Gather three years’ worth of annual report (10-K) Financial information (Balance Sheet/Income Statement only) from the SEC’s website (Links to an external site.) on any publically traded company of your choice.
Perform general research on the chosen company about the company, i.e., Headquarter location, nature of business (SIC Code is helpful here too), historical information about the company and key competitors.
Take the financial information and copy and paste the tables from the annual reports into Microsoft Excel. Depending on the format of the company’s financial tables, this may be more difficult than others. If you copy and paste values only there shouldn’t be a problem.
Once the information is in Excel, calculate all accounts as a percentage of total assets for the Balance Sheet and as a percentage of Revenue for the Income Statement. (See excel example for details).
Perform ratio analysis (ratios listed below) for the company for each year. Note: it would be wise to have a separate tab within your excel workbook with each year’s ratio for each listed.
Review the trends within the ratios and determine where there are either strong points or weakening ones. Think of this as the trend analysis portion of the assignment. If you see issues with the company with declining trends or improvement within other areas, mark those for notation within the paper. Notes to the financial statements are a great guide to glaring changes or concerns about the company that would be great points of discussion within the paper itself.
Take your last year financial statement common size percentages and ratios and compare the available industry standard for each. For the industry average, you can go to com (Links to an external site.) and search for the industry your company resides in. The SIC code within the annual report of your chosen company will inform you of the industry the firm you’ve chosen resides in.
Once your data and ratio analysis are complete, write an 8-12 page paper. Note: it will be difficult to adequately communicate your findings in 8 pages, so you may want to shoot for 10-12 pages to make sure you cover all the following points.
Other Requirements:
The paper should have a cover page, table of contents, and include an introduction (to the company and the project), body which includes the general ratio analysis and key trends that were observed. Please feel free to develop tables or graphs to include in the paper as a way to illustrate points (this also helps with lengthening the paper).
It may be helpful to have sub headings in the body of the paper observing the different ratios below (liquidity, leverage etc.). Finish with a conclusion on the key takeaways on the company and how you would suggest ways to improve the company or just general overall comments. I would also suggest implementing the notes of the annual reports as a useful conclusion reference within the paper.
Please cite the three years’ worth of financial statements (including URL’s) of each annual report within the references page at the end. Please use APA formatting as the university standard.
In your conclusions, remark on how your perceptions of the company would entice you to personally invest, work for them, or work as a partner from the firm you currently work in now (if applicable). In other words, does your new understanding of this company’s financial position entice you to want to be directly involved with them?
Required Ratios
Liquidity:
Current Ratio = CA / CL
Quick Ratio = (CA – Inventory) / CL
Cash Ratio = Cash / CL
NWC to Total Assets = NWC / TA
Interval Measure = CA / average daily operating costs
Leverage:
Total Debt Ratio = (TA – TE) / TA
Debt/Equity = TD / TE
Equity Multiplier = TA / TE = 1 + D/E
Long-term debt ratio = LTD / (LTD + TE)
Coverage Ratios
Times Interest Earned = EBIT / Interest
Cash Coverage = (EBIT + Depreciation) / Interest
Receivable Ratios:
Receivables Turnover = Sales / Accounts Receivable
Days’ Sales in Receivables = 365 / Receivables Turnover
Asset Turnover:
Total Asset Turnover = Sales / Total Assets
It is not unusual for TAT < 1, especially if a firm has a large amount of fixed assets
NWC Turnover = Sales / NWC
Fixed Asset Turnover = Sales / NFA
Profitability Measures:
Profit Margin = Net Income / Sales
Return on Assets (ROA) = Net Income / Total Assets
Return on Equity (ROE) = Net Income / Total Equity
https://www.sec.gov/edgar/searchedgar/companysearch.html
