In this assignment, you are going to play the role of consultant, hired to evaluate a company’s financial strength in anticipation of a tremendous growth opportunity. The company is going to launch a revolutionary new product that will grow its sales by at least 50% over the next year. In addition, to support this sales growth, the company will have to grow its investment in fixed and current assets by 50%. Your job is to assess the company’s ability to support this level of growth by performing a basic horizontal (trend) and ratio analysis.
Begin by selecting a company you are interested in studying. It is highly recommended you choose a company that would be beneficial for you to learn more about, such as one that is in your current industry. However, the only requirement is that you select a publicly traded company whose financial statements are readily available. You will then be asked to dig deep into this company’s financial statements, looking at trends and ratios to assess its financial strength and readiness for rapid growth.Research the financial statements for a company of your choice.
You can locate the annual statements (called “10-K” forms) for all public U.S. companies in the SEC’s EDGAR system. Annual statements will often include commentary explaining recent financial changes and events.
Many free financial websites, such as Morningstar, provide financial data and ratios for public companies. Search for your company on Morningstar and then select “Operating Performance” for a list of ratios for previous years.Prepare a paper analyzing the company’s past three years of financial results:
Begin by creating a table listing at least 10 financial ratios for the last three years (three years trend, 10 ratios, 30 ratios total). You can either calculate these ratios yourself using the financial data found, or use the ratios you find from your sources.
The ratios you study are up to you. Use whatever ratios you find most revealing. However, you should include return on equity (ROE) and its three components: total asset turnover, profit margin, and financial leverage (asset/equity or debt/equity).
Evaluate and comment on any interesting trends you find. What ratios have changed significantly over the past three years? What does this indicate? Do the ratios suggest financial strength? What potential weaknesses do you see? What could the company do to improve these ratios?
Conclude with a recommendation, based on your analysis, as to whether the company is prepared to take on a large growth opportunity.
Be sure to provide a detailed recommendation that demonstrates your critical thinking and understanding of financial analysis. Your finished paper should be 500 to 600 words in length.
Prepare your paper in Microsoft Word in a professional manner, using proper spelling, grammar, and APA style. Include a reference list. Be sure to appropriately cite your sources for your financial data and any commentary or analysis you rely upon.
For questions on APA style, go to the APA Style Guide.
