This project requires you to use the tools of financial ratios to evaluate the current and past performance (for the most recent three years) of two firms from a single industry. Then you have to prepare a comprehensive and comparative analysis. The written report must be typed. All students will have to submit their project report (3 pages excluding tables, figures, and references) Your analysis should use only publicly available information (Standard & Poorâ€™s Industry Surveys, Form 10-K, etc). You must attach the firmsâ€™ financial reports used in your project. Guidelines and Procedure:
- Obtaining and using sufficient financial statement data for two publicly traded firms selected in a particular industry.
- a) Use Form 10-K or annual report as the primary source.â€¨b) Usethemostrecentthreeyearsofincomestatementsandstatementsofcash
flows and the most recent four years of balance sheets.â€¨c) The extra year for the balance sheet is for calculating average accounts on certain
accounts on the balance sheet and particular financial ratios for a year.â€¨d) Theaverageamountisthesumoftheamountsonthebalancesheetatthe
beginning and end of the year divided by 2.
- Study the financial statements and notes.
- Input the financial statement data into Excel spreadsheet.
- Program the spreadsheet to compute the financial ratios (based on formula sheets â€¨from Chapters 4 & 5). However, you are NOT required to compute the basic EPS, diluted EPS, Altmanâ€™s Z-score, and the returns on common stock based on Capital Asset Pricing Model (CAPM).
- Perform the quantitative analysis of profitability and risk ratios.
- Compare two companies in the same industry based on the financial ratios you â€¨calculate above. Interpret your main findings for the analysis of the financial ratios.
.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â a) Â Do a time-series analysis for each firm first. Explain those financial ratios that â€¨have changed significantly over time. Itâ€™s helpful to read the Management Discussion and Analysis section of the annual report to shareholders or the Form 10-K to find explanations for the time-series changes.
.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â b) Â Do cross-section comparisons across two firms over time. Explain those financial ratios differ significantly across firms.
- Identify the financial problems that may have impact on the sustainability of profits.
- Make investment recommendation based on your analysis and comparisons.