Week 3 – Assignment: Conduct a Financial Analysis of a Chosen Company
Due Aug 5 at 11:59 PM
Instructions
Financial statement analysis is the process of reviewing and analyzing a company’s accounting reports in order to evaluate its past and assess its current position. With this knowledge in hand, a company can properly map its future path. As such, financial statement analysis allows for better economic decision making.
The first step in analyzing a company’s accounting statements is to standardize the data. Standardizing financial data is similar to computing a baseball player’s batting average in an effort to evaluate a player’s individual performance over time (trend analysis) and to compare one player’s batting skills to that of other players (cross-sectional analysis). The key way to standardize financial data is by creating a table of financial ratios and by restating the income statement and balance sheet in common size format.
This week, you must first choose a publicly-traded company that you want to analyze. Be sure to consider a company that you are unfamiliar with at this time. A good way to find a company is to search for companies that begin with the first letter or two of your last name on a website like http://finance.yahoo.com/. On this site, start typing the first letter or two of your last name in the search box, and then choose the list of companies that appears.
Once you have chosen a company, find the firm’s most recent annual report online. You can usually find the annual report on the company’s website in Investor Relations. Or just conduct an Internet search on “’company name’ annual report.” Your first task is to read the entire annual report, paying close attention to the Letter to Shareholders (perhaps a slightly different name, but usually the first few pages of the report in the form of a letter from the CEO or chairman of the board to the company’s stockholders).
Then, create a chart like Table 2.2 on page 65 in Higgins (2015) – except your table will not have the last column (Industry Average) because this data usually costs thousands of dollars. Include all years for which data is presented in the company’s most recent annual report (usually the last 3 years). If you cannot compute a specific ratio due to a lack of data, record N.A. for that ratio in that year in your table.
Next, create a chart like Table 2.3 on page 67 in Higgins (2015). Apply the same guidelines as stated in the previous paragraph.
Using these tables and the information you learned from reading the company’s annual report, complete a financial analysis of the company. Your report should use the following structure:
Part I: Company profile (written in your own words, this is a summary of what the company does, how long the company has been in existence, and any other information that you believe an outside reader should know about the company) – Be sure this section of your paper should pique the interest of your reader.
Part II: Table of ratios (like Table 2.2, but for your chosen company) – Use a single-spaced format for this table.
Part III: A written analysis of the ratio table – for three ratios (choose whichever you think are most interesting) – Identify what you believe might be trends that indicate strengths or weaknesses (use the analysis of Stryker Corporation in your textbook as a guide).
Part IV: Common size income statements (like Table 2.3, but for your chosen company) – Be sure to use the single-spaced format for this table. Note that you only have to create a common size income statement (not a common size balance sheet).
Part V: A written analysis of the common size statements – for two ratios (choose whichever you think are most interesting) — Identify what you believe might be trends that indicate strengths or weaknesses (use the analysis of Stryker Corporation in your textbook as a guide).
Part VI: Offer your opinion of the overall financial health of the company. Also discuss whether your analysis indicates any possibility of financial statement fraud as per Albrecht, C., Holland, D., Malagueño, R., Dolan, S., & Tzafrir, S. (2015) or Zack, G. M. (2013).
Length: 6-8 pages, excluding title page and references
References: Include a minimum of three scholarly peer-reviewed resources (in addition to this week’s required readings).
Your essay should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic. Your response should reflect graduate-level writing and APA standards. Be sure to adhere to Northcentral University’s Academic Integrity Policy.
External Resource (S): Books and Resources for this Week
1. Higgins, R. C. (2015). Analysis for financial management (11th ed.). New York, NY: McGraw-Hill Higher Education.
Read Chapters 1 and 2
2. Financial management and the planning cycle [Video file]. (2011).
http://proxy1.ncu.edu/login?url=http://fod.infobase.com/PortalPlaylists.aspx?wID=102745&xtid=44680
3. Zack, G. M. (2013). Financial statement fraud. [electronic resource]: strategies for detection and investigation. Hoboken, NJ: John Wiley & Sons.
Optional Reading: Read Forward, Preface, Chapter 1 and Appendix
https://ebookcentral.proquest.com/lib/ncent-ebooks/detail.action?docID=1061887
4. Albrecht, C., Holland, D., Malagueño, R., Dolan, S., & Tzafrir, S. (2015). The role of power in financial statement fraud schemes. Journal of Business
NB: PLEASE BE SURE TO USE THESE RESOURCES (FIRST) ABOVE, IN ADDITION TO OTHERS YOU MAY FIND IMPORTANT
