This project is required after the students have studied the chapters on financial statements and financial analysis. It provides the opportunity for students to analyze the financial reports of actual companies listed in the U.S. stock exchange or NASDAQ and to interpret what the numbers mean from the point of views of a potential investor, a creditor (bank), and the company's top management.
The objective of this project is to link theory with applications in the real world by requiring students to analyze financial statements of actual companies listed in either the U.S. stock exchange or NASDAQ.
Text of Learning Exercise:
FINANCIAL ANALYSIS PROJECT (100 maximum points available)
This project provides the opportunity to use corporate financial statements of actual companies for the purpose of analyzing the financial condition and trend indicators from the viewpoints of a potential investor, lending institution (bank), and the company?s top management.
The Financial Analysis Project is to be done as a word processing file (Microsoft Word ). It is to be posted under Document Sharing Area as an attachment (type your two companies) for grading and to share with other students. The financial analysis project is required to be submitted not later than the date specified (the week before the Finals) so as to allow sufficient time to review for the Final Exam.
1. Select any two companies that are in the same industry (e.g. automobile manufacturing,
restaurant chain, airline, etc.) that are publicly traded on the U.S. stock exchange or NASDAQ. One of the companies should be a non-U.S. company whose stock is traded in the U.S. stock exchange. 2. You may use the SEC (U.S. Securities and Exchange Commission) internet web site database called ?EDGAR? to reference the companies most recent 10-K report. A 10-K filing includes the company?s year-end financial statements(balance sheet, income statement, statement of cash flows). Additional information about the two companies might be found on an investment research web site called WSRN.com (Wall Street Research Net). For financial analysis data you may go to www.marketguide.com.
For annual reports http://reportgallery.com is a useful website with more than 2,200 annual reports both for USA based and intenational companies.
For non-US company listings, the following websites will be of help to you:
Logon to this site. On Home Page, Click on International, then Listed Companies, then Industry. You can print out a list of all foreign companies organized by country of originand by industry.
On the Home Page, Click on Portfolio, then get on to Free membership (register) to get information on financials, etc. Go back to Home page and Click on Quote/Research. Type in the symbol of the company that you got from NYSE.com. You have the choice of Profile, Financials, Key Ratios, Snapshot, Performance, & Graphs. You could copy from the screen and paste it.
3. Write a report that comments on the 3 -year trend for each of the relevant ratios and compare the two companies on the following (Please refer to Chapter 11 pages 397-400) for the ratios to be included in your three year computations (please use the most current years: 1999,
a) Investment opportunity from the viewpoint of a potential investor (emphazise profitability and financial leverage measures) b) Credit worthiness, from the viewpoint of a major bank to whom the company has applied for a large loan (emphazise debt equity ratio, liquidity ratios, and refer to the companies ability to generate cash flows from operations). c) Asset management, from the viewpoint of a critical board of directors (refer to activity measures).
4. Within each section of the report, incorporate a table that shows the relevant computational data and ratios for each of the three years in three adjacent columns, and shows the two companies in two successive rows.
e.g. Current ratio:
What is this ratio about, provide the formula, tabulate relevant financial data to compute the ratio, interpret the results:
For example: Current ratio = Total Current Assets Total Current Liabiliites
US Corp. 1999 2000 2001 Total Current Assets Total Current Liabilities Current Ratio Non-US Corp. Total Current Assets Total Current Liabiliites Current Ratio This computation must be followed by appropriate graphs and interpretations.
5. You are encouraged to use additional ratios that you find in the textor the web sites. Include graphs for trends as appropriate. Industry average information is not required but is desirable to be included if available to strengthen your analysis and interpretation of the companies. Be sue to include your interpretation for each financial ratios computed. Please remember: Computations are not enough. You need to interpret the meaning of the ratios and other analyses.
6. Supplement your own financial analysis with relevant comments,
graphs, and other data obtained from internet sources, such as WSRN.com. However, do not use information published by the companies themselves, since that information is biased and is not objective.
7. There is no requirement as to the number of pages, however, the project is expected to include company profiles, computations, analysis, graphs, interpretaions etc. Font must be 12, double-spaced. Do not type the financial statements. A sample project is provided under the Document Area for your guidance. Just include appropriate financial data to support your computations. The paper will be graded on the basis of writing quality, presentation, and content. Grading criteria are as follows (You need approximately two weeks to complete the project):
20 points for Presentation (table, graphs, other data, APA style, spelling)
50 points for Financial Analysis (include all relevant ratio computation data)
30 points for Interpretations (what do the numbers mean)
Total maximum points available 100 points
8. Be sure to follow the APA style to reference your sources of information. http://www.apa-mla.com/formats/apahome.html. Please download the APA Style Guide before you start your project (especially useful for the format on paragragh and typing the Reference at the end of the project).
WEB SITES: Directory of acctg. web site resources: http://www.rutgers.edu/accounting/raw Financial Accounting Standards Board (FASB): http://www.fasb.org Government Accounting Standards Board (GASB): http://www.gasb.org American Institute of CPA?s (AICPA): http://www.aicpa.org Institute of Management Accountants (IMA) http://www.imanet.org Financial information on public companies: http://www.sec.gov/edgar Federal tax code research: http://www.tns.lcs.mit.edu:80/uscode/ NU Library System: http://www.nu.edu/library Annual Reports: http://reportgallery.com http://www.bloomberg.com Financial Analysis: http://yahoo.marketguide.com