Financial Statement Analysis You are a financial analyst and your client has approached you for some independent financial assistance. He is considering investing funds in common shares of a corporation and has identified two alternatives. They are both in the same industry and either could be bought for book value. Your client is requesting your advice on which would be the better investment As a financial analyst you will prepare a prospectus. A prospectus is a short description of the analysis and must include the following sections: Title page 2 Vertical Analysis 3. Ratio Analysis Conclusions/Recommendations Your prospectus should be no more than 5 pages typed not including the title page Guidelines for the format of the written prospectus Title Page The first page of the prospectus is the title page which lists the following - FINANCIAL STATEMENT ANALYSIS Name of Your Consulting Firm Analysts' (Your Name Date Section 1: Vertical Analysis (Common Size Analysis Perform a vertical analysis in relation to revenue for the stems on the income statement only for each of the two companies. (18 marks) Section 2: Ratio Analysis Compute the ratios for the following categories for each company: - Profitability Liquidity Solvency - market value Present in chart form and show calculations used. (36 marks) Discussion of ratios (46 marks) For each ratio, students should comment on some of the following What is the relative position of each of the corporations? What is being measured? What does it mean? Is this good news or bad Section 3: Conclusions Recommendations Draw conclusions from the data that was gathered in the previous sections and determine the relevant position of each of the corporations in all of the analyses. The conclusions/recommendations must address the following sa comparison between the two companies Summarize the overall strengths and weaknesses of each corporation? Your final recommendation as to which company your client should invest in explaining key reasons why it is the better choice. Bailey Led Balance Sheet As at December 31, 2016 Cash S66,000 Accounts Receivable net) *** 241,000 Inventory 87.000 Prepaid Expenses 12.000 Plus quienennet) 792.000 1.198.00 Account Payable & Accrued Liabilities $191,000 Long-term Debt 635,000 Com Shares 50,000 Retained Ramings 122.000 SL.19.000 Bailey L. Income Statement For the year ended December 31, 2016 Sales 52.797.000 Cost of Goods Sold 1.290.000 Gross Margin 100 000 Operating Expenses 770,000 Lepreciation Expo 57.100 Opring Income 200,000 Interest Expense 2000 Income before Income Tax 130.000 Income Tax Expense $2.000 Net Income.com S78000 Avg. common shares issued and outstanding 22,000 shares *** AR for 2015 230.000 Equity 2015 $310.000 2015 was.. inventory for 2015 85.000 dividend 2016 . Steps Led Balance Sheet As at December 31, 2016 Cash $27.000 Accounts Receivablent}*** 262000 Inventory 110,000 Prepaid Expenses 7.000 Planquipmenline) 2000 SILLO.000 Accounts Payable & Accred Lia 5173,000 Long-term Debt 310,000 Common Shares 200,000 Retained Earnings 427.000 $1.100.000 ** Avg.common shares issued and outstanding 25,000 shares *** AR for 2015 ww 230,000 Equity for 2015 5620,00 Total acts for 2015 was 1.000.000 story for 2015 112.000 dividend 2016 55.000 Snoopy Lad. Balance Sheet As at December 31, 2016 Cash $27.000 Accounts Receivable net)*** 262,000 Inventory 110,000 Prepaid Expenses 7.000 Plant and Equipment net) 704.000 1.110.000 Accounts Payable & Accrued Liabilities $173,000 Long-term Debt 310,000 Common Shares 200.000 Retained Earnings 422.000 S110,000 * Avg. common shares issued and outstanding 25,000 shares *** AR for 2015 w 230,000 Equity fw 2015 was 620,000 Totalets for 2015 was 1.000.000 inventory for 2015 112.000 dividend 2016 $5,000 * all Sales made on credit Snoopy Lid. Income Statement For the year ended December 31, 2016 Sales 52,454,000 Cost of Goods Sold 1.594.000 Cross Margin 160,000 Operating Expenses 632.000 Depreciation Expense 31.000 Operating Income 197,000 Interest Expense 33.000 Income before Income Tax 154,000 Income Tax Expense 2.000 Net Incomo(Loss) 92.000 * all Sales made on credit