DePaul University Financial Statement Analysis Project Carrefour SA Discussion

DePaul University Financial Statement Analysis Project Carrefour SA Discussion
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
=

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