4/16/2020 Assignments Overview
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Annual Report Project Guidelines To begin assessing the quality of a company’s financial statements, think specifically about:
1. The types of underlying transactions and events that effect the company,
2. How well the financial accounting model (i.e. generally accepted accounting principals “GAAP”) reflects those transactions and events.
3. The aggressiveness or conservatism or management’s account choices,
4. How well the annual report helps you assess the company’s risks, financial position, earnings, etc.
Guidelines Your written report should demonstrate that you have a complete understanding of the issues you discuss. It is essential that your report be thorough. Read, review and analyze your company and determine what needs and should be reviewed. Ask brokerage firms for their analyst’s reports and check the Internet for any analyst of your company. Explain whether it is reasonable for an item to apply to your company. If an item does not apply to your company, you should state so explicitly. Make sure your notes on the financial statements provide adequate and understandable information about the accounting policies, assumptions, risks and transactions. Finally, your report should contain professional terminology as well as proper grammar and spelling. Please don’t CUT and PASTE from web sites or annual reports. Instructions Follow the format below while creating your Financial Ratios project. You should write in a professional manner. All items should be parsed as if they were going to be reviewed by an executive at a financial institution. Follow APA or MLA style of writing and provide proper citations.
Introduction:
In 1-2 pages, describe what your original strategy was in choosing your company and the strengths that you saw when you did so. Provide background information on the business of the company, like when was the company started, what is their business etc. Make sure to provide citations. Describe any unusual events.
Financial Ratios:
Create a professional presentation of all of the information you have gathered on your company. Please keep in mind this is a professional presentation; therefore, matching fonts, styles, and readability will be considered in your grade. Make sure to provide citations.
Prospectus: In 4-5 pages or more, you will write a thorough analysis of the company’s financial ratios. The report should include an analysis of the types of transactions and events that affect the company, the company’s accounting choices, trends in profitability, and a balance sheet analysis etc. Analyze at least 5 financial ratios to evaluate the financial health of the company you have chosen. Suggest what should be done to improve the performance in future.
4/16/2020 Assignments Overview
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Submit your Ratio Analysis Project report no later than 11:59 pm CT on last Saturday. Common Questions Listed below are common questions to address in your project. Financial Ratios Calculate each of the basic following financial statement ratios for each of the last two years. Is there a trend? If there are other ratios that you believe apply to your company, include those ratios also. Please be sure to provide the details of your computations.
Stockholder Profitability Earning per share (EPS) Price/earnings ratio (P/E) Profitability Gross profit margin Return on total assets Profit Margin Return on stockholders’ equity (ROE) Liquidity Current ratio Quick or acid test ratio Cash flow from operations to sales Stability Debt ratio Times interest earned Book value per common share
Unusual events Describe all significant unusual or nonrecurring items during any of the fiscal years. How significant was the impact on the earnings? Did these items have a significant effect on the profitability ratios? Are these items likely to occur again in the future? Why or why not? Transaction and Recognition Methods Describe the company’s revenue transaction and recognition methods. Are the timing or cash receipts from customers different than the timing of revenue recognition? Are there any uncertainties about the collectibles of customer receivables? What is the likelihood of significant product returns by customers? Trends in bad debt allowances? Business risks associated with estimates? Concentrations of revenues to one business or industry? Footnote disclosures that are of concern? Inventory Describe inventory and related costs. What types of inventory are included in the balance sheet? Working in process, finished inventory? Identify inventory valuation methods and are they reasonable for this type of business? Effect on balance sheet if inventory method changed or if business showed down.
