Accounting 820
Financial Statement Analysis
Fall 2012
Research Project-
Instructions For the Second Submission
PURPOSE:
By now, you should have obtained data on your company, in particular, the most recent annual report, and 10-K, and quarterly reports and proxy statements, as applicable. You have also researched the company’s industry, including the firms’ main competitors, and other significant industry information, and also analyzed your firm’s primary business strategy. You have also performed a comparative financial analysis. This involved a complete analysis of profitability, utilizing the disaggregation approach we discussed in class.
For the quantitative work in this course, and financial analysis in particular, you might have found spreadsheet programming, including the book’s FASP project, to be useful. The project is described in Appendix 1.1 and on p. 5 of your text. An example of FASP template output can be seen for Pepsi Corp. in Appendix C.
METHOD:
1. The next step is to complete a comparative analysis of profitability. Using traditional Dupont decomposition and also operational analysis of profitability, compare the performance of companies in your group, identifying differences and speculating on the reasons for any differences. Do this for the most recent year.
2. Next, using similar decomposition analysis across years, compare each company to itself, again noting any differences and explaining the results you find, to the extent possible.
3. Finally analyze the comparative investment risk inherent in each firm. The analysis of risk is both qualitative and quantitative in nature. Components include financial flexibility, short term liquidity risk, long term solvency risk, risks from possible changes in the nature of industry competition and/or risks inherent in the company’s operational strategy, macroeconomic risks (CAPM can help here), credit risk, bankruptcy risk, earnings manipulations risk, growth...
