ACCT 1201

FINANCIAL REPORTING PROJECT

OVERVIEW:

This project involves an in-depth analysis of a publicly traded company, and a comparison to its industry peers. We complete the project in teams of four to five participants maximum.

INSTRUCTIONS:  

Company Selection

As your instructor, I randomly assign companies to teams. Your company is listed on Canvas.  

Each team will investigate their assigned company and a competitor to the assigned company.   Instructions on how to access each company’s and competitor’s latest annual and/or SEC 10-K reports at the www.sec.gov website is available as a separate document in Canvas’ Financial Reporting Project module. To find a company’s competitor, you can search on google, yahoo finance or use a company’s SIC (standard Industrial Classification) code to research a competitor.

Assignment requirements

The assignment includes two deliverables. The first deliverable is a two page MS Excel spreadsheet summarizing your analytical findings.  The second deliverable is a five to seven page MS Word report that answers a series of questions listed later in this document. These deadlines are firm – failure to submit on time could result in penalties, up to and including no credit for the assignment!  

The spreadsheet analysis requires your team to prepare an MS excel file with account information and ratios.  When calculating ratios, please only use the formulas found in your Libby text)! Carefully follow the worksheet instructions for completing that file, e.g. properly link cells and calculations to a source cell reference and identify that source cell with a different colored font.  Round numbers to the nearest thousands, or in some case millions, as necessary.

The purpose of the MS Word report is to help develop your analytical and communication skills, including the ability to communicate clearly and concisely in writing.  Your report should be between five to seven pages, excluding cover page, final worksheet and appendices. A good report includes double-spaced text with good spelling and grammar, in Times New Roman font (12-point) with a 1” margin throughout (left, right, top and bottom) and page numbers at the bottom. Please attach supplementary tables or charts, and properly cite all information sources (MLA or APA formatting is preferred), in separate appendices at the end of the report.

Write your assignment as if you are financial advisers preparing a report for your manager who could then present the report to a client. Therefore, write this in a report format (although no need for an executive summary). You can use headings where appropriate, and avoid use of generic pronouns like “I/we” (in reference to the authors) or “they” (in reference to the company) except where appropriate, such as the use of “we” in your team’s recommendations.  

Submission

As noted above, the final project includes two deliverables: an MS Excel spreadsheet (no Google docs or other documents, please!) and the final MS Word report (no pdfs or Google docs, please).  Both documents must be submitted by one team member per team in Canvas no later than the due date on the syllabus at 11:59 pm Eastern Time (Boston time).  

File names – all file (.xls and .doc) titles must be as follows:

· Section___ Team Project name___

o For example: “Section01_Team01_Apple”

Finally, there will be an online peer evaluation that you must complete by the due date on the syllabus at 11:59 pm Eastern Time (Boston time). You could lose points on your team or individual assignment grade if your team’s deliverables or your individual peer evaluation forms are submitted after the due date!

GRADING

I grade your project based on a collective team, not individual effort, therefore, all of you are each responsible for every aspect of this team assignment. Experiencing the challenges and rewards of working as a team in a business setting are integral parts of the learning process in this course.  Most teams have favorable experiences, but the purpose of the confidential peer evaluation form is to regretfully but necessarily identify and penalize “free riders” or “social loafers” who do not significantly contribute to the team’s work.  If I see a consensus among team members’ peer evaluation forms that one individual team member did not contribute, I will discuss the team’s consensus with that individual to hear “both sides of the story” before making my final decision regarding any potential individual penalty. Unless otherwise noted in the question, under no circumstances will I disclose individual comments– all comments will be made in the context of “based on overall comments from your entire team, the following concerns were expressed…”

Although you can share ideas with other teams as you develop your project, only your team members and you should complete the final written project deliverables!  If I see evidence that your team collaborated with outside parties on the project write-ups, I will report your entire team to OSCCR for a potential plagiarism violation, which could result in no credit for the project, as well as possible additional OSCCR academic honesty violation sanctions.

Deliverable #1:  Completion of the MS Excel Worksheet

PART A:

Complete the MS Excel worksheet following the specified instructions.  You can also make additional optional comments in the Notes for the Professor columns.  Your MS Excel worksheet will serve as a key foundation for Part 2 of the Project.  

Table A:

Calculate key ratios like the gross margin percentage and the net income growth rate.

