Week 3
assignment
Financial
Statement Analysis
Our purpose this
week: learning how to measure the performance of companies by analyzing their
financial statements. Show us that you have read and understood the required
readings, links and attached files – quote them where appropriate.
Assignment:
You are the
assistant to the CEO of a major company.
Your CEO keeps an eye on the competition, and asks you to do the
following. Using ratio analysis, compare two major competitors in the same
industry.
Instructions:
Pick any two
U.S. public companies in the same industry. Manufacturing companies are often
the least complicated. Service companies
more complicated and banks the most difficult.
One of your two
companies can be the same company you used in Week 2. We recommend that you use the week 2
company. Your professor may provide a
list of companies that you may choose from.
Select the 10
most important financial ratios for your two companies and calculate each for
the last 2 fiscal years using Excel.
Explain why you selected these ratios.
Create a
comparison chart for these 10 ratios for 2 years for each company. Explain how you calculated each ratio. Explain what each ratio should mean to
management.
There is an
example posted in the file attached in the Week 3, 2016 R AMBA Sample Answer
Week 3. This compares Southwest Airlines
and Jet Blue Airlines. The “Comparison of Ratios”
worksheet shows comparison of ratios, however it does not include the required
words about how the ratios were calculated.
For example, ROE is defined as Net Income / Total Common Stockholder
Equity. It does it include what the
numbers mean for management. Please
include both in your work.
The tabs or
sheets for Income Statement, Balance Sheet and Cash Flow Statement were copied
from SEC Interactive Data. Just click on
“View Excel Document” to get Excel sheets for each.
We strongly
recommend that you obtain data from the SEC web site “Interactive
Data. Then you can copy and paste into
Excel. If you use data from other web
sites, it may not allow excel to calculate ratios.
Create a single
Excel file for your entire assignment.
Spend time to understand what you are trying to do and simplify your
format, your calculations and approach.
Think about which ratios are important and WHY? Please tell us why you picked each ratio.
You may also
obtain financial information and the companies’ latest annual reports or the
web directly from MSN Money or Yahoo Finance or Morningstar. However, it may be
necessary to enter the numbers by hand into excel to allow Excel to calculate
ratios. For additional information, look for the SEC Form10-K link from one of
the MSN Money, or Morningstar, or Yahoo Finance financial sites. Please be
aware that some financial sites may omit some numbers rather than change the
standard format.
You should
calculate, and comment upon, all 10 financial ratios for the last 2 fiscal
years.
All calculations
should be shown, and all answers should be thoroughly explained.
It is useful to
compare financial ratios for a company with financial ratios of its industry.
Industry financial ratios can be found on Morningstar.com, Yahoo.
We recommend
against using banksFinance and MSN Money.
What can you
tell from your analysis? What are the
strengths and weaknesses of each company?
Which is the stronger competitor? Give your reasons.
Your Excel file
should be attached to the “Week 3 Individual Assignment” link in the Assignment
folder.
