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Assignment on Financial Statement Analysis

Course: Class: Marks: Submission Date: Assignment Date: Instructor: Financial Statement Analysis BBA 5/7 16 As per the Schedule given below Syed Babar Ali

Here is the detailed description of the assignment that we briefly discussed in the introductory session. The assignment is based on the analysis of financial statements of two relatively equal-sized listed companies from the same industry. It is to be submitted in stages the deadlines of which are:

Stages
Approval of the Name of the Companies Introduction and Business Analysis of the Companies Recasting of the Financial Statements Usage of the Analytical tools such as ratio analysis, Horizontal and vertical analysis. Prospective Analysis Final Report with the Executive summary

Deadline

Nov 20, 2012

Nature of the above-mentioned stages Now I am giving an account of what is required of you in terms of these stages. Each stage is to be submitted as an individual assignment except the final assignment when the work is to be submitted as a whole report. Meet the deadlines otherwise a mark-deduction-penalty of 0.5 marks per day would be applied. Approval of the Name of the Companies I have already discussed with you why it is important. Getting my approval would ensure that no two groups are working on the same companies and also that the selection is appropriate. When I say equal-sized companies it is either the sales or the amount of total assets that you have to consider. For some reasons I am not allowing businesses other than manufacturing concerns. To avoid multiple attempts you can keep yourself updated by me for the name of the companies already selected by the other groups. My approval would not be complete if you dont submit the copies of the latest annual reports. Come to me with the values of the assets and sales of the companies written on a piece of paper so that I can determine whether these are equal sized companies. Dont just make a mistake of trying to get the companies approved without having access to the full-fledged annual reports. Also as warning I would say that obtaining annual reports might not be an easy matter so you have to start early and seek all possible sources. ( Stock exchange record room, registered office of the company and sometime electronic information providers). Introduction and Business Analysis of the Companies Write briefly about the management and the presence of the business in terms of products, divisions and geography. The size of the companies, shareholding pattern, market capitalization and the name of the industry within which they operate are to be mentioned as well. Perform a SWOT analysis using the information contained in the annual report. Explain what business strategy the company is following and list

2 the unfavorable and favorable situations the company is facing in terms of the elements of the porter competitive factors theory. Recasting of the Financial Statements What happens in terms of the published financial statements is that some of the crucial information on financial statements components is hidden in the notes to those statements. So recast the components in terms of breaking them up meaningfully. For example inventory is presented as a single figure in the financial statements when those three or four types of inventories are individually very important for the purpose of financial statement analysis. Usage of the Analytical tools such as ratio analysis, Horizontal and vertical analysis. This includes processing financial statement into meaningful relationships to be used for the analysis. Tools such as Comparative financial statements analysis, Common-size financial statement analysis, Ratio analysis are to be applied using an excel template. If available report the industry data as well. For ratio analysis follow the following categories and individual elements: a) Credit Analysis I. Liquidity 1) Current ratio 2) Acid-test ratio 3) Collection period 4) Days to sell inventory II. Capital Structure and Solvency 1) Total debt to equity 2) Long-term debt to equity 3) Times interest earned b) Profitability Analysis I. Return on Investment 1) Return on assets 2) Return on common equity II. Operating Performance 1) Gross profit margin 2) Operating profit margin 3) Pretax profit margin 4) Net profit margin III. Asset Utilization 1) Cash turnover 2) Accounts receivable turnover 3) Sales to inventory 4) Working capital turnover 5) Fixed assets turnover 6) Total assets turnover c) Valuation

3 Market Measures 1) Price-to-earnings ratio 2) Earnings yield 3) Dividend yield 4) Dividend payout rate 5) Price-to-book Prospective Analysis Prospective analysis includes forecasting of the balance sheet, income statement and statement of cash flows. Prospective analysis is central to security valuation. Prospective analysis is also useful to examine the viability of companies strategic plans. For this assignment make a projection of two years and make sure that you employ properly developed assumptions. Give a clear account of these assumptions. Final Report with the Executive summary Making use of all of the previous submissions the final report is to broken into the following categories: Introduction and Business Analysis Sales Analysis by Source Comparative Financial Statements Further Analysis of Financial Statements Short-term Liquidity Capital Structure and Solvency Return on Invested Capital Analysis of Asset Utilization Analysis of Operating Performance and Profitability Forecasting and Valuation Summary Evaluation and Inferences Appendices To keep you in the right direction I would make available an illustration once we are well into the semester. The estimated date of the availability of this material is __________.