4/16/2020 Assignments Overview
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Property Describe the major types of property, plant and equipment (PP&E). What depreciation methods are used and are they current (life of the asset?). Are these assets undervalued or overvalued on the balance sheet? The nature of the company’s assets. Effects on the balance sheet if these assets were carried by a different deprecation method. Do you agree with management’s deprecation method? Should it be changed? Can it be changed? Business risk’s associated with the company’s assets. Should there be a more aggressive or less aggressive write down of impaired assets? Intangibles What are the major types of intangibles? Are all of them on the balance sheet? What does research and development, advertising or other types of intangibles look like? Collateral Are any of the company’s assets pledged as collateral? If they are, please explain, if they are not, why not? If they are is the company in compliance with its covenants? Contingencies What are the company’s contingencies and commitments? Any off balance sheet leases? How does the company accrue for its liabilities? Any significant litigation? What is your opinion of management? Use of estimates in contingent liabilities? What would be the impact if the company were unsuccessful in defending claims against it? Warranty Liabilities Are product warranty liabilities are overstated or understated? Does the company have product warranties? Does it have insurance against a claim? Warranty Costs? And are they accounted for? Pension plans Describe the types of pension plans and other post-employment plans. Are the plans over-funded or under-funded? Any liabilities from the pension fund not stated? Or potential asset’s in pension fund? Taxes What is the company’s effective tax rate? Major sources of deferred income assets or liabilities? Some analysts believe deferred taxes should be omitted from the company’s balance sheet. What impact would this have on your company? Assets and Liabilities What are the company’s current assets and current liabilities? Have you done a ratio analysis and if so what is your opinion of management’s use of its current assets and liabilities? Cash Flow What are the company’s major sources and uses of cash? What are the company’s operating cash flows? Balance Sheet Analysis
4/16/2020 Assignments Overview
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What does the balance sheet tell you? Is the company managing its assets and liabilities? What would you do differently? Even if this is a large or publicly traded company, management may not be running it correctly. Market Value/Book Value Compare the market value of the stock with its book value. What does this comparison suggest about the accounting valuation of the assets and liabilities? Income Statement Analysis Do the reported revenues and expenses appear to fairly represent the results of the revenue producing activities and are the costs associated with those activities? Why or why not? Be sure to consider your earlier evaluation of management accounting practices. 4/16/2020 Assignments Overview
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Annual Report Project Guidelines To begin assessing the quality of a company’s financial statements, think specifically about:
1. The types of underlying transactions and events that effect the company, 2. How well the financial accounting model (i.e. generally accepted accounting principals “GAAP”) reflects those transactions and events 3. The aggressiveness or conservatism or management’s account choices, 4. How well the annual report helps you assess the company’s risks, financial position, earnings, etc. Guidelines Your written report should demonstrate that you have a complete understanding of the issues you discuss. It is essential that your report be thorough. Read, review and analyze your company and determine what needs and should be reviewed. Ask brokerage firms for their analyst’s reports and check the Internet for any analyst of your company. Explain whether it is reasonable for an item to apply to your company. If an item does not apply to your company, you should state so explicitly. Make sure your notes on the financial statements provide adequate and understandable information about the accounting policies, assumptions, risks and transactions. Finally, your report should contain professional terminology as well as proper grammar and spelling. Please don’t CUT and PASTE from web sites or annual reports. Instructions Follow the format below while creating your Financial Ratios project. You should write in a professional manner. All items should be parsed as if they were going to be reviewed by an executive at a financial institution. Follow APA or MLA style of writing and provide proper citations.
Introduction: In 1-2 pages, describe what your original strategy was in choosing your company and the strengths that you saw when you did so. Provide background information on the business of the company, like when was the company started, what is their business etc. Make sure to provide citations. Describe any unusual events.
Financial Ratios: Create a professional presentation of all of the information you have gathered on your company. Please keep in mind this is a professional presentation; therefore, matching fonts, styles, and readability will be considered in your grade. Make sure to provide citations.
Prospectus: In 4-5 pages or more, you will write a thorough analysis of the company’s financial ratios. The report should include an analysis of the types of transactions and events that affect the company, the company’s accounting choices, trends in profitability, and a balance sheet analysis etc. Analyze at least 5 financial ratios to evaluate the financial health of the company you have chosen. Suggest what should be done to improve the performance in future.
