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Financial Analysis and Firm Strategies Project

Financial Analysis and Firm Strategies Project Please perform financial analysis on two public companies in the same industry and interpret the firm policies and strategies. Here are the requirement information in the final project. Please use the most recent year financial statements.

Content

Description of Content

Point

Part 1 Basic Information (25 points)

Company Name

Identify the two firm names.

5

Basic Information

Including the firm industry, the firm location and other general information of the firms.

5

Source of the Financial Data

Provide the link of the source data. For example, Walmart financial data is from: https://www.sec.gov/Archives/edgar/data/104169/000010416919000016/wmtform10-kx1312019.htm

You need to provide the source for both of the companies

10

Reasons to choose

Why do you select the two companies? (For example, I am working in the same industry. I am interested in the best companies in the industry. )

5

Part 2 Vertical Analysis (35 points)

Perform vertical analysis on both of the companies.

Income Statement

Vertical analysis on Income Statement for both of the companies on the most recent fiscal year financial statement.

10

Balance Sheet

Vertical analysis on Balance Sheet for both of the companies on the most recent fiscal year financial statement.

10

Interpretation

Interpretation of the vertical analysis. The interpretation includes but not limited to following questions. How the percentages are different for the two companies? Which company runs more efficiently by looking at the numbers? Which company have more sustainable profit in the future?

15

Part 3 Dupont Analysis Ratio (45 points)

ROE

Return on Equity=Net Income/Avg. Total Stockholder's Equity

5

ROA

Return on Asset=Net Income/Avg. Total Asset

5

Financial Leverage

Financial Leverage=Average Asset/Avg. Stockholder's Equity

5

ROS

Return on sales =Net Income/Sales

5

Asset Turnover

Asset Turnover=Sales/ Avg. Total Asset

5

Put the ratios under Dupont Analysis Framework and make comparison of the two firms

ROE = ROS x Asset Turnover x Financial Leverage

5

Interpretation

Interpretation of the Dupont analysis. The interpretation includes but not limited to following questions. Which company is more profitable? Which company is more efficient? Which company has higher risk? Why?

15

Part 4 Accounting Policies (25 Points)

Please select THREE accounts in the list and find the accounting policies in the financial statement notes of the both firms. Please copy and paste the accounting policies into the project to see if the two firms have similar policies.

Account List

Revenue (Sales), Accounts Payable, Accounts Receivable, Long-term Liabilities (Bonds or Notes payable) , Inventories, Properties, Plant and Equipment, Intangibles, Contingencies.

15

Interpretation of the accounting policies

Do you think the accounting policies are reasonable? Considering the ratios and vertical analysis you performed, do you think the company has aggressive accounting or conservative accounting policies? Why?

10

Part 5 Strategies (20 Points)

Discussion of the Strategies

Do the firms disclose their strategies about the profitability, efficiency or leverage? If they do, please paste it into the project. If there is no information about the strategies, please interpret the difference of the strategies of the two firms by using the financial ratios. If you believe the two firms have very similar strategies about profitability, efficiency and leverage, please state your reasons.

10

Considering the ratios and vertical analysis

Considering the ratios and vertical analysis you performed, do you think the companies have good strategies to maintain profitability? What kind of strategies are helping the companies survive/grow? What kind of strategies are not helping? If you were the managers, how will you improve the performance of the companies?

10

ADDITIONAL INSTRUCTIONS:

Questions! Read here!

If you are not able to find your question here, please send the instructor an email.

1. The two firms I selected have different fiscal year-ending. May I still use the two companies?

Yes. It is common that firms have different fiscal year ending. Here are the rules used by financial analysts and researchers. It is Okay to have firms with different year ending but the two firms need to be in the same fiscal year.

The financial statement ends Dec. 31 2018 is for the fiscalyear 2018.

The financial statement ends May. 31 2018 is for the fiscal year 2017.

The cut off point is Jun3. 30th.

You can compare a firm with fiscal year end May 31, 2018 with another firm fiscal year end Dec 31, 2017.

You can compare a firm with fiscal year end Aug. 31, 2018 with another firm fiscal year end Dec 31, 2018.

2. I am not able to find inventory in the financial statement.

In certain industries, companies do not have inventories. For example, the service industry and software industry do not have inventories. If your firms are from those industries and you are not able to find the inventory data, please clearly indicate in the project that the inventories are not available in the particular industry.

In some of the financial statement, "merchandise inventory " is the inventory account.

3. Do we need special format for the project?

Please clearly indicate the parts of the project.

Please organize your project in paragraphs with subtitles. You also need to report vertical analysis in a table. Please submit your project on moodle. Only word document and PDF are allowed for submission.

4. Where to find the financial statement information?

Please read the slides in Module 1 Topic 5 Resources to Get the Financial Data.

Here is the SEC search link:https://www.sec.gov/edgar/searchedgar/companysearch.html

5. Do I need to find two companies with identical accounts? How about the two financial statements are different?

You don't need to. You can consolidate several items into one. For example, if you have current assetsother thancash, inventory, accounts receivable, you can add several items together as other current asset. Or you can compare the same account the company has and leave the different accounts out.

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