Your Names _________________________________________________________________________

Company Names ______________________________________________________________________

Industry _________________________________________ Year(s) of Statements ________________

Report Format: double-spaced, one inch margins, using a 12-point Times New Roman font.

1) Write a summary of your company and include:

a) A link to the annual report/financial statements for the firm for the latest fiscal year from the

firms’ website.

b) a brief historical summary of the company

c) recent developments within the company and the industry

d) the future direction of the company and industry

e) the company’s position within the industry

f) the company’s recent stock chart and your expectation for the next year

g) a list of competitors

h) other items of significance to the company including any trends in operations or capital resources

Insert the following building blocks for your analysis for the firm. Complete this in an Excel workbook,

with each part in a separate tab. You must upload the Excel file to D2L.

2) Insert the ratio analysis (see further below for the specific ratios) for the last three years for each firm.

Round to 4 decimal places. If a ratio does not apply, write N/A.

3) Insert the horizontal analysis (see further below for the specifics) using dollar and percent change for

the following items for the last three years: (use the following columns: two years ago (A), last year

(B), current year (C), $ change (C-B), $ change (B-A), $ change (C-A), % change (C-B), % change

(B-A), and % change (C-A).

a) Cash

b) Total Current Assets

c) Total Assets

d) Total Current Liabilities

e) Total Liabilities

f) Retained Earnings

g) Total Stockholders’ Equity

h) Number of Shares Outstanding

i) Net Sales/Revenues

j) Cost of Goods Sold

k) Gross Margin

l) Operating Expenses

m) Operating Margin

n) Interest Expense

o) Net Income

p) Earnings Per Share

q) Executive Compensation

4) Insert the trend analysis for items in #3 for the last four years using the earliest year as the base.

5) Insert the vertical analysis for the last four years balance sheets and income statements.

For the next part, integrate your conclusions from the analyses above, however this is not to be your only

source of information. You may use news articles or financial analyst reports about the company to

support your viewpoints. Provide a citation list for any sources used.

6) Complete a financial statement analysis of the firm. Evaluate the horizontal, vertical, and trend

results. Discuss the ratios, addressing the profitability and total asset management, liquidity, solvency

and financial risk, efficiency and operating asset management, and market strength. Highlight any

significant changes including whether the company’s situation has deteriorated or improved with

respect to the various categories. Comment on the relative performance of the company to other

companies in the industry. To conduct the broader industry analysis, use the industry statistics

reported on http://financials.morningstar.com/ratios/r.html?t=JPM (search for the ticker of your firm).

Use the ratios to answer the following questions with explanations. Integrate them into a

written piece rather than answering each question in a list.

a) Is the company paying its accounts payable more or less rapidly over time? Is the company’s

use of accounts payable decreasing or increasing?

b) Is the company collecting its accounts receivable more or less rapidly over time? Is the

company’s investment in accounts receivable decreasing or increasing?

c) Is the company converting its inventory more or less rapidly over time? Is the company’s

investment in inventory decreasing or increasing?

d) Is the company converting its resource inputs into cash flows more or less rapidly over time?

Is the company’s cash position decreasing or increasing?

e) Is the company’s investment in fixed assets increasing or decreasing?

f) Is the company managing its assets efficiently? Is it managing them more or less efficiently?

g) Is the company’s use of long term debt increasing or decreasing?

h) Is the company utilizing its debt efficiently? Is it utilizing it more or less efficiently?

i) Is the stockholder’s investment becoming more or less profitable?

j) Did the dollar amount/percentage of operating revenues increase or decrease over time?

k) Did the dollar amount/percentage of operating expenses increase or decrease over time?

l) Did the market capitalization increase or decrease significantly over time?

m) Did the times interest earned increase or decrease over time?

n) Did the dividend yield and dividend payout increase or decrease over time?

o) Did the effective tax rate increase or decrease over time?

p) Did the estimated interest rate increase or decrease over time?

q) Did the free cash flow increase or decrease over time?

r) Did the earnings per share increase or decrease over time?

s) Did the book value per share increase or decrease over time?

t) Did the price-earnings ratio increase or decrease over time?

u) What are the trends in the various ratios of firm profitability?

v) What are the trends in the various ratios of firm liquidity?

w) What are the trends in the various ratios of firm efficiency (activity)?

x) What are the trends in the various ratios of firm solvency (coverage)?

y) What are the trends in the various market ratios?

z) Are there differences in accounting methods that could be taken into account when making

comparisons between the firms and with the industry?

