Question: Obtain 2010-2016 annual reports from a corporation of your choice (excluding regulated industries such as financial and utilities industries). Obtain the relevant authoritative literature using the FASB Accounting Standards Codification (aka FASB ASC). Using knowledge you obtained from chapters 13 and 14 and any analysis you consider useful, respond to the following questions:
1. Prepare Appendix 1 as follows and attached it to the very end of your memo:
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Tyson Food Inc. (in millions)
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2010
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2011
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2012
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2013
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2013
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2015
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2016
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Total Liabilities
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Total Shareholders'
Equity
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Net Income
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Average Total Assets
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Averages
Shareholders' Equity
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EBIT= Net Income + Interest + Taxes (or Cash Flow From
Operation)
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Interest Expense
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2. How has the amount of total liabilities reported in the balance sheet changed over the fiscal years 2010-2016?
3. Compute the debt to equity ratio for fiscal years 2010-2016. How has the proportion of debt financing and equity financing changed over years? The average ratio for the stocks listed on the New York Stock Exchange in a comparable time period was 1.0. Is the corporation experiencing favorable or unfavorable financial leverage (Hint: calculate and compare the return on assets and return on shareholders' equity)?
4. Compute the times interest earned ratio (use EBIT or Cash Flow from Operations divided by Interest Expense) for fiscal years 2010-2016. Assume the coverage for the stocks listed on the New York Stock Exchange in a comparable time period was 5.1. What does your calculation indicate about the corporation's risk?
5. Does the corporation generally obtain more financing through notes, bonds, or commercial paper? Are required debt payments increasing or decreasing over time (Hint: check out aggregate required payments of maturities of long-term debt for the next five fiscal years shown in the footnotes to the financial statements)?
6. Is any short-term debt classified as long-term in the 2016 annual report and why? Obtain the relevant authoritative literature on classification of debt expected to be financed using the FASB
ASC. Determine the criteria for reporting currently payable debt as long- term. What is the specific codification citation that the corporation would rely on in applying that accounting treatment (an example of a proper citation reads as follows: [FASB ASC 220-25-45])?
7. Based on the above analysis, how would you conclude on the corporation's default risk and make recommendation to the corporation's CEO?
Note: You can obtain electronic copies of annual reports from EDGAR (Electronic Data Gathering, Analysis, and Retrieval). EDGAR performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the SEC. All publicly traded domestic companies use EDGAR to make the majority of their filings. Form 10-K, which includes the annual report, is required to be filed on EDGAR and the SEC makes this information available on the Internet. You can also obtain electronic copies of annual reports from company websites (usually under "Investor Relations"). Do not use quarterly reports (i.e., Form 10-Q).
Write MEMO: Format and Length Guidelines:
The written assignment consists of a memo of no more than three typed pages (double spaced, with 12 point Times New Roman font and a minimum of 1" margin from all sides) conveying your recommendation for the case issues and an explanation/justification for the recommendation. You can attach as exhibits any computations or other analyses used to resolve case issues (but you must refer to these in your memo); exhibits will not count toward the three- page length. You should attach to the very end of your memo Appendix 1 on which your computations are based.
1. Memos must be written in proper memo format. This format is outlined as follows:
Introduction : Explain purpose of the report and provide set-up for remainder of paper, including brief overview of contents.
Discussion: • Discussion should follow the stated method of organization in the introductory paragraph.
• Clearly identify problem/issue at hand.
• Elaborate major points and provide analysis of various alternatives. This is the main part of the paper.
o Good transitions between points are essential here if argument is to appear forceful.
o Visual aids such as charts/tables/graphs may be referenced here, but should be included at the end of the paper as attachments.
Recommendations : Make specific recommendations based on the analysis provided in the discussion.
Conclusion : Briefly restate important points/findings here and reiterate why recommended course of action is best. The conclusion should provide some combination of summary, action recommendation, and contact information. The writers should sum up the main points of the memo as well as explicitly state the reader's next step. Also, the writer should offer the reader means of contacting him/her in case any questions remain. A telephone number and/or e-mail address should be provided.
2. Memo must begin with an introductory paragraph stating the purpose of the memo, and end with a brief concluding paragraph. Use the following headings for this assignment between the introductory and concluding paragraphs:
• Liabilities, financial leverage, and long-term solvency;
• Major sources of financing and future debt payments;
• Certain current liabilities to be refinanced and the accounting issue;
• Recommendation.
3. Memos must reference any attached exhibits. Exhibits should be typed (using MS Word, Excel, Tableau, etc.), and can include computations or any other analyses that are required in the assignment and/or that you believe are needed to support arguments advanced in your memo. Exhibits do not count toward the memo's maximum page length.
4. The "FROM" line of each memo must include (this part of the memo can be single-spaced): -- Names of the authors.