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FINANCIAL STATEMENT ANALYSIS PROJECT

Purpose: Students will simulate the role of a potential investor in choosing a company in which to invest. Students will analyze two firms within the same industry and determine which firm they would choose to invest.

Deliverable: Professionally prepared analysis detailing the pertinent information from the two firms and the final selection. This should contain the following information:

• A spreadsheet containing at least four years of financial statements (balance sheet, income statement, and cash flows) and pertinent ratios (as found in the textbook on page 112). The best way to complete this portion is to obtain simplified and consistent statements from a website such as finance.yahoo.com and enter the data in Excel with the account names down a column and the three dates across the columns. Ratios should be calculated in Excel so that your work is readily available. By using formulas in the spreadsheet, the formula can be easily copied across the years needed.
• Complete common-size balance sheet and income statement for all four years.
• Trend analysis of each financial area, including liquidity, asset management, debt management, profitability, and market value. Students should dig deeper than the ratios. In other words, if leverage significantly increased there should be explanation of why.
• Analyze changes in cash flow over the four years.
• Discussion of planned expansions, acquisitions, mergers, or product changes should be discussed. This information may be obtained through the firms annual reports, news releases, or analyst opinions.
• Pertinent industry information that may affect one or both firms.
• The report should conclude with an informed opinion regarding which company would be chosen. Students should provide financial support for their decision. This will require students to compare and contrast performance in each financial area as well as overall.

Steps:

• Choose two firms from the same industry to analyze and provide the names to the instructor for approval. This must be completed at least 3 days before the project is due.
• Collect the firms annual reports, financial statements, and press releases from the last four years.
• Prepare the spreadsheet of financial statements and ratios. This should look professional!
• Analyze the firms individually in each financial area.
• Compare and contrast the two firms to determine which would be a better investment.
• Provide a professional report on your findings (as discussed above). Graphs or tables are encouraged for displaying the necessary information. Use of outside analysis or information should be fully cited (APA format). While students may use this information, they should justify why it was used and whether they concur with the findings.

Evaluation: Please see the rubric for additional details.

• Financial analysis Maximum of 50 points
• Synthesis of information from various high-quality sources Maximum of 20 points
• Accuracy and support for the final decision Maximum of 20 points
• Report format and content Maximum of 10 points

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