7) Short-Term Credit Decision: In no more than one typed page, provide a statement of your decision

to lend or not lend to the firm based on your interpretation of their short-term prospects. Analyze this

as you would if you were considering lending $1 billion of your own money to the firm to be repaid in

90 days. Essentially, you are answering whether you believe the firm is able to meet current

obligations and to use current assets efficiently to produce profits. Comment on their success in

employing operating leverage. Make sure to address the following: short-term viability, short-term

growth, cash flow, working capital, efficiency, and liquidity.

8) Long Term Credit Decision: In no more than one typed page, provide a statement of your decision

to lend or not lend to the firm based on your interpretation of their long-term prospects. Analyze this

as you would if you were considering lending $10 billion of your own money to the firm to be repaid

in 10 years. Essentially, you are answering whether you believe the firm is able to meet long-term

liabilities, to use long-term debt and stockholder’s equity effectively without jeopardizing the firm’s

future, and to manage long-term assets in a way that will maximize revenues. Comment on their

success in employing financial leverage. Make sure to address the following: long-term viability,

long-term growth, the need for future financing, the sources for payment of interest and principal, the

cushion the firm has in earnings and cash flows to pay interest and principal, the volatility

(unpredictability) in the firm’s earnings and cash flows, the likelihood the company will file for

bankruptcy, and the financial strength to pay debts in a period of poor profitability.

9) Investment Decision: In no more than one typed page, provide a statement of your decision to invest

in the stock of the firm based on your interpretation of its long-term prospects. Analyze this as you

would if you were considering investing $500 million of your own money in the stock. Address the

following: the company’s future business prospects, the company’s future market prospects, the

company’s competitive strengths and weaknesses, the company’s strategic initiatives in response to

business opportunities and threats, the company’s current earnings performance, the company’s future

earnings potential and the sustainability of its current earnings, the company’s current financial

condition, the risks and rewards of the company’s financing structure, the company’s vulnerability to

earnings variability, and the company’s financial strength to overcome a period of poor profitability.

10) Employment Decision: In no more than one typed page, provide a statement of your decision to

become CFO of the firm based on your interpretation of all the facts presented. The job includes a

base salary of $20 million, a bonus tied to the accounting profits of the firm, a bonus tied to the stock

price of the firm, stock option grants, restricted stick grants, stock appreciation rights, benefits, and

perks. Financial statement analysis from the standpoint of management relates to all of the questions

raised by creditors and investors because these user groups must be satisfied for the firm to obtain

capital as needed. Management must also consider its employees, the general public, regulators, and

the financial press. Look to the analyses and address: how well has the firm performed and why, what

changes should be implemented to improve future performance, what operating areas have contributed

to success and which have not, the strengths and weaknesses of the company’s financial position, and

the issues that might arise with respect to the public, labor, regulators, customers, creditors, and

investors that might be important.

11) Consulting Decision: In no more than one typed page, provide a statement as if you were a hired

consultant presenting to the CEO, what would be your future strategies, goals and objectives for this

company? And how would you reflect these through the preparation of annual operating budgets?

(Scope: 2 years)

Guidance for Completing the Report

Introduction

In order to evaluate your understanding of the use financial statements in decision-making, you are asked

to assume the role of a financial analyst for parts 1-9. Your group will study the profitability, stability,

solvency, and potential for growth of the publicly held company from the perspective of outside users

consisting of investors and creditors. Try to think of your analysis as a form of storytelling. You are going

to tell the story of what your company has been doing for the past three years and where you think it will

be going in the future.

Before you begin to produce your written outlines and undertake the analysis of your company’s financial

statements, you need to compile the following information:

1. Industry information.

2. A company profile.

3. Any current news stories that might impact your company’s future prospects.

4. Historical stock price information.

5. Annual reports of 10-k filings for at least four years.

6. Calculations of financial ratios appropriate for completing the level 2 analysis described below.

7. Horizontal, trend, and vertical analyses.

Once you have collected the information above, your group will be ready to create your report. Your

audience is investors who what to know whether they should buy stock and creditors who also have a

stake in the company’s well-being. To tell them your companies’ story convincingly, a successful report

should consist of the following levels of analysis.

