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ACCT6330-Financial Statement Analysis

Question

Answered

Assignment

You have been assigned a company for an ongoing analysis project, and its associated competitor.  The project will be completed and submitted for a grade in five parts that follow the modules we will cover in the class sessions.  The five parts are as follows:  

-Part I – Business Environment and Company Financial Information

-Part II - Financial Analysis of Company’s Past and Present Performance

-Part III – Normalization and Adjustment of Financial Data

-Part VI – Forecasting and Predicting Future Company Performance

-Part V – Valuation of a Company 

PART I: Business Environment and Company Financial Information

1.Company Reseach and Information

Research your company on its corporate website and/or other sources.  Gather the following data:

a.Obtain a set of downloaded current financial statements and public disclosures. You must include three years of historical data. For the balance sheet, you will need four years to derive average balances for three years. This may require you to pull more than one year’s 10K filing. Use the most current SEC filings data.

i.Income Statement

ii.Balance Sheet

iii.Statements of Cash Flows

iv.Statement of Shareholder’s Equity

b.Obtain a copy of the financial footnotes to these statements, the Management Discussion and Analysis (MD&A), and the Auditor’s Opinion included in the SEC filing.

c.Gather industry financial standards for the company’s financial information and ratios.

d.Gather any pertinent financial press releases of the company, including the year-end release that coincides with your annual SEC filing and any releases subsequent to that period.

e.Review any company analyst calls or shareholder meeting videos from the company website, if applicable.

2.Company Executive Summary

Prepare a summary of the company. This should be 5-7 pages.

What do they do?

What industry do they operate in?

Where are the located?

Basic statistical facts about their size, history, culture and leaders.

Identify their customers and suppliers

How are they financed? What is their NBV? 

What is their market cap? How does NBV and market cap compare? Is their working capital strong?

What is there credit rating?

What is their fiscal year-end?

What are the major accounting guidelines impacting the company and its industry?

What is its current stock price?

Who are the auditors? What is the most current audit opnion?

Include any other information about your company that is pertinent to its industry or operations.

Include a summary of the initial financial assessment of the company’s profitability (Are they profitable? What are their profit trends? What are their margins? Comparison to competitors) and its cash flows.

3.Competitive Anaysis

Prepare an assessment of the business environment of the company:

a.Prepare the Porter Five Forces analysis

b.Prepare a SWOT analysis

c.Competitive analysis that includes market share data for the industry players

The Competitive Analysis should be completed and saved in a file named CompetitiveAnalysis_”YourLastName”.  Example: CompetitiveAnalysis_White.  It is acceptable to save this work in the same file as your Company Summary if you performed this word in the same type of file (ie. Both done in Word).

This file should be submitted in Brightspace in the appropriate Assignment submission folder.

4.Financial Statement Template

a.Prepare a financial statement template in EXCEL for the Income Statement, Balance Sheet and Statement of Cash Flows using the data obtained from your SEC filings.  Must include current and two historical years of annual data (three years of data) for the income statement and four years of balance sheet data.  

b.Prepare a common-size income statement, using total revenues as the basis, for your company.  Prepare a common-size balance sheet, using total assets as the basis, for your company. Review similar information for your competitor. Briefly summarize any conclusions from the trends.

The Financial Statement should be completed and saved in a file named FinancialAnalysis_”YourLastName”.  Example: FinancialAnalysis_White. In the template, each financial statement should be in a separate tab.

PART II: Financial Analysis of Company’s Past and Present Performance

1.Prepare all the financial measures using financial data for the last three historical years in the company statements. 

