On what financial statement(s) do you find “Cash and cash equivalents” (or similarly-named account)? On what page number are these financial statements?
How much cash does the company have at the end of each of the most recent three years?
Comparing the most current two years in the financial statements, has the company’s cash increased or decreased?
Receivables
- Look in the Notes to the Financial Statements. What type of receivables does this company have?
- Imagine that this company makes a sale of its product. Describe a possible sales transaction and list the journal entry that the company would make to recognize the sale (assume the sale is on account.) For this assignment, ignore the cost of goods sold entry.
- What do you know about the company’s Allowance for Uncollectible Accounts? What name does the company call its allowance? Where in your company’s 10-K do you find this information?
- What is the gross amount of the company’s receivables? What percentage of this gross is its allowance?
- Calculate and interpret these ratios for two
years (show your calculations):
- Current ratio
- Quick ratio
- Average daily sales (Net sales / 365 days)
- Days’ sales outstanding (Average net receivables / Average daily sales) (Note:You will need to use some balance sheet balances from three years, even though the balance sheet only includes two years of balances. To find one year earlier than the two years presented on the balance sheet, find the Form 10-K for the earlier year.)
Inventory
- On which financial statement do you find Inventory? List the page number from the most recent Form 10-K where you found Inventory for your company. How much does the company have in Inventory at the end of the most recent fiscal year? Is this inventory dollar amount in thousands, millions, or billions?
- On which financial statement do you find Cost of goods sold (or Cost of sales)? List the page number from the most recent Form 10-K where you found Cost of goods sold for your company. What was Cost of Goods Sold for the most recent year? Is this Cost of Goods Sold dollar amount in thousands, millions, or billions?
- What cost flow assumption method(s) does the company use for its inventories? Where did you find this information?
- What do you know about the lower of cost or market related to inventories at the company?
- Calculate the gross profit percentage for the company for the three most recent years. What does this ratio mean?
- Calculate and interpret the inventory turnover ratio for the most recent fiscal year.
Property, Plant and Equipment
- On which financial statement do you find Property, Plant and Equipment? List the page number from the most recent Form 10-K where you find PP&E for your company. What does account title does your company use for its PP&E? What types of Property, Plant and Equipment are listed on the financial statement? How much does the company have in PP&E at the end of the most recent fiscal year? In Accumulated Depreciation?
- Now refer to the notes to the financial statements. Locate the notes that are related to PP&E. What specific categories or types of PP&E does the company have? (Usually in the notes to the financial statements, more information is given than provided on the face of the financial statements.)
- What depreciation method(s) does the company use?
- Over what range of useful lives does the company depreciate its various types of plant assets?
- Calculate and interpret the Return on Assets (ROA) for the company for the most recent year.
- What type of intangible assets (if any) does the company have? How does it account for each of these intangible assets over the asset’s life?
Long-term liabilities
- On which financial statement do you find long-term liabilities? List the page number from the most recent Form 10-K where you found long-term liabilities for your company. What types of long-term liabilities does the company have?
- What information is provided in the notes to the financial statement with respect to the company’s long-term liabilities? Give a summary; you do not need to go into depth.
- Calculate and interpret the debt ratio for the most recent two years.
- Calculate and interpret the times-interest-earned ratio for the two most recent years.
Stockholders’ equity
- Locate the stockholders’ equity section on the balance sheet. List the page number from the most recent Form 10-K where you found it.
- Describe the type(s) of stock that the company has authorized and/or issued. How many shares of each type of stock has the company issued as of its most recent balance sheet date? How many shares of each type of stock are outstanding as of the most recent balance sheet date? Are these numbers in thousands or millions or billions?
- Now locate the statement of stockholders’ equity. List the page number from the most recent Form 10-K where you found it. What is the title of this statement for the company? How many shares (if any) did the company purchase during the most recent year? What was the cost of the treasury stock? How much per share?
- Did the company issue any new shares of stock during the most recent year? How many shares? How much did it receive for the stock issuance?
- Did the company declare any dividends in the most recent year? What type of dividends? What was the dollar value of the dividends declared?
- Calculate the return on equity for the company for the most recent year.
Auditor’s letter
- Give an example of an internal control that this company may have in place in some part of the organization. (You can use your imagination.) Be specific; discuss the department, the process, and any other details you could imagine about this internal control process in place at the company.
- Locate the auditor’s report on internal controls. Does the auditor think that the company’s system of internal controls is adequate? Summarize the report in a paragraph. Do not copy and paste exact words; put it in your own words.
Ratio analysis
Calculate and interpret the following ratios and measures.
- Measuring ability to pay current liabilities (Liquidity analysis): Calculate the current ratio and the quick ratio for both companies for the latest year presented. How easily can the companies meet their current obligations? Which company is more liquid?
- Measuring turnover and cash conversion cycle: Evaluate the ability to sell inventory, collect receivables, and manage payments. Which company appears to be the most efficient with managing its cash conversion cycle? (Note:You will need to use some balance sheet balances from three years, even though the balance sheet only includes two years of balances. To find one year earlier than the two years presented on the balance sheet, find the Form 10-K for the earlier year.)
- Measuring leverage (overall ability to pay debts): Calculate the debt ratio and the times-interest-earned ratio for the latest year presented. How easily can the company meet its long-term obligations?
- Measuring
profitability:
- Calculate or list the following ratios for the latest year presented: Gross margin ratio, Operating income ratio, and Earnings per share. How profitable are the companies?
- Calculate Return on Assets for the two most recent years. What is the trend? (Note:You will need to use some balance sheet balances from three years, even though the balance sheet only includes two years of balances. To find one year earlier than the two years presented on the balance sheet, find the Form 10-K for the earlier year.)
- Analyzing stock as an investment: Calculate the following ratios for the latest year presented: Price-earnings ratio and dividend yield ratio. How does the stock market view the company’s future earnings potential?
Corporate social responsibility (CSR)
To evaluate and compare your companies’ corporate social responsibility performance, you will have to use information from sources other than the companies’ Form 10-Ks. CSR reporting is not uniform, so you will have to closely analyze what you do find.
- Look through the Form 10-k for each company for the terms “corporate social responsibility,” “green,” “sustainability,” or other similar heading. If you cannot find any information in the Form 10-k (which is entirely possible,) go to the company’s website and look for information there. Also evaluate recent news articles regarding CSR topics for each of your companies. Summarize your findings.
- Describe the information source you are using for each of your companies. How reliable do you think the CSR information you have for each company is? Explain your opinion of the information reliability for each of your companies.
- Perform an online search for CSR issues in the industry in which your companies operate. Does the company appear to be addressing the sustainability issues in its industry? Explain.
- What is your overall sense of each company’s commitment to sustainability from everything you have evaluated? Be specific and give details to justify your response.
Overall analysis
This section is the overall analysis of your two companies. Which company do you believe is healthier? Why? Which company would you be more likely to invest in? Why? Be specific in your reasoning.
Be sure to fully support your conclusion of which company is healthier. Be sure to include a variety of measures, not just one measure of financial health.
In-class presentations
You will be making a five-minute presentation in class on Monday, December 9, 2019 covering the major points of interest from your analysis of your companies. You should prepare a PowerPoint slide presentation. Do not include many words on your slides – make sure the slides are readable from anywhere in the room (use large fonts.) All team members must present during class. Your presentation should be 4 – 6 minutes in length; you will be cut off at the 6 minute mark whether you are done presenting or not – so practice before class. You and your team members will make the presentation during class on Monday, December 9, 2019. Bring your PowerPoint file with you on that date using a USB drive.
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