Company Comparison

Using, select two public traded companies in the same industry that have a recent 10-k.  



Section I: Calculate the following ratios for 2 years for each company (show your formulas and calculations)

            •            Working Capital

            •           Current Ratio

            •           Quick Ratio

            •           Debt Ratio

            •           Return on Assets

            •           Net Income as a Percent of Sales

            •           Asset Turnover

            •            Liabilities-to-Equity Ratio

            •           Gross Profit Margin

            •            Operating Expense Margin

            •           Return on Equity

            •           DuPont Disaggregation of Return on Equity

            •            Disaggregation of Return on Assets

            •            Accounts Receivable Turnover

            •            Accounts Receivable as a Percentage of Sales

***NOTE: For ratios that require “average” such Return on Assets, for the earlier year, you may use that year’s balance as the average.  For example, Return on Assets is calculated (Net Income/Average Assets).  If your 10-k is as of December 31, 2021, the balance sheet will include only 2020 and 2019.  When calculating ROA for 2021, use the average of 2021 and 2020 assets, but for 2020 you may just use 202o assets since you do not have 2019 to calculate average.

Section II: Questions for each company:

            •           What public accounting firm audited the financial statements and what is the date of their audit opinion?

            •           What are the largest assets included in the company’s balance sheet?  Are you surprised that is the largest asset? Why would a company of this type have a large investment in that asset? 

            •           What is the largest expense in the company’s income statement?  Does that surprise you?  Review the Management’s Discussion and Analysis noting the company’s explanation for their expense variances. As a potential investor, are there any comments that may concern you?

            •           Who did you think are the main users of these financials?  Select three items in the notes accompanying the financial statements and explain briefly the importance of these items to people making decisions about this company.

Section III: Decision Making:

            •           Assume that you are the credit manager for a national bank.  Both companies are seeking a significant loan (10% of total assets).  Prepare a formal report (2 page minimum) assessing which company would you consider to be the safer credit risk and why. 

            •           Assume that you are an investment broker seeking to purchase 10% of the outstanding stock for one of the two companies.  Prepare a formal report (2 page minimum) assessing which company’s stock would you purchase and why.

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