Level 1 — Business and Industry Analysis

The first part of this level of analysis should focus on industry profitability and be organized around at

least three of the following topics:

1. Rivalry among existing firms

2. Threat of new entrants into the market

3. Threat of substitute products

4. Bargaining power of customers

5. Bargaining power of suppliers

6. Overall evaluation of industry profitability

The second part should be a competitive strategy analysis consisting of:

1. A comparison of your firms’ competitive strategies to its competitors.

2. An assessment of the companies’ ability to sustain its competitive strategy.

3. An assessment the threats from competitors.

4. A discussion of any potential changes in your firms’ industry structure that could make your

companies’ competitive strategy ineffective.

Finally, you should identify all sources of information (other than annual reports) used in the first two

parts. Each group must compile a bibliography to accompany your individual outlines. The sources are to

be identified in a manner that would allow the reader to quickly track down the information. For example,

in identifying a particular article, you should specify the article title, publication, author(s), date, and

pages.

Level 2 — Analysis of Historical Financial Data

Using the financial data generated in parts 2-5, you will conduct analyses of your firm’s profitability,

solvency, and operating efficiency that should provide support for your conclusions. You should evaluate

the horizontal, vertical, and trend results. Compare your company’s ratios across at least three years and

to industry averages. When you discuss the ratios, you need to address the profitability and total asset

management, liquidity, solvency and financial risk, efficiency and operating asset management, and

market strength. You do not need to discuss every single calculated ratios. Which ratios you choose to

highlight in your report will depend on what issues are critical to your conclusions. However, at a

minimum, your report should cover the following ratios:

1. Liquidity Ratios to measure the firm’s ability to meet maturing short-term obligations.

a) Current Ratio

b) Quick Ratio or “Acid Test” Ratio

2. Financing Ratios – provide some indication of the riskiness of a company with regard to its ability to

pay its long-term debts.

a) Debt to Equity Ratio

b) Times Interest Earned Ratio

c) Z-Score

3. Activity Ratios – measure a company’s efficiency in managing its assets.

a) Receivables Turnover Ratio

b) Inventory Turnover Ratio

c) Payables Turnover Ratio

4. Profitability Ratios – assist in evaluating a company’s profit-making activities.

a) Gross Profit Percentage

b) Return on Shareholders’ Equity

5. Stock Ratios: These ratios can be used to analyze share price.

a) Earnings per Share

b) Price Earnings Ratio

c) Dividend Yield

6. Horizontal, trend, and vertical analyses

Also, highlight any significant changes including whether the company’s situation has deteriorated or

improved with respect to the various categories. You should definitely comment on the relative

performance of each company to other companies in the industry. Your conclusions should tie together all

of the preceding analysis into both an investment and a credit recommendation.

Then, you need to switch focus to act as a CFO looking to land a new job and a senior consultant to make

recommendations in parts 10 and 11.

RATIO ANALYSIS

Consult the financial statements for your company. Calculate the following financial ratios for the last

three fiscal years. Include a link to the financial statements used. Round to 4 decimal places. If a ratio

does not apply, write N/A.

Year (________)

Current ratio

Acid test ratio

Cash ratio

Accruals ratio

Cash Flow Yield

Cash Flow to Sales

Cash Flow to Assets

Current Cash Debt Coverage Ratio

Free Cash Flow

Accounts receivable turnover

Days’ sales outstanding

Accounts payable turnover

Days’ payable outstanding

Inventory turnover

Days’ sales in inventory

Cash Turnover

Fixed Asset Turnover

Total Asset Turnover

Cash Conversion Cycle

Basic Defense Interval

Expense Coverage Days

Debt

Equity

Debt to Equity

Times Interest Earned

Cash Interest Coverage

Cash Debt Coverage

Interest Expense to Total Debt

Financial Leverage

Gross Profit Margin

Operating Profit Margin

Pre-Tax Profit Margin

Net Profit Margin

Return on Total Assets

Return on Common Equity

Book Value for Common Share

Market Capitalization

Effective Tax Rate

Basic Earnings per Share

Price-Earnings

Price-Sales

Price-Book

Dividend Payout

Dividend Yield

Dividend Coverage

Current liability ratio

Inventory to Sales Ratio

Cash to Current Assets Ratio

Current Assets to Total Debt Ratio

Current Liabilities to Inventory Ratio

Top compensation to sales

Altman’s Z-Score

Year (________)

Year (________)

HORIZONTAL, TREND, VERTICAL ANALYSIS

Complete the following three components of a financial statement analysis for the last three fiscal years

for your company. Round to 4 decimal places. If an item does not apply, write N/A.

