The purpose of this assignment is to acquaint you with the financial statements of a publicly traded company and to give you some experience in researching financial information. To satisfy the project requirements, you must first select a company that is traded on the New York or American Stock Exchange and obtain a copy of the company's most recent annual financial report. Be sure that the corporation is either a merchandising or manufacturing firm-do not select a public utility (electric, gas, etc.) or a banking institution. Your choice of companies is restricted to NYSE and AMEX firms because information on these firms is more readily available and more complete. Answering the questions that follow will require that you consult additional sources for information about the industry in which your company operates.

The final report is due on the day of the final exam, but you should answer the questions as we cover the relevant material in class. (The questions have been keyed to the chapter coverage). This will allow you to relate the project to the class assignments and assure that completion of the project does not interfere with preparation for the final exam. We also will discuss some of the disclosures in class.

Corporate financial information is available from many sources. A published annual report provides the most complete set of financial reports because it includes the footnote disclosures and well as statements by company's management and auditors. Most companies include annual reports on their Web sites. (Check the link to Investor relations.)

Some questions will not apply to your company, but be sure you check the information carefully. You will find that corporate financial disclosures are not always organized as carefully as your textbook presentation. If you have any problems interpreting the information, ask me! You are free to discuss the assignment with your classmates, but the write-up should be done on your own.

Due Dates: May 20. Turn in the name of company you will be researching . Bring the annual report with you to each class. There may be time to work on some of the questions during the class period.

June 26: Completed project due. The final log must be typed. (You may start each set of chapter questions on a new sheet.) Answers should be in complete sentences with adequate explanation (i.e. "yes" or "no" is not a complete answer). You will be graded on grammar and logical expression, as well as completeness. Your final project must include a copy of the annual report.

Chapter 1-4 Overview of company performance:

1. Provide a brief discussion of the company you are reviewing. For example, in what industries does it operate? Is the company diversified (i.e. operating in multiple industries) or does it concentrate its efforts in a single industry? What are its principal products or services? What position does it hold in its industry?

2. Read the auditor's opinion. What are the audit firm's responsibilities with respect to the financial statements? How does the auditor describe the audit process? What conclusion does the auditor draw about the financial reports?

3. Read the management discussion and analysis that precedes the financial statements. Briefly summarize management's assessment of the past year and expectations for the year ahead.

4. For your company, calculate the current ratio, debt to total assets ratio, profit margin ratio and return on assets. Does your company appear sufficiently liquid, solvent and profitable?

Chapter 5

1. How much did the company report in sales? Is that an increase or decrease from the preceding year (express the change as a percentage of prior year's sales)? Does management explain the trend?

2. What was the company's profit margin in the current and preceding year? Has the profit margin changed materially over the period? Compared to industry norms, does the rate seem reasonable for a company?

Where do you find industry norms?

Go to Multex Investor. You will need to register, but the site is free. You can search by company name. Look for "Research" and then "Ratio Comparison."

There's also old-fashion print. Try RMA Annual Statement Studies (first floor reference; HF 5681.b2 R6)

Chapter 6

1. Does the company use a single method of inventory valuation? What method(s) of inventory valuation does the company use? How does the choice of inventory valuation method affect gross profit?

2. Compute inventory turnover. Does the turnover rate appear reasonable for a business in this industry?

Chapter 8

1. What information does the annual report provide about the amount of doubtful accounts? What percentage are doubtful accounts relative to ending accounts receivable? Compare this with the preceding year if information is available.

2. Have accounts receivable increased or decreased during the year? Compute accounts receivable turnover and average collection period. Does the collection period appear reasonable? How do these ratios compare to industry averages?

3. Does the company have any other types of receivables listed on the Balance Sheet? If so, do the notes to the financial statements provide any additional information about the receivables? Has the company entered into any factoring agreements?

4. Based on your answers to the preceding questions, can you make an assessment of the quality of the company's receivables?

Chapter 9

1. Does the company discuss any major investment, impairment or disposal of property, plant and equipment? If so, where did you find the discussion in the annual report.

2. How much depreciation did the business record? How is depreciation calculated? What useful life does the company set for its assets? Does the choice seem reasonable?

3. Does the company have any intangible assets? What are they and over what period is their cost being amortized?

4. Does the company report any research and development costs? Is research and development important for a company in this industry?

Chapter 10

1. Overall does the company make extensive use of debt financing? Consider the relationship of debt to assets and times interest earned ratio relative to the industry average. Has the company's reliance on debt changed during the past two years?

2. Did the company report any contingent liabilities or commitments? Were any dollar amounts associated with contingencies disclosed?

3. Does the company report any lease obligations. Summarize the disclosures provided for capital and operating leases.

4. Refer back to the return ratios calculated for Chapter 4. Is the company making favorable use of financial leverage? Assume that you were asked to make a general recommendation to management on the company's capital structure (use of debt v. equity). Is the current level of debt financing appropriate, too high or too low?

Chapter 11

1. Did the company pay dividends on its common stock in the current year? What was the dividend payout ratio (dividends per share/Basic EPS). Does the company pay out a high proportion of its earnings or reinvest earnings in the business? Does the payout ratio seem reasonable in light of the return on stockholders' equity?

2. Did the company issue any new shares of stock? Were there any stock splits or stock dividends in the current year? What was the increase in the number of common shares outstanding?

3. Did the company buy back any shares of stock (treasury stock)? Does management provide any explanation for treasury stock transactions?

Chapter 12

1. What information is reported about investments in the balance sheet?

2. Does the Statement of Cash Flows provide any information about the purchase or sale of investments?

3. Are you reviewing the consolidated financial statements? If so, what other companies does your parent company own?

Chapter 13

1. What was the decrease or increase in cash over the year? How much cash was provided from operating activities, investing activities and financing activities?

2. Does the company use the direct or indirect method to compute cash flows from operations? Was cash from operations greater than or less than net income? What factors contributed to the difference?

3. What has been the trend in cash flows from operations over the past two years? Is the trend consistent with the trends in earnings and dividends?

Chapter 14

1. Did the company report any extraordinary items, discontinued operations, or cumulative effect of change in accounting principle? What was the nature of those items and how did they affect net income in the current year?

2. Briefly summarize any strengths and weaknesses you identified in the company's financial performance.

3. In your opinion, were corporate financial disclosures adequate to do the required analysis? If not, what other sources of information were necessary? What could the company do to make its financial reports more useful?