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MERLOT II


    

Learning Exercise


Material: Basic Financial Statements
Submitted by: Connie Fajardo on Dec 06, 2002
Date Last Modified: Dec 06, 2002
Title: Financial Analysis Project
Description: 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.
Type of Task: Individual, Student-centered, Supplemental activity, Unsupervised
Time Required Two weeks
Topics: Financial Accounting
Course: A global online accounting course for managers
Audience: Graduate School
Categories:
Prerequisites Skills: Knowledge of basic financial accounting
Learning Objectives: 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.


INSTRUCTIONS:

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:

www.nyse.com

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.

www.etrade.com

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, 2000, 2001):

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):

Grading criteria:

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
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