12) Complete a horizontal analysis using dollar and percent change for the following items for the last

three years: (use the following columns: two years ago (A), last year (B), current year (C), $ change

(C-B), $ change (B-A), $ change (C-A), % change (C-B), % change (B-A), and % change (C-A).

r) Cash

s) Total Current Assets

t) Total Assets

u) Total Current Liabilities

v) Total Liabilities

w) Retained Earnings

x) Total Stockholders’ Equity

y) Number of Shares Outstanding

z) Net Sales/Revenues

aa) Cost of Goods Sold

bb) Gross Margin

cc) Operating Expenses

dd) Operating Margin

ee) Interest Expense

ff) Net Income

gg) Earnings Per Share

hh) Executive Compensation

13) Complete a trend analysis for items in #1 for the last four fiscal years using the earliest year as the

base.

14) Complete a vertical analysis for the last four fiscal years balance sheets and income statements.

PROJECT RATIOS

LIQUIDITY AND ACTIVIY

Current Ratio measures the ability of a firm to pay its short-term debts. The formula is:

Current Assets

Current Ratio

=

Current Liabilities

Quick (Acid-Test) Ratio measures the immediate ability of a firm to pay its short-term debts. The formula is:

Cash + Marketable Securities + Current

Receivables

Current Ratio

=

Current Liabilities

Accruals ratio measures the amount of accounts receivables to cover the accounts payable. The formula is:

Accounts Receivables

Accruals Ratio

=

Accounts Payables

Cash Flow Yield measures ability to generate operating cash flows in relation to NI (the most important liquidity ratio). The

formula is:

Net cash provided by

operating activities

Cash Flow Yield

=

NI

Cash Ratio measures short-term liquidity in the strictest sense. The formula is:

Cash + Marketable Securities

Cash Ratio

=

Current Liabilities

Cash Flow to Sales measures the ability of sales to generate operating cash flows. The formula is:

Net cash provided by

operating activities

Cash Flow to Sales

=

Net Sales or Net Revenues

Cash Flow to Assets measures the ability of assets to generate operating cash flows. The formula is:

Net cash provided by

operating activities

Cash Flow to Assets

=

Average Total Assets

Current Cash Debt Coverage Ratio measures a company’s ability to pay off its current liabilities from its operations. The

formula is:

Net cash provided by

operating activities

Current Cash Debt Coverage Ratio

=

Average Current Liabilities

Free Cash Flow measures the amount of discretionary cash flow after providing for commitments. The formula is:

Net cash provided by

Free Cash Flow =

operating activities – Capital Expenditures – Dividends

Accounts Receivable Turnover measures the number of times, on average, the company collects receivables in the period.

The formula is:

Net Sales or Net Revenues

Accounts Receivable Turnover

=

Average Accounts Receivable

Days’ Sales Outstanding measures days required to collect receivables from customers. The formula is:

X 365 days

Ending Accounts Receivable

Days’ Sales Outstanding

=

Net Sales or Net Revenues

Inventory Turnover measures the number of times, on average, the company sells inventory in the period. The formula is:

Cost of Goods Sold

Inventory Turnover

=

Average Inventory

Days’ Sales in Inventory measures days required to sell inventory. The formula is:

Ending Inventory

Days’ Inventory Outstanding

=

Cost of Goods Sold

X 365 days

Accounts Payable Turnover measures the number of times, on average, the company pays payables in the period. The

formula is:

Cost of Goods Sold

Accounts Payable Turnover

=

Average Accounts Payable

Days’ Payable Outstanding measures days required to pay suppliers. The formula is:

X 365 days

Ending Accounts Payable

Days Payable Outstanding

=

…

Purchase answer to see full

attachment

Company Names ______________________________________________________________________

Industry _________________________________________ Year(s) of Statements ________________

Report Format: double-spaced, one inch margins, using a 12-point Times New Roman font.

