Financial Statement Analysis Assessment
Financial Statement Analysis
USA-based “Macys”. Go to the website for that company – look at investor information and search for the company “annual report/Form 10-K”. If you miss that deadline, you’ll lose 5 points (and counting !) but you’ll still need to get that full set together for me to see before you continue with your paper. If you hand in by due date, but the set is incomplete or not from most recent year or not taken directly from the Form 10-K, then you lose the 5 points. Try to hand in early just in case there is a problem so that you can resubmit by the due date/time.
Now you will continue your project. The overall objective is for you to answer the basic question:
Would you recommend an investment in this company? (YES or NO)
That recommendation will be on the Top of the COVER PAGE of your report. The report that follows is the argument supporting your recommendation.
Remember that the majority of your study and conclusion should be based on accounting information.
Here are the specifics:
1) Do some reading/research on your company. Check into current news about your company. Introduce the company to the reader. Consider what external factors in the economy, in the world, in the region, in the industry of your company, etc. might an investor (and you) consider before making an investment in this company? (Include these comments ~ and assume the reader/potential investor is NOT familiar AT ALL with your company).
2) You are to do a full Horizontal Analysis (on the Balance Sheet and on the Income Statement) for the years presented using the oldest year as your base year and rolling forward that base year to most recent year. In other words, for the Balance Sheet which contains 2 years of data, you compare the oldest year to the most recent year. Easy. But for the Income Statement, there should be 3 years included in your Horizontal Analysis. I am looking for whole dollars here and throughout your report. NO PENNIES ! You may also do percents for the Horizontal Analysis, but that is optional. You must state the whole dollar amount of the differences if you want credit. For the income statement, the oldest year gets compared to the middle year first. Then the middle year becomes the base year and that base year gets compared to the most recent year. Thus, the “rolling base year” concept.
3) You are to do a Vertical Analysis (on both the Balance Sheet and Income Statement) for EACH of the years presented. You must show your result as a % (not a decimal number) and round your % results to exactly 2 decimal places (ex: 2.07% ~ not 2% ~ not 2.0734566%).
For these analyses, you are to present the actual tables of your Vertical and Horizontal Analysis. If you only submit commentary on your results, you lose 20 points. Each of these analyses MUST SHOW: statement titles, the name of every single individual account as shown on the original financial statement, the exact balances as shown on the original financial statements and then the columns for your vertical/horizontal calculations.
NOTE: If your tables for #2 and #3 above spill over onto a second page, you must label the top of that subsequent page with headings of the statement AND headings on columns, just as would be in a published report. If these analyses are not user friendly, you will not get full credit.
4) Provide some comments on the results of these two studies that may be relevant to your overall recommendation. This is key. Crunching numbers is one thing, but you must demonstrate that you understand the value in looking at the end results.
5) Provide comments on the Cash Flow statement and list them as bullet points only – no long narratives. Note which observations are the good (if any) and any that are not so good indicators. Do not comment on anything you do not understand in this statement. Saying that an item “increased” or “decreased” without explanation/interpretation from you won’t get you credit. I expect at least 7-10 notes/observations from you on the Cash Flow statement. NOTE: You are not to comment AT ALL on ANY of the details within the Cash Flow from Operating Activities section. I’d like you to include a comment on the grand total Cash Flow from Operating Activities as one of your 7-10 comments, that would be appreciated but No Remarks At All on the details within that section will be awarded any credit whatsoever.
6) Do a ratio analysis on the financial data presented. The six ratios you are required to calculate follow below. For each ratio, you must show the formula you are using AND the numbers you’ve plugged in for each calculation AND your result. Again, crunching the numbers is fine, but once those calculations are done, then the most important part is interpreting the results. You should list notes/observations as to the results of each ratio in each year. Do you see any trends that are a concern? Saying “increased” or “decreased” is not enough and you will get no credit whatsoever if those are you only comments. Help the uninformed reader understand what your results mean.
Here are the 6 ratios you MUST calculate for at least two years (round results to exactly 2 decimal places):
* Working Capital (in dollars – this is not a “ratio,” but this calculation is important to your study).
* Current Ratio
* Debt to Assets ratio
* Debt to Equity ratio
* Return on Investment (a.k.a. Return on Assets) – IMPORTANT: here I want you to use “Total Assets” in place of Average Total Assets
* Net Margin
This project will be due at the start of class on November 20th and no later. There is no reason to not submit your term project report even sooner than that date. There are no extensions and no late submissions will be considered. At all. NONE. Late papers get 0% (F). An email, PDF, online version or any other electronic format will NOT be accepted. At all. You MUST hand me a physical copy of your complete report, stapled neatly together, including copies of the full set of financial statements again, and including all horizontal analyses, etc (as stated above) by the time/date specified. Again, I remind you, use whole dollars only throughout paper (no pennies please !)
You can do as much or as little as you’d like on this term project, but the above parameters set the minimum. You may want to comment about competitors, company plans for the future, your own personal experiences with this company or its products, why you chose this company, etc. That is your choice. The more you do, the neater and clearer your report ~ the more credit you will be awarded (that’s assuming you do include the minimum requirements, as stated). Remember the reader knows nothing about your company or about accounting. Submit a paper to me that you are truly proud of having completed.
An Excellent paper gets an Excellent grade.
An average paper gets an average grade (C).
An incomplete &/or incorrect paper gets whatever grade is deserved.
BOTTOM LINE: Please – show me that you have understood the “financial accounting” concepts and principles that we’ve studied. Show me that you are able to understand the value of that information and apply it to this type of real world decision. You will lose points for not meeting any of the minimum requirements as stated above, so be careful to include everything.
Thank you. I look forward to reading your final report !
(Reports will not be returned to you, so be sure to keep a copy for yourself.)
Here’s the 10 point grading grid (each of these 10 sections is worth 10 points)
Cover Page: Your Name, 204 + Section number, Co. Name, “BUY” or “DO NOT BUY”
1) Description of company/company news
2) Horizontal Analysis (Income Stmt AND Balance Sheet)
3) Vertical Analysis (Income Stmt AND Balance Sheet)
4) Comments on 2 & 3 above
5) Cash Flow Statements (7-10 solid comments – bullet points – keep it brief)
6) Ratio analysis (all 6 ratios for all years, with formulas shown and values you inserted into formulas – otherwise no credit)
7) Comments on EACH ratio (keep it brief)
8) Final Summary (Tie it all together)
9) Full set of financial statements (5 points for handing in set by 9/25/18 (“0” points if miss deadline) & 5 points for attaching full set to your final report.
10) Your conclusion included on top of cover page. Paper is beautiful, neat, comprehensive, and user friendly.
There may be an extra credit option for making a brief presentation of your term project company to the class. Those details to follow in the future.