The primary objective of financial accounting is providing information useful for decision makers, which has been the focus of the class.
Now, put what you’ve learned to use.
You have been asked to analyze your randomly selected companies’ financial statements (use the most recent annual financial statements), with a primary focus on if you would choose to invest in that particular company based on the information presented. (Remember the ultimate goal of financial accounting is to provide information useful to decision makers.)
Ask yourself these questions:
- How strong is the company’s balance sheet?
- How liquid is the company?
- How have sales been?
- How strong are the components of income?
- How have expenses lined up year over year? (Has any particular expense increased more than expected?)
- What is included in the notes to the financial statements?
When analyzing a company, you cannot learn much information when merely comparing the company to itself, so you must also determine how the company performed in comparison to prior years, as well as how it is performing when compared to competitors. Remember apples to apples comparisons. If you are looking at your companies’ 2018 financial statements, you should also be looking at the competitor(s)’ financial statements for the same period of time.
Objectives 4.6 and 5.10 provide techniques for analyzing financial statements. However, keep in mind that not all ratios will be relevant for all companies. (Hint: Think of what may be most important to know for the industry in which your company operates.)
After you’ve completed the numerical analysis, please provide a written summary, inclusive of your final determination.
Worth 200 points and 10% of your grade, your project will be measured on the following:
- Analysis (includes ratios/analysis selected along with calculation)* – 40%
- Written Communication (grammar and form) – 40%
- Overall presentation (i.e. originality and overall layout) – 15%
- Supporting documentation* – 5%
*Several websites provide company ratio analysis. If you provide no additional analysis for how said numbers were calculated and your own separate calculation, you will not get any points for the Analysis and Supporting documentation components.