4/16/2020 Assignments Overview
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Submit your Ratio Analysis Project report no later than 11:59 pm CT on last Saturday. Common Questions Listed below are common questions to address in your project. Financial Ratios Calculate each of the basic following financial statement ratios for each of the last two years. Is there a trend? If there are other ratios that you believe apply to your company, include those ratios also. Please be sure to provide the details of your computations.
Stockholder Profitability Earning per share (EPS) Price/earnings ratio (P/E) Profitability Gross profit margin Return on total assets Profit Margin Return on stockholders’ equity (ROE) Liquidity Current ratio Quick or acid test ratio Cash flow from operations to sales Stability Debt ratio Times interest earned Book value per common share
Unusual events Describe all significant unusual or nonrecurring items during any of the fiscal years. How significant was the impact on the earnings? Did these items have a significant effect on the profitability ratios? Are these items likely to occur again in the future? Why or why not? Transaction and Recognition Methods Describe the company’s revenue transaction and recognition methods. Are the timing or cash receipts from customers different than the timing of revenue recognition? Are there any uncertainties about the collectibles of customer receivables? What is the likelihood of significant product returns by customers? Trends in bad debt allowances? Business risks associated with estimates? Concentrations of revenues to one business or industry? Footnote disclosures that are of concern? Inventory Describe inventory and related costs. What types of inventory are included in the balance sheet? Working in process, finished inventory? Identify inventory valuation methods and are they reasonable for this type of business? Effect on balance sheet if inventory method changed or if business showed down.
4/16/2020 Assignments Overview
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Property Describe the major types of property, plant and equipment (PP&E). What depreciation methods are used and are they current (life of the asset?). Are these assets undervalued or overvalued on the balance sheet? The nature of the company’s assets. Effects on the balance sheet if these assets were carried by a different deprecation method. Do you agree with management’s deprecation method? Should it be changed? Can it be changed? Business risk’s associated with the company’s assets. Should there be a more aggressive or less aggressive write down of impaired assets? Intangibles What are the major types of intangibles? Are all of them on the balance sheet? What does research and development, advertising or other types of intangibles look like? Collateral Are any of the company’s assets pledged as collateral? If they are, please explain, if they are not, why not? If they are is the company in compliance with its covenants? Contingencies What are the company’s contingencies and commitments? Any off balance sheet leases? How does the company accrue for its liabilities? Any significant litigation? What is your opinion of management? Use of estimates in contingent liabilities? What would be the impact if the company were unsuccessful in defending claims against it? Warranty Liabilities Are product warranty liabilities are overstated or understated? Does the company have product warranties? Does it have insurance against a claim? Warranty Costs? And are they accounted for? Pension plans Describe the types of pension plans and other post-employment plans. Are the plans over-funded or under-funded? Any liabilities from the pension fund not stated? Or potential asset’s in pension fund? Taxes What is the company’s effective tax rate? Major sources of deferred income assets or liabilities? Some analysts believe deferred taxes should be omitted from the company’s balance sheet. What impact would this have on your company? Assets and Liabilities What are the company’s current assets and current liabilities? Have you done a ratio analysis and if so what is your opinion of management’s use of its current assets and liabilities? Cash Flow What are the company’s major sources and uses of cash? What are the company’s operating cash flows? Balance Sheet Analysis
4/16/2020 Assignments Overview
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What does the balance sheet tell you? Is the company managing its assets and liabilities? What would you do differently? Even if this is a large or publicly traded company, management may not be running it correctly. Market Value/Book Value Compare the market value of the stock with its book value. What does this comparison suggest about the accounting valuation of the assets and liabilities? Income Statement Analysis Do the reported revenues and expenses appear to fairly represent the results of the revenue producing activities and are the costs associated with those activities? Why or why not? Be sure to consider your earlier evaluation of management accounting practices.
