IFRS project

timer Asked: Nov 20th, 2018
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Question Description

First, look at the example which is IFRS project.

Up to 16 pages. Two pages for writing, and the remaining for the ratios and the statement.

IFRS Project Instructions

Financial Statement Analysis

You are to select two companies which are competitors (same SIC classifications). One firm will be a publicly-traded U.S. company which reports under GAAP and the other will be a foreign competitor, also publicly-traded, which reports under IFRS.

You are to briefly describe, in your own words and citing company literature where appropriate, the companies under consideration.

The majority of the project is a complete ratio analysis of the two companies. You are to follow the format listed in our course textbook which is the first chapter of Subramanyan, Financial Statement Analysis.

For additional reference about the project, please consult the perfect student submission which can be found in Canvas.

You are to use the two most recent years of financial statements for your analysis.

You are to graph the common stock price for the years under consideration. Please appropriately label the source of your stock-price graph.

Finally, you are to answer the question, “Which company would be the better investment?” based upon your ratio analysis.

I have attached an exact example of what I want.

The answers must be like the example in the attached file.

Please follow the description.

The companies must not be like what in the example.

Unformatted Attachment Preview

Chapter Nine Financial Statement Analysis © 2015 McGraw-Hill Education. Factors in Communicating Useful Information The primary objective of accounting is to provide information useful for decision making. To provide information that supports this objective, accountants must consider the following: Users Types of Decisions Information Analysis 9-2 LO 1 LO 1 Differentiate between horizontal and vertical analysis. 9-3 Methods of Analysis Horizontal Analysis Percentage Analysis Vertical Analysis Ratio Analysis 9-4 Milavec Company Financial Statements 9-5 Milavec Company Financial Statements 2015 2014 9-6 Horizontal and Percentage Analysis Horizontal analysis (or trend analysis) refers to studying the behavior of individual financial statement items over several accounting periods. Absolute Amounts Percentage Analysis 9-7 Milavec Company Horizontal Analysis 2015 2014 9-8 Vertical Analysis Vertical analysis uses percentages to compare individual components of financial statements to a key statement figure. A common-size financial statement is a vertical analysis in which each financial statement item is expressed as a percentage. 9-9 Vertical Analysis of Income Statement In income statements, all items are usually expressed as a percentage of sales. 9-10 Milavec Company Vertical Analysis 2012 2011 9-11 Vertical Analysis of Balance Sheet In balance sheets, all items are usually expressed as a percentage of total assets. 9-12 2012 2011 9-13 Ratio Analysis Ratio analysis involves studying various relationships between different items reported in a set of financial statements. 9-14 LO 1 LO 1 Calculate ratios for assessing a company’s liquidity. 9-15 Liquidity Ratios Liquidity ratios indicate a company’s ability to pay shortterm debts. They focus on current assets and current liabilities. 1. Working Capital 2. Current Ratio 3. Quick Ratio 4. Accounts Receivable Ratios 5. Inventory Ratios 9-16 Working Capital The excess of current assets over current liabilities is known as working capital. 2012 2011 9-17 Current Ratio Current Ratio = Current Assets Current Liabilities The current ratio measures a company’s short-term debt paying ability. A declining ratio may be a sign of deteriorating financial condition, or it might result from eliminating obsolete inventories. 9-18 Current Ratio 9-19 Quick (Acid-Test) Ratio AcidTest = Ratio Quick Assets Current Liabilities Quick assets include Cash, Current Marketable Securities, and Accounts Receivable. This ratio measures a company’s ability to meet obligations without having to liquidate inventory. 9-20 Quick (Acid-Test) Ratio 9-21 Accounts Receivable Turnover Accounts Receivable Turnover = Net Credit Sales Average Accounts Receivable This ratio measures how many times a company converts its receivables into cash each year. 9-22 Accounts Receivable Turnover 9-23 Average Days to Collect Receivables Average Collection Period Average Collection Period = = 365 Days Accounts Receivable Turnover 365 Days 16.98 Times = 21 days This ratio measures, on average, how many days it takes to collect an accounts receivable. 9-24 Inventory Turnover Inventory Turnover = Cost of Goods Sold Average Inventory This ratio measures how many times a company’s inventory has been sold and replaced during the year. 9-25 Inventory Turnover 9-26 Average Days to Sell Inventory Average Sale Period Average = Sale Period 365 Days = Inventory Turnover 365 Days 10.80 Times = 34 days This ratio measures how many days, on average, it takes to sell the inventory. 9-27 LO 3 LO 1 Calculate ratios for assessing a company’s solvency. 9-28 Solvency Ratios Solvency ratios are used to analyze a company’s long-term debtpaying ability and its financing structure. 