1) Write a summary of your company and include:

a) A link to the annual report/financial statements for the firm for the latest fiscal year from the

firms’ website.

b) a brief historical summary of the company

c) recent developments within the company and the industry

d) the future direction of the company and industry

e) the company’s position within the industry

f) the company’s recent stock chart and your expectation for the next year

g) a list of competitors

h) other items of significance to the company including any trends in operations or capital resources

Insert the following building blocks for your analysis for the firm. Complete this in an Excel workbook,

with each part in a separate tab. You must upload the Excel file to D2L.

2) Insert the ratio analysis (see further below for the specific ratios) for the last three years for each firm.

Round to 4 decimal places. If a ratio does not apply, write N/A.

3) Insert the horizontal analysis (see further below for the specifics) using dollar and percent change for

the following items for the last three years: (use the following columns: two years ago (A), last year

(B), current year (C), $ change (C-B), $ change (B-A), $ change (C-A), % change (C-B), % change

(B-A), and % change (C-A).

a) Cash

b) Total Current Assets

c) Total Assets

d) Total Current Liabilities

e) Total Liabilities

f) Retained Earnings

g) Total Stockholders’ Equity

h) Number of Shares Outstanding

i) Net Sales/Revenues

j) Cost of Goods Sold

k) Gross Margin

l) Operating Expenses

m) Operating Margin

n) Interest Expense

o) Net Income

p) Earnings Per Share

q) Executive Compensation

4) Insert the trend analysis for items in #3 for the last four years using the earliest year as the base.

5) Insert the vertical analysis for the last four years balance sheets and income statements.

For the next part, integrate your conclusions from the analyses above, however this is not to be your only

source of information. You may use news articles or financial analyst reports about the company to

support your viewpoints. Provide a citation list for any sources used.

6) Complete a financial statement analysis of the firm. Evaluate the horizontal, vertical, and trend

results. Discuss the ratios, addressing the profitability and total asset management, liquidity, solvency

and financial risk, efficiency and operating asset management, and market strength. Highlight any

significant changes including whether the company’s situation has deteriorated or improved with

respect to the various categories. Comment on the relative performance of the company to other

companies in the industry. To conduct the broader industry analysis, use the industry statistics

reported on http://financials.morningstar.com/ratios/r.html?t=JPM (search for the ticker of your firm).

Use the ratios to answer the following questions with explanations. Integrate them into a

written piece rather than answering each question in a list.

a) Is the company paying its accounts payable more or less rapidly over time? Is the company’s

use of accounts payable decreasing or increasing?

b) Is the company collecting its accounts receivable more or less rapidly over time? Is the

company’s investment in accounts receivable decreasing or increasing?

c) Is the company converting its inventory more or less rapidly over time? Is the company’s

investment in inventory decreasing or increasing?

d) Is the company converting its resource inputs into cash flows more or less rapidly over time?

Is the company’s cash position decreasing or increasing?

e) Is the company’s investment in fixed assets increasing or decreasing?

f) Is the company managing its assets efficiently? Is it managing them more or less efficiently?

g) Is the company’s use of long term debt increasing or decreasing?

h) Is the company utilizing its debt efficiently? Is it utilizing it more or less efficiently?

i) Is the stockholder’s investment becoming more or less profitable?

j) Did the dollar amount/percentage of operating revenues increase or decrease over time?

k) Did the dollar amount/percentage of operating expenses increase or decrease over time?

l) Did the market capitalization increase or decrease significantly over time?

m) Did the times interest earned increase or decrease over time?

n) Did the dividend yield and dividend payout increase or decrease over time?

o) Did the effective tax rate increase or decrease over time?

p) Did the estimated interest rate increase or decrease over time?

q) Did the free cash flow increase or decrease over time?

r) Did the earnings per share increase or decrease over time?

s) Did the book value per share increase or decrease over time?

t) Did the price-earnings ratio increase or decrease over time?

u) What are the trends in the various ratios of firm profitability?

v) What are the trends in the various ratios of firm liquidity?

w) What are the trends in the various ratios of firm efficiency (activity)?

x) What are the trends in the various ratios of firm solvency (coverage)?

y) What are the trends in the various market ratios?

z) Are there differences in accounting methods that could be taken into account when making

comparisons between the firms and with the industry?

