Research a publicly held company of your choice, and access the company's Web page on the Internet to read its most recent annual report. The annual report is typically found in an "Investor Relations" or "Company Information" section within the company's Web site.
Using the company's financial statements, perform a complete 2-year financial statement analysis addressing liquidity, efficiency, debt, profitability, and market measures as well as a common-size income statement and balance sheet along with a practical narrative. This analysis should not only include the calculation of the required ratios, but an assessment of the firm's health in each area and a summary of the findings with regards to the overall health of the firm. All related findings, conclusions, and recommendations should be supported with sound financial analysis principles and be properly sourced.
- Liquidity Measures
- Current ratio [current assets / current liabilities]
- Quick ratio-acid test [(current assets - inventory) / current liabilities]
- Net working capital to total assets [net working capital / total assets]
- Efficiency Measures
- Collection period [accounts receivable / average daily sales]
- Inventory turnover [cost of goods sold / ending inventory]
- Fixed asset turnover [sales / net fixed assets]
- Debt (Leverage) Measures
- Debt-to-asset ratio [total liabilities / total assets]
- Debt-to-equity ratio [total liabilities / total stockholder equity]
- Times-interest-earned (TIE) ratio [EBIT / interest]
- Profitability Measures
- Gross profit margin [gross profit / sales]
- Operating profit margin [EBIT / sales]
- Net profit margin [net income / sales]
- Return on assets (ROA) [net income / total assets]
- Return on equity (ROE) [net income / total stockholder equity]
- Market-Based Measures
- Earnings per share (EPS) [earnings available to common stockholders / common shares outstanding]
- Price-to-earnings ratio (P/E) [stock price / earnings per share]
- Market to book [market value of common stock / total stockholder equity]