Case Study, Presentation (5 to 10 minutes )
Obtain the most recently issued annual report of a publicly owned manufacturing or merchandising corporation of your choice. Do not select a bank, foreign company, insurance company, financial institution, or public utility. It would be appropriate to select a firm that you know something about or have an interest in.
Use a search engine to locate your company’s website and then scan your firm’s home page for information about annual report ordering. If you don’t see a direct link to Investor Relations or Investors on the home page, look for links such as Our Company, About Us, or Site Map that may lead you to SEC Filings, Financial Information, or Annual Reports. Most companies allow you to save or print an Adobe Acrobat version of their annual reports. You will need to either submit a hard copy of the report with your answers or email me a copy of the annual report.
GUIDANCE FOR THIS AND THE FOLLOWING ASSIGNMENTS:
and well-organized paragraphs. A complete explanation is required. Do not cut and paste; use your own words.
What is the industry classification for the company (according to Fortune or the Internet site
you are using)?
Describe the nature of the company’s business.
List the company’s primary products or services (use brand names where available).
What is the address of the company’s corporate headquarters?
What is the address of the company’s Web site?
List other countries in which the company operates:
What were the company’s revenues for the most recent fiscal year? _________
Who is the chairman of the company’s board of directors?
Who is the company’s CEO?
On what stock exchange is the company’s stock traded?
What is the ticker symbol for the company? ________________________
What was the price of the company’s stock on the last day of the yea?
Price: _______________________ Date: ______________________
What were the lowest and highest stock prices during the past year?
52-week low: __________________ 52-week high: _________________
Name of article: ______________________________________________
Source of article (name of magazine or newspaper, date, page numbers):
Summarize the article. Use complete sentences and well-organized paragraphs. Your summary
should be no fewer than 100 words in length.
(Hint: Look at the operating activities section of the cash flow statement if the indirect
method was used.)
Current year____________________ Last year___________________ What are the companies depreciation policies?
What is the amount? __________________
Read the “significant accounting policies” and review other note disclosures as necessary to answer the following questions:
What are the principal components included in the firm’s receivables (or accounts and notes receivable, or trade receivables)?
What inventory valuation method(s) is (are) being used for financial reporting purposes? How much more would ending inventory have been if it were reported on a total FIFO basis? (Hint: This disclosure is sometimes referred to as the “LIFO Reserve.”)
Does the firm report a reconciliation of the statutory income tax rate with the effective tax rate? If so, what are these rates, and what principal temporary differences caused them to differ?
Have any significant subsequent events occurred since the balance sheet date? If so, describe the effects that these items will have on future financial statements.
What depreciation method(s) is (are) being used for financial reporting purposes? How much total depreciation and amortization expense did the firm report?
Does the firm have any stock options outstanding? If so, how many option shares are exercisable at the end of the year?
Does the firm have any significant contingencies or commitments that have not been reported as liabilities on the balance sheet? If so, describe the potential effects of these items from the perspective of a common stockholder.
Calculate working capital, the current ratio, and the acid-test ratio as of the most recent balance sheet date. Show formula and all calculations.
Based on your calculations in part a, assess the company’s overall liquidity position. Explain which ratios indicate particular strengths and/or weaknesses within the company. Assume the following industry averages: current ratio = 2.0; acid-test ratio = 1.6.
Calculate ROI, showing margin and turnover, for the most recent year. Show formula and all calculations.
Calculate ROE for the most recent year. Show formula and all calculations.
Calculate the price/earnings ratio for the most recent year, using the company’s year-end market price per share of common stock in the numerator and diluted earnings per share in the denominator. Show formula and all calculations.
Calculate the dividend payout and dividend yield ratios for the most recent year. Show formula and all calculations.
Based on the results of your calculations in parts d, e, and f, assess the company’s overall profitability. Explain which ratios indicate particular strengths and/or weaknesses within the company. Assume the following industry averages: ROI = 15%; margin = 10%; turnover = 1.5; ROE = 20%; price/earnings = 14.0; dividend payout = 40%; dividend yield = 5%.
As an investor in this company’s stock, would you be pleased with this year’s dividend yield? Explain.
Calculate the debt ratio and the debt/equity ratio as of the most recent balance sheet date. Show formula and all calculations.
Based on the results of your calculations the debt ratio and the debt/equity, assess the company’s overall leverage position. What would you estimate the industry averages to be for the debt ratio and debt/equity ratio? Explain.
Explain the relationship between ROI and ROE, and the concept of financial leverage. Would you expect the percentage difference between ROI and ROE to be high or low for a firm that makes substantial use of financial leverage?
Calculate the accounts receivable turnover and number of days’ sales in accounts receivable (based on a 365-day year) for the most recent year. Show formula and all calculations.
Based on your analysis of the accounts receivable turnover and number of days’ sales, do you believe that the company is doing an effective job at managing accounts receivable? What would you estimate the industry averages to be for the accounts receivable turnover and number of days’ sales in accounts receivable? Explain.
Calculate the inventory turnover and number of days’ sales in inventory (based on a 365-day year) for the most recent year.
Based on your analysis the inventory turnover and number of days’ sales in inventory, to what extent does the company need to be concerned about its inventory management policies? In assessing the inventory management policies, would you be more interested in knowing current ratio or acid-test ratio information? Explain.
Assume that you have $50,000 that you would like to invest in a single company. Evaluate the common stock of your focus company as a potential investment. From the data available in your focus company’s financial statements, identify the five most important criteria that you would use to make your investment decision, and explain why each is important