7) Short-Term Credit Decision: In no more than one typed page, provide a statement of your decision

to lend or not lend to the firm based on your interpretation of their short-term prospects. Analyze this

as you would if you were considering lending $1 billion of your own money to the firm to be repaid in

90 days. Essentially, you are answering whether you believe the firm is able to meet current

obligations and to use current assets efficiently to produce profits. Comment on their success in

employing operating leverage. Make sure to address the following: short-term viability, short-term

growth, cash flow, working capital, efficiency, and liquidity.

8) Long Term Credit Decision: In no more than one typed page, provide a statement of your decision

to lend or not lend to the firm based on your interpretation of their long-term prospects. Analyze this

as you would if you were considering lending $10 billion of your own money to the firm to be repaid

in 10 years. Essentially, you are answering whether you believe the firm is able to meet long-term

liabilities, to use long-term debt and stockholder’s equity effectively without jeopardizing the firm’s

future, and to manage long-term assets in a way that will maximize revenues. Comment on their

success in employing financial leverage. Make sure to address the following: long-term viability,

long-term growth, the need for future financing, the sources for payment of interest and principal, the

cushion the firm has in earnings and cash flows to pay interest and principal, the volatility

(unpredictability) in the firm’s earnings and cash flows, the likelihood the company will file for

bankruptcy, and the financial strength to pay debts in a period of poor profitability.

9) Investment Decision: In no more than one typed page, provide a statement of your decision to invest

in the stock of the firm based on your interpretation of its long-term prospects. Analyze this as you

would if you were considering investing $500 million of your own money in the stock. Address the

following: the company’s future business prospects, the company’s future market prospects, the

company’s competitive strengths and weaknesses, the company’s strategic initiatives in response to

business opportunities and threats, the company’s current earnings performance, the company’s future

earnings potential and the sustainability of its current earnings, the company’s current financial

condition, the risks and rewards of the company’s financing structure, the company’s vulnerability to

earnings variability, and the company’s financial strength to overcome a period of poor profitability.

10) Employment Decision: In no more than one typed page, provide a statement of your decision to

become CFO of the firm based on your interpretation of all the facts presented. The job includes a

base salary of $20 million, a bonus tied to the accounting profits of the firm, a bonus tied to the stock

price of the firm, stock option grants, restricted stick grants, stock appreciation rights, benefits, and

perks. Financial statement analysis from the standpoint of management relates to all of the questions

raised by creditors and investors because these user groups must be satisfied for the firm to obtain

capital as needed. Management must also consider its employees, the general public, regulators, and

the financial press. Look to the analyses and address: how well has the firm performed and why, what

changes should be implemented to improve future performance, what operating areas have contributed

to success and which have not, the strengths and weaknesses of the company’s financial position, and

the issues that might arise with respect to the public, labor, regulators, customers, creditors, and

investors that might be important.

11) Consulting Decision: In no more than one typed page, provide a statement as if you were a hired

consultant presenting to the CEO, what would be your future strategies, goals and objectives for this

company? And how would you reflect these through the preparation of annual operating budgets?

(Scope: 2 years)

Guidance for Completing the Report

Introduction

In order to evaluate your understanding of the use financial statements in decision-making, you are asked

to assume the role of a financial analyst for parts 1-9. Your group will study the profitability, stability,

solvency, and potential for growth of the publicly held company from the perspective of outside users

consisting of investors and creditors. Try to think of your analysis as a form of storytelling. You are going

to tell the story of what your company has been doing for the past three years and where you think it will

be going in the future.

Before you begin to produce your written outlines and undertake the analysis of your company’s financial

statements, you need to compile the following information:

1. Industry information.

2. A company profile.

3. Any current news stories that might impact your company’s future prospects.

4. Historical stock price information.

5. Annual reports of 10-k filings for at least four years.

6. Calculations of financial ratios appropriate for completing the level 2 analysis described below.

7. Horizontal, trend, and vertical analyses.

Once you have collected the information above, your group will be ready to create your report. Your

audience is investors who what to know whether they should buy stock and creditors who also have a

stake in the company’s well-being. To tell them your companies’ story convincingly, a successful report

should consist of the following levels of analysis.

