P/E Ratio) [Divide the current market price from a recent newspaper listing by the “basic” earnings-per-share shown on the most
recent year’s income statement.]
Note: The Price/Earnings Ratio (PE Ratio) changes daily with the stock price.
(3) Using Microsoft Word, write a paper (three to five typewritten pages, 1½ line spacing) containing the following:
A paragraph which describes the primary business activity of the company
(b) A table listing the financial statement ratios listed above in which you list ratio figures for the most recent full year, prior year and industry average.
(c) A paragraph for each of the ratios listed above in which you explain what the ratio means and how it should be interpreted, and comment on the trend from last year to this (favorable or unfavorable), and how your company’s current year compares with the average for its industry.
(d) Earnings Per Share trend is the principal benchmark for investors. Use Excel to present a bar graph showing Earnings Per Share for the last three to five years (EPS figures for several years are generally shown in the Annual Report).
(e) After commenting on each ratio individually, write a summary paragraph which presents your assessment of (1) the company’s liquidity and debt situation, and (2) its profitability.
(f) State your opinion about the company’s ability to generate a positive cash flow from operations. Refer to the trend in the Net Cash Provided by Operating Activities as shown in your company’s Statement of Cash Flows.
(g) Find a recent (less than 6 months old) news article about your company that been published either in print media or on some internet website other than the company’s own website, and write a paragraph in which you cite the article’s title, author, publication and date, and summarize what the article is about.
In addition to Moneycentral, the following websites might contain recent news articles for the company you selected:
(Enter the stock ticker symbol, or if not known, click on Symbol Lookup)
Each of the above items should have a sub-heading in bold font.
(4) As an appendix to your report, attach a copy of the company’s balance sheet, income statement and statement of cash flows. Also, provide a list of References you made for this project.
Grading will be based on content including responsiveness to the stated requirements, and on writing quality (clarity, conciseness, spelling, grammar), and on overall appearance and presentation.
Caution: Avoid referring to companies as “they”, and avoid abbreviations and contractions such as “it’s”. Students for whom English is their second language and who are not able to write acceptably in English must engage an English tutor;the International Student Affairs Office can furnish names of such tutors