Project Milestone
Overview: The final project for this course is the creation of a financial statement analysis. A business's financial statements offer important insights into its performance and financial health that help guide internal managers' and external investors' resource allocations. For a financial analyst, being able to accurately read and interpret these statements is a critical tool in making sound recommendations to clients or company executives. Analysts also need to understand how the limitations of these statements and the legal and ethical obligations that underpin them impact business decisions.
Prompt: In this milestone, you will submit a draft of a portion of the analysis step (Part II), Section D: Vertical Analysis and Section E: Horizontal Analysis.You will review and compute three years of vertical and horizontal analyses of the approved company you selected in Milestone One. Note that this is not a ratio analysis but an internal assessment of the income statement and balance sheet. In the vertical analysis, you will measure performance against one variable: revenue in the income statement and assets in the balance sheet from the most recent year. The horizontal analysis measures trends over the years and is a strong gauge of growth and consistence.
Specifically, the following critical elementsmust be addressed:
II. Analysis. Use this section to present your findings based on quantitative and qualitative analysis of the financial statements. Include a copy of the financial statements and any ratios or analysis in an appendix as support for your discussion. In particular, this section should cover:
d) Vertical Analysis. Perform a vertical analysis of the income statement and the balance sheet from the most recent year in order to answer the following questions. Be sure to include supporting calculations and a vertical analysis spreadsheet in an appendix.
1. Do any items in your vertical analysis stand out? Why or why not? Be sure to provide specific examples and explain what elements you considered in arriving at your answer.
2. What does your vertical analysis suggest for managing the company's financial health? Be sure to justify your response. For example, are there things the company might want to look at more closely? Why or why not?
3. What does your vertical analysis suggest with respect to how potential investorswould view the company? Justify your response. For example, are there items that might make potential investors less likely to buy the company's stock? Are there items that might make potential creditors wary about lending to the company? Why or why not?
e) Horizontal Analysis. Perform a horizontal analysis of the same key performance measures covered by your vertical analysis to examine trends for the company over a three-year time period. Use your analysis to answer the following questions and include supporting calculations and horizontal analysis spreadsheet in an appendix.
1. Do any items in your horizontal analysis stand out? Why or why not? Be sure to explain what elements you considered in arriving at your answer.
2. What does your horizontal analysis suggest for managing the company's financial health? Be sure to justify your response. For example, are there things the company might want to look at more closely? Why or why not?
3.What does your horizontal analysis suggest with respect to how potential investorswould view the company? Justify your response. For example, are there any items that might make potential investors less likely to buy the company's stock? Are there items that might make potential creditors wary about lending to the company? Why or why not?
Guidelines for Submission: Paper must be submitted as a 2-3 page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least two sources cited in APA format. Include all relevant and supporting appendices, including financial statements and analyses.