Financial Statement Analysis and Evaluation
This assignment is an opportunity for you to apply the concepts you learned to a publicly-traded
company. You will select a publicly traded company, evaluate the company’s application of the financial
accounting concepts you learned in the class, analyze the differences between GAAP and cash flow, and
make investment recommendations for the stock. You will prepare a paper summarizing your findings.
Below are the requirements for your paper.
1. Select a large publicly traded company defined as:
a member of the Dow Industrials https://www.slickcharts.com/dowjones,
one of the top 75 companies in the S&P 500 https://www.slickcharts.com/sp500 or
one of the top 25 companies in the Nasdaq 100 https://www.slickcharts.com/nasdaq100
Since this is an individual assignment, each student will analyze a unique company. To
create an equitable selection process, I will randomly order all students. You need to
complete the form in Google Drive. List at least 5 choices.
I will fill your requests in random order. Requests are due at 9:00am on Friday, February 4.
If you miss this deadline you can select a company after all requests are filled, but no later
than 12pm (noon) Monday, February 7.
Obtain the last annual report from the company’s website or the SEC Edgar website. You
will focus on the financial statements only, not the entire 10-K.
2. Grading rubric: The percent of your grade for each topic is in parenthesis below.
3. Outline for your paper—less than 3 pages text.
Company overview (10%): Name, description of business, operating locations,
revenues, net income, EPS, stock price, number of employees and other relevant
Balance Sheet (40%): Discuss significant accounting policies with an emphasis on
compliance with GAAP accounting (ignore insignificant items).
i. Revenue/Accounts Receivable: What are the revenue recognition and Bad debt
policies? Explain the reasons for unearned/deferred revenue balances.
Calculate the Collections and AR:Sales ratios.
ii. Inventory: Describe the inventory accounting methods. Calculate inventory
turnover ratios. Explain inventory write-downs/write-offs, if any.
iii. Tangible non-current assets: Describe the capitalization and
depreciation policies. What is the PPE: Sales ratio. Is this a capital intensive
iv. Intangible non-current assets: describe the capitalization and
amortization policies. What is the ratio of intangibles to total assets. Is
management philosophy to organically grow the business or to acquire other
v. Other: Highlight unusual items disclosed in the footnotes such as changes in
accounting, write-offs, gains or losses, contingencies.
Income statement (20%): Evaluate the income statement as well as non-financial
information to address the following items.
i. Income statement unusual items: Explain the nature of major restructuring,
impairments, discontinued operations. What is the impact from these items in
ii. Ratios: Calculate gross profit/margin and net income:sales ratios
Analysis of statement of cash flows (20%)
i. Compare net income amount to the cash flow from operations amount—why
are they different?
ii. How does the company invest its cash?
Investment recommendations (10%)
i. Assume you are an investment analyst and are tasked to make a buy/sell
recommendation for your company given today’s stock price. What is your
recommendation and why?
The statement of cash flow operating cash flow comparison to Net Income should include a list of the major items causing the difference. This typically includes depreciation and amortization, but will include other items as well. If the explanation for the item is not clear, you should explain what it is.
4. For the cash flow discussion the investing prompt should include major activity in the Investment and Financing sections of the SCF. typical are investments in facilities and equipment, new share or bond issuance, dividends, or repurchase of shares/bonds.
5. Many of the companies are not identifying the balance in the allowance for doubtful accounts. If you can’t find this, then state it is not available.
6. There is no right or wrong answer on the Buy/Sell recommendation. Your justification for your recommendation will be graded and should be consistent with the financial information you’ve read.
Financial Statement Analysis and Evaluation Instructions This assignment is an o
Financial Statement Analysis and Evaluation