1. Debt to Assets Ratio 2. Debt to Equity Ratio 3. Number of Times Interest Earned 4. Plant Assets to Long-Term Liabilities 9-29 Debt to Assets Ratio Debt to Assets Ratio = Total Liabilities Total Assets This ratio measures the percentage of a company’s assets that are financed by debt. 9-30 Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities Total Stockholders’ Equity This ratio indicates the relative proportions of debt to equity on a company’s balance sheet. Stockholders like a lot of debt if the company can take advantage of positive financial leverage. Creditors prefer less debt and more equity because equity represents a buffer of protection. 9-31 Debt to Assets and Debt to Equity Ratios 9-32 Number of Times Interest is Earned Ratio Times Interest Earned = Earnings before Interest Expense and Income Taxes Interest Expense This is the most common measure of a company’s ability to provide protection for its longterm creditors. 9-33 Number of Times Interest Earned Ratio 9-34 Plant Assets to Long-Term Liabilities Plant Assets to Long-Term Liabilities = Net Plant Assets Long-Term Liabilities This ratio suggests how well long-term debt is managed to finance long-term assets. 9-35 Plant Assets to Long-Term Liabilities 9-36 LO 4 LO 1 Calculate ratios for assessing company management’s effectiveness. 9-37 Profitability Ratios Profitability ratios measure a company’s ability to generate earnings. 1. Net Margin (or Return on Sales) 2. Asset Turnover Ratio 3. Return on Investment 4. Return on Equity 9-38 Net Margin Net = Margin Net Income Net Sales This measure describes the percent remaining of each sales dollar after subtracting other expenses as well as cost of goods sold. 9-39 Net Margin 9-40 Asset Turnover Ratio Asset Turnover = Net Sales Average Total Assets This ratio measures how many sales dollars were generated for each dollar of assets invested. 9-41 Asset Turnover Ratio 9-42 Return on Investment (ROI) Return on Investment Net Income = Average Total Assets This is the ratio of wealth generated (net income) to the amount invested (average total assets). 9-43 Return on Investment (ROI) For Milavec, ROI was as follows. 2012 $25,000 ÷ $481,500* = 5.19% 2011 $22,000 ÷ $437,500* = 5.03% * The computation of average assets is calculated as beginning assets plus ending assets divided by 2. 9-44 Return on Equity Return on Equity = Net Income Average Total Stockholders’ Equity This measure is often used to measure the profitability of the stockholders’ investment. 9-45 Return on Equity 9-46 LO 5 LO 1 Calculate ratios for assessing a company’s position in the stock market. 9-47 Stock Market Ratios Stock market ratios analyze the earnings and dividends of a company. 1. Earnings Per Share 2. Book Value 3. Price-Earnings (PE) Ratio 4. Dividend Yield 9-48 Earnings Per Share Earnings per Share = Net Earnings Available for Common Stock Average Number of Outstanding Common Shares This measure indicates how much income was earned for each share of common stock outstanding. 9-49 Earnings Per Share $25,000 (net income) - $3,000 (preferred dividend) = $1.60 per share (15,000 + 12,500)/2 (average outstanding common shares) 9-50 Book Value Per Share Book Value per Share Stockholders’ Equity - Preferred Dividends Outstanding Common Shares = This ratio measures the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off. 9-51 Book Value Per Share $362,000 - $50,000 15,000 = $20.80 per share 9-52 Price-Earnings Ratio Price-Earnings = Ratio Market Price Per Share Earnings Per Share This ratio compares the earnings of a company to the market price for a share of the company’s stock. 9-53 Dividend Yield Dividend Yield = Dividends Per Share Market Price Per Share This ratio identifies the return, in terms of cash dividends, on the current market price of the stock. 9-54 Limitations of Financial Statement Analysis Different Industries Changing Economic Environment Accounting Principles 9-55 End of Chapter Nine 9-56 Financial Statement Analysis K.R. Subramanyam Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-26 Balance Sheets 1-27 Balance Sheet Total Investing = Total Financing = Creditor Financing + Owner Financing Colgate Financing (in $billions) $12.724 = $10.183 + $2.541 1-28 Income Statement Revenues – Cost of goods sold = Gross Profit Gross profit – Operating expenses = Operating Profit Colgate’s Profitability (in $billions) $16.734 - $7.144 = $9.590 Gross Profit $9.590 - $5.749= $3.841 Operating profit 1-29 Income Statement 1-31 Statement of Cash Flow 1-32 Retained Earnings, Comprehensive Income, and Changes in Capital Accounts 1-33 Retained Earnings, Comprehensive Income, and Changes in Capital Accounts 1-34 In which of the previous financial statements would an analyst find the investing, financing and operating activities reflected? 1-36 Comparative Income Statements 1-38 Common Size Balance Sheets 1-39 Common Size Income Statements 1-45 Analysis Preview Debt (Bond) Valuation Bt is the value of the bond at time t It +n is the interest payment in period t+n F is the principal payment (usually the debt’s face value) r is the investor’s required interest rate (yield to maturity) 1-46 Analysis Preview Equity Valuation Vt is the value of an equity security at time t Dt +n is the dividend in period t+n k is the cost of capital E refers to expected dividends 1-47 Analysis Preview Equity Valuation - Free Cash Flow to Equity Model FCFt+n is the free cash flow in the period t + n [often defined as cash flow from operations less capital expenditures] k is the cost of capital E refers to an expectation 1-48 Analysis Preview Equity Valuation - Residual Income Model BV is the book value at the end of period t Rit+n is the residual income in period t + n [defined as net income, NI, minus a charge on beginning book value, BV, or RIt = NIt - (k x BVt-1)] k is the cost of capital E refers to an expectation t ...
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Tutor Answer

