Reference no: EM132220147

Research Project

Ratio Analysis

OBJECTIVE

You are to assume you have been recently hired by The Company and have been assigned to a team that reports to the CEO of THE COMPANY (SELECTED BY INSTRUCTOR).

The head of your team is the CFO who is concerned about THE COMPANY's current financial performance and comparison against major competitors in the industry and the impact that may have on the firm's stock price.

The CFO would like your team to provide insights that will help them to project future financial performance.

Specifically, the primary question to answer is: will THE COMPANY be financially viable over the next two to three years, and which steps should be done to improve its financial stability?

THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.

YOUR SPECIFIC ASSIGNMENT

Using the information from the websites the students will develop evaluation of the financial performance for THE COMPANY (SELECTED BY INSTRUCTOR).

-1-Background and Industry (one short paragraph).

-2- Common size analysis

You can find the common size financial statements for the company for the last 3-5 years on morningstar. Type the stock symbol in the Quotes window to get into the company's page. Scroll down and click on All Financial Data. Switch View from "$" to "%".

Create a table that contains the most significant common size financial performance resultsfor the last 3-5 years for THE COMPANYand for the last year for the major competitor. Present the table with this information in your report.

Write about 1-2 pages of the analysis of the financial conditions, its stability, and trends.

-3- Trend analysis

Analyze the financial trends over 5 years of Revenue, net income, and any other of the most significant financial performance results of your choice. To present your findings, you will use the table(s) and/or graphs.You can use the bar graphs provided Or create your own ones.

Write about 1-2 pages of the report of the results that you received. What important information does this analysis provide?

-4- Financial ratio analysis.

In this part of the project you will complete ratio analysis of THE COMPANY. Please remember that you are the financial analyst of THE COMPANY and should prepare the report to be read by the chairman (CEO) of THE COMPANY. The ratio analysis should be completed from the point of view of THE COMPANY's management.

The chairman of THE COMPANY is especially concerned about the following groups of ratios:

• Liquidity (current ratio, quick ratio, and net working capital-to-sales ratio)

• Operating performance ratio (Days of Sales in Inventory, Days of Sales in Receivables), turnovers

• Profitability ratios (Gross Profit Margin, Operating Profit Margin, Net Profit Margin)

• Return on Investment ratios: (Basic Earning Power ratio, ROA, ROE)

You can find financial ratios for the company for the last 3-5 years in the Internet or calculate them. If you use published ratios, you must indicate that and cite their source.

a) Present the ratios as the table(s) in your project. Create graphs for some ratios on your choice over three years to show trends.

b) Write 2 pages (or more) of analysis of the ratio results that you found. In your analysis you should answer the following questions:

• How liquid is the company?

• Is management generating a substantial profit on the company's assets?

• If the management of the company would like to improve the company's financial performance, what should the management of THE COMPANY do?

-5-Evaluate Return on Equity for the company for the last three years using the DuPont analysis.

a. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis.Present the ratios as the table(s) in your project.

b. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis. Present the ratios as the table(s) in your project.

c. Has the company's ROE changed over the last three years? What was the main factor that influenced this change?

d. Compare the ratios of you company to the peer competitor. If the management of the company would like to improve their return on equity, what should the management of the company do?

Write about 1 page of analysis to answer the questions (c) and (d).

-6- Develop a specific recommendation, with supporting rationale, as to whether the assigned company's recent trendsand results in financial performance is of sufficient financial strength,will THE COMPANY be financially sustainable over the next two to three years, and which steps should be done to improve its financial stability? (about 1 page)

-7- Reflection - the student should write a paragraph in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.