Project on financial accounting

Use the project doc to read the question and requirement.( Do not use Apple and IMB as the example)(change that) and use 4 different Project format doc for each different 4 parts. Answer does not need to be exactly correct this is more based on efforts so don’t calculate the answer too right.

Part 1:
An important part of learning is application. To learn accounting, we must practice the skills
taught and apply those skills to real world problems. To that end, we have designed a project to
reinforce the lessons in each module and apply them to real companies. The goal of this project
is to complete a comprehensive analysis of two (or more) companies in the same industry. We
will then create a set of forecasted financial statements and a valuation of the companies’ equity.
This is essentially what financial analysts and many creditors do. We might not aspire to be an
analyst or creditor, but by completing a project of this magnitude, we will have mastered
financial reporting at a sufficient level to be able to step into any role in an organization. The
goal of this assignment is to obtain and begin to explore the financial reports for two publicly
traded companies that compete with each other.
Select two publicly traded companies that compete with each other. They must be publicly
traded, as private company financial statements will not be publicly available. While the two
companies do not need to be head-to-head competitors, their main lines of business should
broadly overlap.
Download the annual reports for each company, and peruse them. At this stage, choose
companies that are profitable (net income is positive) and that have positive retained earnings
and stockholders’ equity. Select companies whose financial statements are not overly
complicated. (Probably avoid the automotive, banking, insurance, and financial services
industries. Automotive companies have large financial services subsidiaries that act like banks
for customers, which complicates the analysis. Banking, insurance, and financial services have
operations that differ drastically from the usual industrial companies common in practice. While
these companies can be analyzed, they present challenges for the beginning analyst.)
• Use the SEC EDGAR Website to locate the recent Form 10-K (or other annual report such as
20-F or 40-F) (www.sec.gov).
E.g:
https://www.sec.gov/edgar/searchedgar/companysearch.html (Links to an external site.)
https://www.sec.gov/cgi-bin/browseedgar?CIK=JD&owner=exclude&action=getcompany&Find=Search (Links to an external site.)
https://www.marketwatch.com/investing/stock/aapl/financials
1. Explore the financial statements, and familiarize yourself with the company basics. The
following give an indication of some questions that guide us as we look for answers.
•
•
•
•
•
What is the date of the most recent fiscal year-end?
Who is the CEO? What is the financial statement link?
What is liabilities? Equity? Total assets? (Dollar values)
Calculate the return on assets (ROA) for the most recent year.
Find the companies’ audit reports. Who are the auditors? Are any concerns raised in the
reports?
2. Balance Sheet Analysis. Obtain the balance sheet in spreadsheet form from the SEC website
at the “Interactive Data” link on the search results page. Look for major differences over time.
• What are the company’s largest assets? Largest liabilities?
• What proportion of total assets is financed by owners? (Hint: Compare with total equity.)
• What proportion of total assets is financed by nonowners?
3. Income Statement Analysis.
•
What are the major expenses?
Part 2:
1. Inventory The following provides some guidance for analysis of a company’s
inventory
•
•
•
•
•
What is inventory for the company?
Does the company manufacture inventory?
What proportion of total inventory is raw materials? Work in process? Finished
goods?
Does the company face any inventory related risk? What has been done to
mitigate this risk? Read the MD&A.
Compute gross profit margin in percentage terms.
2. Tangible Assets The following provides some guidance to the companies’ long-term
(tangible) assets.
• Are tangible assets significant for the companies? What proportion of total assets is
held as tangible assets(PPE)? What exactly are the companies’ tangible assets? That
is, what is their nature?
e.g. https://www.marketwatch.com/investing/stock/jd/financials/balance-sheet
Part 3:
1. Accrued liabilities. Accrued liabilities arise from ordinary operations and provide
interest-free financing.
•
What are the companies’ main operating liabilities?
2. Short and Long-Term Debt. Examine the debt footnote and consider the following
questions.
•
What types of debt does the company have? Is it publicly traded? Are
there bank loans? Other types of debt?
•
Read the footnote and the MD&A to see if there are any debt covenants
and whether the company is in compliance.
Part 4:
1. Contributed Capital. Use the balance sheet and the statement of stockholders’ equity
to determine how the company has structured its equity.
•
What proportion of assets are financed with equity?
•
What classes of equity does the company have?
•
Compute the market capitalization of the firms and compare to the book value of
equity.
•
Does the company have treasury stock? What is treasury stock? Read the
MD&A and the footnotes to determine the main reason for holding treasury stock.
2. Earned Capital. Recall that the least costly form of financing is internal—that is,
plowing earned profits (and cash) into new investments is a low-cost means to grow the
company and return even more to stockholders.
•
How profitable were the companies? Compare return on equity for the three-year
period.
•
Did the companies pay cash dividends? Compute the dividend payout and the
dividend yield for all three years.
3. Convertible Securities. Read the debt footnote to determine if the company has any
convertible securities.
•
What are convertible securities?