ACCT 610_Annual Report Analysis Project
Discipline:
Accounting
Type of service:
Research Paper
Spacing:
Double spacing
Paper format:
APA
Number of pages:
5 pages
Number of sources:
6 sources
Paper details:
The purpose of this project is to use a combination of financial ratios and skills we learned in class to analyze the financial performance and position of some publically traded firms.
Please retrieve the annual reports from SEC website (SEC company search) to get the annual reports of two public companies in the same industry (preferably a manufacturing company) for three consecutive years. Conduct the following analysis:
1. (Use Excel to do this step) Conduct the vertical and horizontal analysis for the Balance Sheet of the two companies and compare the trends regarding the companies’ financial position. Consider the following questions (use them as a guide):
a. Horizontal analysis: Compute the percentage change over the years for the following items (How does the following items change over the years):
Cash, Accounts receivable, Inventory, current asset, non-current asset, current liability, long-term debt, stockholder’s equity.
Are there any abnormal or unusual changes in any of these items? Is there a change in the company’s capital structure? Compare the two companies.
b. Vertical Analysis (also called common size statement analysis): Calculate the percentage of the following items relative to total assets: Cash, Accounts receivable, Inventory, current asset, non-current asset, current liability, long-term debt, stockholder’s equity. What percentage of total assets is Cash, Accounts receivable, Inventory, current asset, non-current asset and non-current Assets? What percentage of total assets is Current liability, non-current liability and stockholder’s equity? Are there any significant change that attract your attention? Compare the two companies.
2. (Use Excel to do this step) Conduct the vertical and horizontal analysis for the Income Statements of the two companies. Compare the two companies by considering the following questions:
a. Horizontal: Compute the percentage changes for the above items over the years. Are there any changes to the company’s gross profit rate, net profit rate and operating expenses over the years? Are there any changes you feel particularly abnormal or unusual? Compare the two companies.
b. Vertical (also called common size income statement): Calculate the percentage of the following items to total sales (revenue): Cost of sales, Gross profit, Operating Expenses, Net Income. What is the gross profit rate? What is the net profit rate? (Compare the two companies).
3. Calculate the following financial ratios for the two company and explain what these ratios tell you about the company (Compare the ratios for the two companies)
a. Liquidity and solvency ratio (Current ratio and Quick ratio)
b. Profitability ratio (Gross Profit Rate, Net Profit Rate)
c. Management efficiency and Effectiveness (Days Sales Outstanding, Days in Inventory and Asset Turnover ratio);
4. Use DuPont Ratio (ROE) to analyze the company’s profitability, asset use efficiency and financial leverage. What does the DuPont Ratio tell you about the two company?
5. Conduct a Cash Flow Analysis and explain the company’s source and use of cash flow from Operating activities, Investing activities and financing activities. Does the company have a healthy cash flow over the years? Use the vertical and horizontal analysis to describe the change (trend) over the years. Calculate Cash Conversion Cycle. Compare the two companies.
6. Read “Management Discussion and Analysis” section of the annual report. What do you learn from this section? Does it explain or confirm your analysis?
7. What do you conclude from your analysis? (If possible, which company would you invest)?
Note: 1) Please attach the company’s financial statements in appendices.
2) Please cite your work and references used (In text citations were needed) min. 6 sources