a.Gross Profit/Operating Profit as a % or Revenues

b.Net Income as a % of Revenues

c.Earnings per Share (EPS)

d.Effective Tax Rate (ETR)

e.Return on equity (ROE)

f.Return on assets (ROA)

g.Profitability and Productivity of ROA

i.Profit Margin

ii.Asset Turnover

h.Net Operating Profit After Taxes (NOPAT)

i.Net Operating Assets (NOA)

j.Return on Net Operating Assets (RNOA)

i.Net Operating Profit Margin (NOPM)

ii.Net Operating Asset Turnover (NOAT)

k.Net Non-operating Expense (NNE)

l.NNO Net Non-operating Obligations (NNO)

m.Financial Leverage (FLEV)

n.Spread 

o.Non-operating Return

p.Working Capital

q.Credit risk ratios

i.Times interest 

ii.EDITDA coverage

iii.Cash from Operations to Total Debt

iv.Current ratio

v.Quick ratio

vi.Debt to equity ratio

r.Accounts receivable (A/R) turnover (ART)

s.Average sales outstanding

t.Accounts payable (A/P) turnover) (APT)

u.A/P days outstanding

v.Free cash flow (FCF)

As part of your ratio analysis you will be required to segregate your income statement and balance sheet between Operating and Non-operating items.  Show your work by highlighting the accounts on your finance statements that are Operating and Non-operating.  For the balance sheet, create a separate Net Operating Asset (NOA) balance sheet in a schedule within your file.

The Financial Ratios should be completed and saved in the file named FinancialAnalysis_”YourLastName”.  

The work should be performed on a separate tab in your Financial Analysis Excel file. The work should include the definition of the ratio and the calculated result of the ratio for the all years.  When calculating the ratios, formulas must be used that reference cells in your financial statement tabs. Points will be deducted if calculations do not reference data and reflect numbers that are “hand keyed” or “hard coded”.

2.For each financial measure, prepare a comparison across historical years and to your industry standards and financial norms.  Discuss in your comparison what the ratio tells an analyst in general terms and reflects about your specific company. Based on your company’s ratios, describe any actions that could be taken to address improved performance, if warranted.

Your Ratio Analysis should be completed and saved in a file named RatioAnalysis_”YourLastName”.  Example: RatioAnalysis_White

This file should be submitted in Brightspace in the appropriate Assignment submission folder.

PART III: Normalization and Adjustment of Financial Statements

1.Understand the accounting policies of your company for potential normalization and adjusting.  Determine if adjustments are necessary for items discussed in lectures and provided on the Normalization and Adjustment Listing.  Make sure when deciding on adjustments to consider the Materiality concept.

2.Prepare a document for the adjustments you have determined that details the adjustment, including the debits and credits and proper accounts that will be adjusted.  Give a brief explanation of the reasoning behind the adjustments you have included and any assumptions used to come up with the accounts and amounts.  You must make adjustments to all three years of your forecasted financial statements.

Your Adjustment Analysis should be completed and saved in a file named AdjustmentAnalysis_”YourLastName”.  Example: AdjustmentAnalysis_White

This file should be submitted in Brightspace in the appropriate Assignment submission folder.

3.Create a new set of adjusted financial statements that reflect the adjusting entries you determined.  You must show adjustment for all three years of your forecasted financials.

The Adjusted Financials should be completed and saved in the file named FinancialAnalysis_”YourLastName”.  

The work should be performed on a separate tab in your Financial Analysis Excel file.  Make a separate tab for each adjusted financial statement.

This file should be submitted in Brightspace in the appropriate Assignment submission folder.

PART IV: Forecasting and Predicting Future Company Performance

1.Using your adjusted financials statements, develop a set of forecasted future financial statements and the assumptions used for your company.  Project three years of future financial statements. 

The work should be performed on a separate tab in your Financial Analysis Excel file.  Make a separate tab for each forecasted financial statement.

Must include an income statement, balance sheet and cash flow statement. Must have a summary of the assumption logic used  for each assumption made. 

2.You must include the Financial Footnote for “Debt” and “PP&E” in a file copied from your 10K.  You can also include any forward-looking statements made in your 10-K that you are using for assumptions copied into your file as a resource.

3. For each year of your forecasted financial statements, complete a new set of financial ratio calculations.

The work should be performed on a separate tab in your Financial Analysis Excel file.  You should be able to use all your formulas for the previous ratio tab.  If you calculated a ratio incorrectly in Part II or III, you must correct the ratio for Part IV.

ACCT6330-Financial Statement Analysis

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