Table B:  

Report key financial information such as:

a. What method(s) of depreciation does your company use?

b. What method(s) does your company use to value its inventory?

c. Where are the resources that your company employs (i.e., what percentage of the total assets of the company are invested in current assets, long-term assets etc.)?

d. What is the breakdown of liabilities for your company (i.e., what percentage of the total liabilities of the company are current liabilities, long-term liabilities, etc.)?

e. What is the capital structure (debt versus equity) used to finance the company’s assets?

f. Which public accounting firm (the auditor) provided assurance over your company’s financial statements?

Table C:

Identify key account balances found in the income statement (e.g. net sales, cost of goods sold) and the balance sheet (e.g. assets and liabilities by current vs. non-current classification).  Strive to link as many account balances as possible, e.g. if you input current liabilities into Table B, you can then link the current liabilities in Table C directly to Table B, so if you change the current liabilities balance in the Table B, the balance in Table C will be automatically updated. Ideally you should only input one number for current liabilities into your spreadsheet, and then link all other references to that source cell.  Identify the source cell using a different colored fond (e.g. blue or some other conspicuous color) so I can easily find your source cell.

PART B:

Table D:

Identify a competitor company, and briefly explain why you chose this particular company.

Table E:

Identify additional key financial information like stockholders’ equity, interest expense, number of shares outstanding, and market value price of common stock that will help you calculate key ratios in Table F (see below).

Table F:

Compute key ratios (e.g. return on equity, return on assets, etc.), including supporting calculations as to how you calculated those ratios, for your company and competitor in the most current year.  Use the information in Table E to link complete calculations in Table F.

Deliverable #2:  Completion of the MS Word Report.  Reporting requirements include:

PART A:

Company Background

1. Identify the stock exchange(s) where your company stock trades.

2. What is the ticker symbol of your company?

3. Briefly explain the major operations of your company.

4. Record the closing price of the stock at the end of the company’s most current fiscal year. Identify the trend of the stock price from the start of this year (e.g. for a company with a calendar fiscal year, what is the price trend from January 1 through December 31?).  Remember that not all companies may have fiscal year ends that correspond to calendar year ends, so please identify the fiscal year period(s).

Understanding the Annual Report and 10K:

Profit, Capital, and Cash Flow

1. How does current year’s net income (i.e., earnings) compare with that in previous years? Compute the annual growth rate in earnings for the last three years. [For example, if earnings in Year 1 and 2 are 100 and 125 respectively, the growth rate from Year 1 to Year 2 is 25%]. What earnings trend do you observe?  What factors may explain these trends?

2. Calculate the gross margin percentage (Gross Profit divided by Net Sales) for the last three years. What gross margin trends do you observe?  What factors may explain these trends?

3. Did stockholders’ equity change significantly during the year? If so, briefly explain the reasons.

4. Compare the cash flows from operating activities for your firm with the net income for the most recent year.  What factors have contributed to the difference between these two numbers?

5. What is the capital structure of your company, i.e., what percentage of the total assets of the company includes debt financing, and what percentage represents stockholders’ equity financing? What does this capital structure suggest? (i.e. is this high, potentially dangerous etc.)?

6. Did the company receive assurance via an audit from a public accounting firm? Read the auditor’s report and explain the purpose of the audit from the auditor’s perspective. Identify the name of the auditing firm. In some cases, if the company changed auditors, identify the initial and subsequent auditing firms.  Were there any material issues noted by the auditors?  Note: the audit report, or the “Report of Independent Registered Public Accounting Firm”, is also found with the audited financial statements.

PART B:

The objective here is for you to analyze the company in terms of its profitability, solvency, and liquidity, and to provide your investment and credit recommendations. Using the information you calculated on your MS Excel worksheet, address each of the following questions. Use the results of your ratio and other analyses to support your answers:

Discuss the following ratio categories for your company.  Select at least two ratios from each category:

(i) Profitability (e.g. net profit margin)

(ii) Turnover (e.g. inventory turnover)

(iii) Liquidity (e.g. current ratio)

(iv) Solvency (e.g. debt to equity ratio)

(v) Market ratios (e.g. EPS)

All key ratios are summarized in Chapter 13. After presenting each of the individual ratios under their respective categories, state what each ratio ‘tells’ us in general (but no need to define the ratio), summarize how your company is performing in each of the above five categories, and then analyze your company’s performance compared to its’ competitor.

The below recommendations will be based on these conclusions.

Recommendations

To conclude your report, provide recommendations for whether:

a. Creditors should loan money to this company in the short-term

b. Creditors should loan money to this company in the long-term

c. Investors should buy, hold, or sell the stock (use the competitor as a baseline, and be sure to consider the current price of the stock)

Good luck on your financial reporting team project!  If you have any questions regarding the project, please consult your teaching assistant or me for further assistance.