FINANCIAL STATEMENT ANALYSIS PROJECT
The primary purpose of this project is to provide you with an in-depth look at audited financial statements. You will be conducting a comprehensive analysis of the financial statements and related notes contained in the audit reports of two organizations that you choose to study. The specific steps that you should follow in completing this project are presented below.
The project is to be conducted on a group basis. Each group is responsible for selecting two publicly held companies from the same industry. The organizations must have inventory and accounts receivable. Please do not select financial services companies or other service organizations. To complete the project, you need to obtain audited financial statements for the most recent fiscal year for these companies. These may be found in either the annual report or the Form 10-K (an SEC filing). You may obtain a company’s annual report by contacting investor relations for that organization (look on their website for phone number or email address) and requesting their most recent annual report. Alternatively, you may obtain the Form 10-K by visiting [url removed, login to view] (look under the heading, Filings and Forms) and click on “search for company filings.” On the next screen, click on “Company Name.” Type in the name of the company, search for the exact name of the company and click on it. You will be presented with all of the SEC filings for this entity. Scan down and look for “10-K.” Click on this filing and you will find that it contains the annual audited financial statements, notes to the statements and the independent auditor’s report. These are the items that you will need for the project.
Each group is expected to hand in one report reflective of their group’s efforts. The report must be typed and should not exceed 10 double spaced pages (exhibits may appear on additional pages). Please be very careful about citing sources where [url removed, login to view] report should conclude with a bibliography.
PROJECT REQUIREMENTS (Your analysis should include the following but is not limited to these items.)
1. The project should begin with an introduction describing the nature of the entities being analyzed, the industry and environment in which they operate (e.g., competitors and regional, legal, environmental and economic issues).
2. Choose one company and perform a horizontal analysis of the statement of earnings. More specifically, calculate the year to year increase (decrease) for each line item presented in the statement of earnings for the two most recent years of data presented. Compute these increases (decreases) in both absolute dollars and in percentages.
3. Using the analysis performed in (2), identify two percentage increases (decreases) that you believe are significant and warrant further attention. Do not select a subtotal in the body of the income statement (i.e. gross margin, operating income, etc.)Indicate whether you believe that these are favorable or unfavorable trends and discuss your interpretation of such trends along with their implications.
4. Using the financial statements from both companies, calculate the financial ratios shown below for the most recent year of data presented and conduct an intercompany analysis. For each ratio computed:
a. Explicitly describe what each ratio means in the context of the companies that you are analyzing.
b. Identify the company that is stronger on each particular measure.
c. Discuss your interpretation of the comparison and its implications.
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