The objective of this final report is for you to analyze the company in terms of its profitability, liquidity, and provide your investment and credit recommendations. You will also have an opportunity to learn about executive compensation and corporate governance. Based on your research, prepare a well-written, concise report that covers the following issues.
1. Compute the following ratios for the most recent year and include them in an Appendix to this report. [The calculations for each of these ratios can be found in your textbook. The numbers you use for these ratios should agree with the numbers in financial statements. Show all of your supporting work].
a. Return on Equity (Return on Owners' Investment)
b. Return on Assets (Return on Total Investment)
c. Earnings per Share
d. Net Profit Margin
e. Current Ratio
f. Quick Ratio
g. Accounts Receivable Turnover
h. Inventory Turnover
i. Times interest earned
j. Debt to Equity ratio
k. Price/Earnings (P/E) ratio (Use the market price as of the balance sheet date).
2. Identify a company that you believe is the closest competitor ("competitor") to your company. Compute the ratios in (1) above for the competitor and include them in the Appendix.
Based on your computations in (1) and (2) above, address the following:
Profitability:
- What is your assessment of the profitability of your firm in the most recent year? How does your firm's profitability compare with that of the competitor?
- Compare the cash flows from operating activities for your firm with the net income for the most recent year. What factors have contributed to the difference between these two numbers?
Liquidity and Capital Structure:
- Will the company be able to meet its obligations as they become due? How does your firm's liquidity compare with that of the competitor?
- What is the capital structure of your company (i.e., what percentage of the total assets of the company are financed through liabilities and what percentage through stockholders' equity)?
- Is the capital structure of the competitor significantly different from that of your company? Briefly explain your answer.
International Financial Reporting Standards (IFRS)
1. What is the purpose of IFRS?
2. What is the IASB?
3. What are some of the overall differences between US GAAP and IFRS?
4. If your company adopted IFRS:
(a) Would its reporting for inventory differ? Briefly explain.
(b) Identify other areas that would be impacted if your company adopted IFRS.
Recommendations
- Based on your analysis, would you loan money to this company short-term? Would you loan money to this company long-term? Explain your answer.
- Provide a recommendation as to whether an individual should buy, sell, or hold (if they already own it) the stock of this company. Your recommendation should be supported by an adequate explanation and reference to supporting analysis and ratios.
Note that the quality of the arguments you provide in support of your position for (1) and (2) above is more important than your final recommendation.