Assignment: Efficient Markets Hypothesis (EMH) and Financial Reporting
Complete the following requirements.
The objective of this research project is to support or refute the applicability of the Efficient Markets Hypothesis (EMH) given observations of general disclosures, financial analysis, and firm news announcements.
Your project will include the following elements:
• Abstract : summarize and discuss problem, analysis, and findings
• Introduction: description the selected company and requirement 1
• Problem Statement: define the EMH and the linkage, if any, between accounting information and financial market response
• Analysis and Findings: requirements 2-11 below
• Conclusions and Recommendations: requirement 12 below
Instructions:
• Define the three forms of the Efficient Markets Hypothesis. Which form is perceived to be most prevalent for U.S. financial markets?
• Select a publicly held U.S. company that reports to the SEC. Complete a review of the financials following disclosures from the company's latest 10K.
Requirements:
1. General disclosures: Compose a brief description of the company. Indicate the most important point regarding future investment from the Management Discussion and Analysis section of the 10K report.
2. Disclosures regarding revenue recognition, historical cost versus fair value, and the statement of cash flows: Examine the Notes to the financial statements. Provide a summary commentary regarding the revenue recognition policy. Disclose the elements to which the firm applies historical cost and/or fair value. Indicate the type of cash flow statement supplied. Explain any unusual disclosures.
3. Disclosures regarding working capital and long-term assets: Examine the Notes to the financial statements. Provide a summary commentary regarding the inventory accounting method, the depreciation method(s), and the overall composition of total assets. Assess and comment on the selected methods of accounting for inventory and depreciation. Are the selected accounting methods chosen by the company permitted under IFRS? What, if anything, do these selections indicate regarding the company's tax liability?
4. Disclosures regarding working capital and long-term assets: Examine the Notes to the financial statements. Provide a summary commentary regarding the long-term liabilities (i.e., bonds) and leases of the company, if any. Are the selected accounting methods chosen by the company permitted under IFRS?
5. Disclosures regarding deferred income taxes and pensions: Examine the Notes to the financial statements. Provide a summary commentary regarding deferred income taxes and pensions, if applicable. If the company has a defined benefit pension plan, what is the funded status of the plan?
6. Disclosures regarding internal control over financial reporting: Examine the Section 302 Disclosures and the auditor's report. Provide a summary commentary regarding the disclosures, noting any material departures from U.S. GAAP or any material weaknesses that were disclosed.
7. Disclosures regarding international subsidiaries or other segments: Examine the Notes to the financial statements. Provide a summary commentary regarding the firm's disclosure of its segments. If the firm has international segments, indicate whether consolidation is accomplished through the all-current or temporal method.
8. Compute a two-year ratio analysis of the company including the following ratios for the two most recent reporting periods: Current ratio, acid-test ratio, inventory turnover ratio, accounts receivable turnover ratio, gross profit margin, net profit margin, return on assets, return on equity, debt to equity, times interest earned, earnings per share, and price earnings. Compare to the firm's industry average. Note any salient differences and look to the Notes to confirm any specific reasons for differences.
9. Download documentation of the firm's stock price movements from Yahoo Finance since the company's reported year end date that corresponds with the documented 10K chosen as a basis for this research.
10. Find three recent news articles on the company that have been published since the publication date of the 10K report and the date of the preparation of the research paper. Summarize each in a paragraph. The CSU-Global Library is a good place to begin your search for sources.
11. Observing the dates of the news articles and the date of the 10K, document any corresponding stock price movements that correspond to the dates of the report. Based upon these observations alone, comment on whether the efficient markets hypothesis was upheld. Note any significant reactions occurring after the date. Did the market react significantly later or not at all?
12. Summarize your findings in a conclusion.
In addition to the above requirements, your paper should meet the following:
• 15 to 20 pages in length including supporting tables if necessary
• Formatted according to the CSU-Global Guide to Writing and APA Requirements.