Financial Statement Analysis

Must be a publicly traded company and to look up the industry survey for the first part and the company’s 10K for the second part.

 

Financial Statement Analysis Project

 

Industry/Strategy Analysis

 

Obtain the industry survey for your company’s industry via the Rider Library Site as discussed in class. Read the survey and comment on the variables discussed in the survey that are most relevant to analyzing your company. For example, comment on the nature of competition within the industry and  macro or micro economic variables such as interest rates, disposable income, etc. that might have a bearing on the industry and the future prospects of your firm. Be sure to read the section on how to analyze a firm in the industry so you will have an understanding of what drives the industry and how your firm measures up. Areas such as marketing, finance, research and development, and management/strategy may be discussed here.

 

Read the annual report of your company for any information about their strategy. (The 10 K would be best) Comment on strategy in this section or where you believe it is most appropriate if the annual report discusses it. For example, are they attempting to be an industry leader in technology and, if so, what steps are they taking to achieve that goal.

 

Begin your project with an introduction that briefly discusses your company and the products/services that it provides. You may discuss the firm’s strategy here or in the next section.

 

You would be advised to seek out information about your company via the WSJ or other business periodicals to update your information. This can involve a search through the WSJ, use of the research section in the upper right hand corner of the WSJ web site, and/or a search through ABI in the library section of Rider’s home page. You may also refer to your company’s web site as well. (Optional)

 

Accounting Analysis

 

Please read the footnotes in the financial statements and comment on the methods used to recognize revenue, value inventories, depreciation expense, leases, pensions, and other accounting principles covered in class. Ignore complicated notes involving material that was not discussed in class such as derivatives, etc.

 

Financial Analysis

 

After you have completed the Industry/Strategy and Accounting Analysis portions of your project as discussed in class use that information and the financial statements of your company to complete the final part, financial analysis, for your company.

 

The following will describe some of the tools as well as expected items to use in your analysis.

 

Please examine major components of the income statement and note the major trends. This will involve a discussion of the major sources of revenues and expenses and the growth of these components. Also examine the balance sheet and discuss the major items that comprise the asset and liability sections.

 

Use the following ratios to examine liquidity, solvency and profitability of your firm:

 

Current Ratio – measures the ability to pay current liabilities with current assets

 

Quick Ratio – indicates the ability to pay all current liabilities as they come due immediately

 

Inventory Turnover – indicates the saleability of inventory

 

Accounts Receivable Turnover – measures the ability to collect cash from credit customers

 

Calculate both inventory and accounts receivable in terms of the days available for those respective items

 

Debt Ratio – indicates the percentage of assets financed with debt

 

Times Interest Earned – measures the number of times operating income covers interest expense

 

Rate of Return on Net Sales – shows how much of each sales dollar is earned as net income (profit margin)

 

Asset Turnover – indicates the number of dollars generated from the investment in assets (turnover)

 

Assets to Equity – represents the assets acquired from stockholders investment (leverage)

 

Rate of Return on Equity – the rate of return earned on shareholders equity (margin x turnover x leverage)

 

Remember that your analysis for the above items should include some reference to a benchmark such as an industry average or key competitors. These may be obtained from library reference materials, the internet or in some cases the S&P industry surveys.

 

You should also summarize your findings in a brief conclusion.