Level 1 — Business and Industry Analysis

The first part of this level of analysis should focus on industry profitability and be organized around at

least three of the following topics:

1. Rivalry among existing firms

2. Threat of new entrants into the market

3. Threat of substitute products

4. Bargaining power of customers

5. Bargaining power of suppliers

6. Overall evaluation of industry profitability

The second part should be a competitive strategy analysis consisting of:

1. A comparison of your firms’ competitive strategies to its competitors.

2. An assessment of the companies’ ability to sustain its competitive strategy.

3. An assessment the threats from competitors.

4. A discussion of any potential changes in your firms’ industry structure that could make your

companies’ competitive strategy ineffective.

Finally, you should identify all sources of information (other than annual reports) used in the first two

parts. Each group must compile a bibliography to accompany your individual outlines. The sources are to

be identified in a manner that would allow the reader to quickly track down the information. For example,

in identifying a particular article, you should specify the article title, publication, author(s), date, and

pages.

Level 2 — Analysis of Historical Financial Data

Using the financial data generated in parts 2-5, you will conduct analyses of your firm’s profitability,

solvency, and operating efficiency that should provide support for your conclusions. You should evaluate

the horizontal, vertical, and trend results. Compare your company’s ratios across at least three years and

to industry averages. When you discuss the ratios, you need to address the profitability and total asset

management, liquidity, solvency and financial risk, efficiency and operating asset management, and

market strength. You do not need to discuss every single calculated ratios. Which ratios you choose to

highlight in your report will depend on what issues are critical to your conclusions. However, at a

minimum, your report should cover the following ratios:

1. Liquidity Ratios to measure the firm’s ability to meet maturing short-term obligations.

a) Current Ratio

b) Quick Ratio or “Acid Test” Ratio

2. Financing Ratios – provide some indication of the riskiness of a company with regard to its ability to

pay its long-term debts.

a) Debt to Equity Ratio

b) Times Interest Earned Ratio

c) Z-Score

3. Activity Ratios – measure a company’s efficiency in managing its assets.

a) Receivables Turnover Ratio

b) Inventory Turnover Ratio

c) Payables Turnover Ratio

4. Profitability Ratios – assist in evaluating a company’s profit-making activities.

a) Gross Profit Percentage

b) Return on Shareholders’ Equity

5. Stock Ratios: These ratios can be used to analyze share price.

a) Earnings per Share

b) Price Earnings Ratio

c) Dividend Yield

6. Horizontal, trend, and vertical analyses

Also, highlight any significant changes including whether the company’s situation has deteriorated or

improved with respect to the various categories. You should definitely comment on the relative

performance of each company to other companies in the industry. Your conclusions should tie together all

of the preceding analysis into both an investment and a credit recommendation.

Then, you need to switch focus to act as a CFO looking to land a new job and a senior consultant to make

recommendations in parts 10 and 11.

RATIO ANALYSIS

Consult the financial statements for your company. Calculate the following financial ratios for the last

three fiscal years. Include a link to the financial statements used. Round to 4 decimal places. If a ratio

does not apply, write N/A.

Year (________)

Current ratio

Acid test ratio

Cash ratio

Accruals ratio

Cash Flow Yield

Cash Flow to Sales

Cash Flow to Assets

Current Cash Debt Coverage Ratio

Free Cash Flow

Accounts receivable turnover

Days’ sales outstanding

Accounts payable turnover

Days’ payable outstanding

Inventory turnover

Days’ sales in inventory

Cash Turnover

Fixed Asset Turnover

Total Asset Turnover

Cash Conversion Cycle

Basic Defense Interval

Expense Coverage Days

Debt

Equity

Debt to Equity

Times Interest Earned

Cash Interest Coverage

Cash Debt Coverage

Interest Expense to Total Debt

Financial Leverage

Gross Profit Margin

Operating Profit Margin

Pre-Tax Profit Margin

Net Profit Margin

Return on Total Assets

Return on Common Equity

Book Value for Common Share

Market Capitalization

Effective Tax Rate

Basic Earnings per Share

Price-Earnings

Price-Sales

Price-Book

Dividend Payout

Dividend Yield

Dividend Coverage

Current liability ratio

Inventory to Sales Ratio

Cash to Current Assets Ratio

Current Assets to Total Debt Ratio

Current Liabilities to Inventory Ratio

Top compensation to sales

Altman’s Z-Score

Year (________)

Year (________)

HORIZONTAL, TREND, VERTICAL ANALYSIS

Complete the following three components of a financial statement analysis for the last three fiscal years

for your company. Round to 4 decimal places. If an item does not apply, write N/A.

