- For the final project, you will be expected to locate the financial statements of a company and perform a trend and ratio analysis of those statements using all the concepts you have learned in the course.
Formatting and length guidelines:
- You should use APA (American Psychological Association) guidelines for formatting the title page (make sure you give your paper a meaningful title like “Financial Analysis of XYZ company”), references, in-text citations and subheads. Some (free) helpful sites on how to do APA style citations are on the PBSC library website: http://palmbeachstate.libguides.com/apa
- Your paper should be at least 6 to 8 pages long, plus a title page and a list of references.
- You should use MS Word format, double-spacing,1 inch margins all the way around, page numbers on every page except for the title page and 12 point Times New Roman font.
- Correct spelling, grammar and punctuation are expected. You are also expected to write formally at a collegiate level.
Go to http://finance.yahoo.com. The instructions that follow refer to how to locate the information in Yahoo but you may choose to use Hoover’s through the PBSC library website (if you are unsure how to locate and search within Hoover’s, please contact library support from the library website) or obtain the financials directly from the company.
- Search for the company you wish to analyze. If you choose a publicly traded company, their financials will be listed in Yahoo Finance and Hoover’s. If you choose a private company, you must obtain their financials directly from them and submit the financials as appendices to your final project.
- On the bottom left hand corner of the company’s page on Yahoo Finance is a section called “Financials”. There should be three links — Income Statement, Balance Sheet and Cash Flow. If the company you picked does not have one of those or does not have three years’ worth of data for each of those, then pick another company.
- You should have at least two sources other than the textbooks in the class. These sources can be websites, newspaper or journal articles or books. Don’t forget to cite the source of your financials (Yahoo Finance or otherwise). You may use any legitimate source (i.e. National Enquirer is not acceptable but NY Times is).
Throughout the term, you have submitted portions of the final project and received feedback from your instructor. Before you use those sections for the final paper, review the feedback carefully and edit the sections to incorporate the feedback before you use them in your final paper. Your paper should have the following sections using the subheads indicated below. Each section should be at least 1 page:
- Introduction: In this section, introduce the company you have selected and include basic background information about the size and type of company, locations and products.
- Income Statement Analysis: In this section, answer the following for the trend analysis: What is the total revenue, total costs of revenue and net income for each year? How have these numbers changed over the three years and what could be some reasons why these numbers have changed the way they have? In addition, pick at least one appropriate (for this statement) ratio or financial in addition to what is provided and calculate that and explain it. See the section on ratio analysis below for ideas.
- Balance Sheet Analysis: In this section, answer the following for the trend analysis: What are the total assets, liabilities and shareholder equity for each year? How have these numbers changed over the three years and what could be some reasons why these numbers have changed the way they have? In addition, pick at least one appropriate (for this statement) ratio or financial in addition to what is provided and calculate that and explain it. See the section on ratio analysis below for ideas.
- Cash Flow Analysis: In this section, answer the following for the trend analysis: What are the total cash flows from operating, investing and financing activities as well as the change in in cash and cash equivalents for each year? How have these numbers changed over the three years and what could be some reasons why these numbers have changed the way they have? In addition, pick at least one appropriate (for this statement) ratio or financial in addition to what is provided and calculate that and explain it. See the section on ratio analysis below for ideas.
- Conclusion: In this section, answer the following: What are the most important things you have discovered in your analysis? What are some conclusions you reached? What are the highlights of your paper?
Ratio Analysis: In addition to the trend analysis above, it is customary to also analyze ratios. Some commonly used ratios are:
- Beta: A measure of risk that is usually published and not calculated by you (A beta greater than 1 suggests that the company is more volatile/risky than the market)
- Current ratio = Current Assets/Current Liabilities (A current ratio greater than 1 means the company has enough assets to cover all current liabilities should the need arise)
- Quick ratio = (Current Assets – Inventory)/Current Liabilities (When you are dealing with a company that carries a lot of inventory, a quick ratio is a better indicator than a current ratio because it acknowledges that inventory is not typically liquid).
- Profit Margin = Net Income/Sales (Represents how much of each dollar in sales remains after all costs are covered)
- Return on Equity = Net income/Total equity (Represents the return for all holders of equity in that company)
- EBIT Return on Assets = EBIT/Total assets (Represents the pre-tax return on the total net investment in the firm from operations or alternatively, how efficiently management has used assets)
- Debt-equity ratio = Total debt/Total equity (Represents the long term solvency or financial leverage in that company)