Financial Statement Analysis You are a financial analyst and your client has approached you for some independent financial assistance. He is considering investing funds in common shares of a corporation and has identified two alternatives. They are both in the same industry and either could be bought for book value. Your client is requesting your advice on which would be the better investment As a financial analyst you will prepare a prospectus. A prospectus is a short description of the analysis and must include the following sections: Title page 2 Vertical Analysis 3. Ratio Analysis Conclusions/Recommendations Your prospectus should be no more than 5 pages typed not including the title page Guidelines for the format of the written prospectus Title Page The first page of the prospectus is the title page which lists the following - FINANCIAL STATEMENT ANALYSIS Name of Your Consulting Firm Analysts' (Your Name Date Section 1: Vertical Analysis (Common Size Analysis Perform a vertical analysis in relation to revenue for the stems on the income statement only for each of the two companies. (18 marks) Section 2: Ratio Analysis Compute the ratios for the following categories for each company: - Profitability Liquidity Solvency - market value Present in chart form and show calculations used. (36 marks) Discussion of ratios (46 marks) For each ratio, students should comment on some of the following What is the relative position of each of the corporations? What is being measured? What does it mean? Is this good news or bad Section 3: Conclusions Recommendations Draw conclusions from the data that was gathered in the previous sections and determine the relevant position of each of the corporations in all of the analyses. The conclusions/recommendations must address the following sa comparison between the two companies Summarize the overall strengths and weaknesses of each corporation? Your final recommendation as to which company your client should invest in explaining key reasons why it is the better choice. Bailey Led Balance Sheet As at December 31, 2016 Cash S66,000 Accounts Receivable net) *** 241,000 Inventory 87.000 Prepaid Expenses 12.000 Plus quienennet) 792.000 1.198.00 Account Payable & Accrued Liabilities $191,000 Long-term Debt 635,000 Com Shares 50,000 Retained Ramings 122.000 SL.19.000 Bailey L. Income Statement For the year ended December 31, 2016 Sales 52.797.000 Cost of Goods Sold 1.290.000 Gross Margin 100 000 Operating Expenses 770,000 Lepreciation Expo 57.100 Opring Income 200,000 Interest Expense 2000 Income before Income Tax 130.000 Income Tax Expense $2.000 Net Income.com S78000 Avg. common shares issued and outstanding 22,000 shares *** AR for 2015 230.000 Equity 2015 $310.000 2015 was.. inventory for 2015 85.000 dividend 2016 . Steps Led Balance Sheet As at December 31, 2016 Cash $27.000 Accounts Receivablent}*** 262000 Inventory 110,000 Prepaid Expenses 7.000 Planquipmenline) 2000 SILLO.000 Accounts Payable & Accred Lia 5173,000 Long-term Debt 310,000 Common Shares 200,000 Retained Earnings 427.000 $1.100.000 ** Avg.common shares issued and outstanding 25,000 shares *** AR for 2015 ww 230,000 Equity for 2015 5620,00 Total acts for 2015 was 1.000.000 story for 2015 112.000 dividend 2016 55.000 Snoopy Lad. Balance Sheet As at December 31, 2016 Cash $27.000 Accounts Receivable net)*** 262,000 Inventory 110,000 Prepaid Expenses 7.000 Plant and Equipment net) 704.000 1.110.000 Accounts Payable & Accrued Liabilities $173,000 Long-term Debt 310,000 Common Shares 200.000 Retained Earnings 422.000 S110,000 * Avg. common shares issued and outstanding 25,000 shares *** AR for 2015 w 230,000 Equity fw 2015 was 620,000 Totalets for 2015 was 1.000.000 inventory for 2015 112.000 dividend 2016 $5,000 * all Sales made on credit Snoopy Lid. Income Statement For the year ended December 31, 2016 Sales 52,454,000 Cost of Goods Sold 1.594.000 Cross Margin 160,000 Operating Expenses 632.000 Depreciation Expense 31.000 Operating Income 197,000 Interest Expense 33.000 Income before Income Tax 154,000 Income Tax Expense 2.000 Net Incomo(Loss) 92.000 * all Sales made on credit