12) Complete a horizontal analysis using dollar and percent change for the following items for the last

three years: (use the following columns: two years ago (A), last year (B), current year (C), $ change

(C-B), $ change (B-A), $ change (C-A), % change (C-B), % change (B-A), and % change (C-A).

r) Cash

s) Total Current Assets

t) Total Assets

u) Total Current Liabilities

v) Total Liabilities

w) Retained Earnings

x) Total Stockholders’ Equity

y) Number of Shares Outstanding

z) Net Sales/Revenues

aa) Cost of Goods Sold

bb) Gross Margin

cc) Operating Expenses

dd) Operating Margin

ee) Interest Expense

ff) Net Income

gg) Earnings Per Share

hh) Executive Compensation

13) Complete a trend analysis for items in #1 for the last four fiscal years using the earliest year as the

base.

14) Complete a vertical analysis for the last four fiscal years balance sheets and income statements.

PROJECT RATIOS

LIQUIDITY AND ACTIVIY

Current Ratio measures the ability of a firm to pay its short-term debts. The formula is:

Current Assets

Current Ratio

=

Current Liabilities

Quick (Acid-Test) Ratio measures the immediate ability of a firm to pay its short-term debts. The formula is:

Cash + Marketable Securities + Current

Receivables

Current Ratio

=

Current Liabilities

Accruals ratio measures the amount of accounts receivables to cover the accounts payable. The formula is:

Accounts Receivables

Accruals Ratio

=

Accounts Payables

Cash Flow Yield measures ability to generate operating cash flows in relation to NI (the most important liquidity ratio). The

formula is:

Net cash provided by

operating activities

Cash Flow Yield

=

NI

Cash Ratio measures short-term liquidity in the strictest sense. The formula is:

Cash + Marketable Securities

Cash Ratio

=

Current Liabilities

Cash Flow to Sales measures the ability of sales to generate operating cash flows. The formula is:

Net cash provided by

operating activities

Cash Flow to Sales

=

Net Sales or Net Revenues

Cash Flow to Assets measures the ability of assets to generate operating cash flows. The formula is:

Net cash provided by

operating activities

Cash Flow to Assets

=

Average Total Assets

Current Cash Debt Coverage Ratio measures a company’s ability to pay off its current liabilities from its operations. The

formula is:

Net cash provided by

operating activities

Current Cash Debt Coverage Ratio

=

Average Current Liabilities

Free Cash Flow measures the amount of discretionary cash flow after providing for commitments. The formula is:

Net cash provided by

Free Cash Flow =

operating activities – Capital Expenditures – Dividends

Accounts Receivable Turnover measures the number of times, on average, the company collects receivables in the period.

The formula is:

Net Sales or Net Revenues

Accounts Receivable Turnover

=

Average Accounts Receivable

Days’ Sales Outstanding measures days required to collect receivables from customers. The formula is:

X 365 days

Ending Accounts Receivable

Days’ Sales Outstanding

=

Net Sales or Net Revenues

Inventory Turnover measures the number of times, on average, the company sells inventory in the period. The formula is:

Cost of Goods Sold

Inventory Turnover

=

Average Inventory

Days’ Sales in Inventory measures days required to sell inventory. The formula is:

Ending Inventory

Days’ Inventory Outstanding

=

Cost of Goods Sold

X 365 days

Accounts Payable Turnover measures the number of times, on average, the company pays payables in the period. The

formula is:

Cost of Goods Sold

Accounts Payable Turnover

=

Average Accounts Payable

Days’ Payable Outstanding measures days required to pay suppliers. The formula is:

X 365 days

Ending Accounts Payable

Days Payable Outstanding

=

…

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