Financial analysis report/ ISU details and expectations Financial analysis report/ ISU details and expectations Complete an in-depth, written report on a corporation of your choice

Subject:FinancePrice:80 Bought3

Share With

Financial analysis report/ ISU details and expectations

Financial analysis report/

ISU details and expectations

Complete an in-depth, written report on a corporation of your choice. Manufacturing, merchandising, and service companies are suggested. Bank, trust, and insurance companies should be avoided, as their accounting policies are beyond the scope of this course. Some of the data may be difficult to obtain or may not apply to the company you have chosen. In such cases, answer as much as you can or state that the item is not available or applicable, and provide reasons. The more popular the company you select, the easier it will be to obtain the information required.

Research

Use a number of resources to investigate your company, including the Internet. Annual reports, investor information, and product/service information are among the many areas often addressed on corporate websites. Once a company is chosen, its website should be reviewed in detail, to obtain an overview of the company and its financial situation.

In addition to the company website information, you are required to obtain a copy of the company’s latest annual report. You can obtain this by searching the Internet, requesting an actual hard copy through the company’s website, or contacting the company directly. You will need to review the last three annual reports (2012, 2011, and 2010) for comparative analysis. Your annual reports must be cited in a bibliography, giving the exact URLs, so that the teacher will be able to access all of the same information you accessed and used in your written report.

Additional sources

Additional sources of information for this project include (but should not be limited to) the following:

• additional information that the company provides

• Toronto Stock Exchange or New York Stock Exchange stock quotations, investor

analysis

• newspaper/periodical articles (e.g., from the National Post, Financial Post, and

Maclean’s)

• Dun & Bradstreet industry average ratios

• accounting texts (corporate accounting and financial/ratio analysis sections)

• government or industry publications

• websites such as moneysense.ca, canadianinvestor.com, theglobeandmail.com, and

canadianbusiness.com

Copyright © 2021 The Ontario Educational Communications Authority. All rights reserved.

TVO ILC

2

BAT4M

Financial analysis report/ISU details and expectations

Report length

Your summative report must be typed in double spacing and should consist of a minimum

of 8 pages and a maximum of 15 pages of written analysis. The annual report, ratio

calculations, charts, graphs, and so on are not part of the written report and should be

included in an appendix at the end of the report. There is no limit to the appendix’s length.

Written report requirements

Your written report should contain the following sections:

1. Introduction

The introduction includes a summary of general information about the company. This

information is usually contained in the company’s annual report and should include, but not

necessarily be limited to, the following items:

• the company’s name and head office location

• the names of the chairperson of the board of directors, the chief executive officers, the

chief operating officer, the president, and two directors

• a brief description of the company’s organizational structure (e.g., its divisions,

subsidiaries, etc.) and their locations

• the name of the firm that audited the financial statements and a brief summary, in your

own words, of the accounting firm’s opinion of the statements

• a brief summary of the significant accounting policies that the company follows (e.g.,

depreciation method, inventory valuation, etc.)

Do not simply list this information. Use subheadings to put this section together in two or

three coherent paragraphs. You may wish to add additional information as well.

2. Company profile

This section should include:

• a brief history of the company

• a brief summary of the company’s corporate objectives and mission statement

• a description of the products sold and/or services performed

3. President/CEO/chairperson’s report

Based on this section of the annual report, summarize, in your own words, the contents of

the chief executive’s report.

4. Environmental analysis

Prepare an analysis of intangible factors and current events that may affect the company’s

current and/or future performance. For example, consider:

• the company’s competition (direct and indirect)

• the state of the economy (both national and global)

Copyright © 2021 The Ontario Educational Communications Authority. All rights reserved.

TVO ILC

3

BAT4M

Financial analysis report/ISU details and expectations

• any provincial or federal legislation

• current government policy

• taxation laws

• current social and technological trends

• What opportunities and/or threats do these factors represent for the company’s future?

Based on this information alone, what changes, if any, should the company consider in

order to remain profitable and competitive?

5. Financial analysis (See next lesson, Lesson 19)

The financial analysis section of your report should include:

a) Comparative analysis

Complete a comparative balance sheet and income statement comparing the current

and previous year’s results using the horizontal/trend analysis technique, as well

as the vertical analysis technique. You should use Excel spreadsheet software

to complete these comparative statements and include your statements in your

appendix. A Comparative Analysis Ratios spreadsheet template is provided in your

Locker, for you to use.

Briefly discuss your assessment of these findings/results in your report.

b) Ratio analysis

In this part of the report, you are to prepare a table summarizing selected ratios and

measurements for the last three years. If three years are not available, do this for

two years. If the information to calculate the ratio or measurement is unavailable

(please look carefully), then state “N/A” in your table.

Here is an example of a table that you can use to complete this requirement. Note that

there is a fillable version of this Financial Analysis Report Table in your Locker, for

you to use.

Copyright © 2021 The Ontario Educational Communications Authority. All rights reserved.

TVO ILC

4

BAT4M

Financial analysis report/ISU details and expectations

Formula Guide Year:

2012

Year:

2011

Year:

2010

Liquidity ratios

Working capital ($) Current assets –

Current liabilities

Positive is healthy

Current ratio Current assets ÷

Current liabilities

2:1

Quick ratio Current assets

above inventory ÷

Current liabilities

1:1

Inventory to net

working capital

Inventory ÷

(Current assets –

Current liabilities)

Lower is better

Activity ratios

Inventory turnover Cost of goods sold

÷

average inventory Higher is better

Inventory turnover

period (days)

365 ÷ Inventory

turnover

Lower is better

Accounts

receivable

turnover

Net sales on credit

÷ Average A/R

Higher is better

AR turnover period

(days)

365 ÷ A/R turnover Lower is better

Operating

inventory cycle

(days)

Inv. turnover

period + A/R

turnover period

Lower is better

Borrowing

capacity/Solvency

ratios

Times interest

earned

Operating income

÷ Interest expense

Higher is better

Equity ratio (%) Equity ÷ Total

assets x 100

> 50%

Debt ratio (%) Total liabilities ÷

Total assets x 100

< 50%

Debt to equity Total liabilities ÷

Total equity

< 1

Profitability ratios

Copyright © 2021 The Ontario Educational Communications Authority. All rights reserved.

TVO ILC

5

BAT4M

Financial analysis report/ISU details and expectations

Gross profit

margin (%)

(Sales – COGS) ÷

Sales

Higher is better

Return on net

sales (%)

Net income ÷ Net

sales

Higher is better

Return on equity

(%)

Net income ÷

Average equity

Higher is better

Return on assets

(%)

Operating income

÷ Average assets

Higher is better

Earnings per share (Profits after

taxes – Preferred

shares dividends)

÷ Number of

common shares

outstanding

Higher is better

Your completed table containing all of your calculations must be included in your appendix.

Based on your review of these ratios, provide an assessment of the company’s financial

condition in your report.

6. Stock market analysis

Include a brief discussion and analysis of the company’s performance on the stock market

over the most recent two-year period. In your appendix, support this information with a

graph, charting the changes in the share price over the period.

7. Report to management

Using the analysis discussed above and any other information that you feel is relevant,

discuss:

• whether the company would be a good investment from a potential common

shareholder’s point of view

• whether, if you were a major supplier for this company, you would extend them shortterm credit

• whether, if you were a banker, you would loan this company a substantial amount of

money in the form of a long-term note

• your overall impressions of the company’s potential for short- and long-term growth

8. Appendix

Remember to include all of the items that are not part of the written report in the appendix.

9. Bibliography or list of works cited

Use the APA (American Psychological Association) style for citing your sources correctly.