School: Purdue University

Here if the final copy of the work. Confirm that it is satisfactory.



Financial analysis is one of the ways investors and portfolio managers use to evaluate the performance,
liquidity, profitability, efficiency and suitability of an entity or a company before investing their money into a
firm. This analysis focuses on the income statement, the balance sheet and the cash flow statement. Financial
ratios are one of the major ways of conducting a financial analysis of a firm. It involves expressing certain
values in the financial statement as a ratio of other values in the same financial statements mainly to determine a
relationship between those items. These relationships are very important as they help in comparing one
company with another as well as comparing a company with its historical performance.
Financial analysis has however faced a couple of challenges due to factors such as the difference in
currencies used to prepare the statements by various companies and also the terminologies used as well as the
mode of representation of financial statements by various companies. However, ratio analysis is able to
eliminate these challenges by providing values that can be used to perform side by side comparisons between
In this paper, two mobile competing companies- Apple Inc. and Samsung Electronics Co. Ltd, have
been compared using financial ratios to determine which company is more suitable to invest in. These two
companies are involved in designing developing and selling computer software, online services as well as
consumer electronics. Apple Inc. is an American company, with its headquarters at California. It was founded in
1976 by Steve Jobs, Ronald Wayne and Steve Wozniak. It is a publically trading company whose financial
reports are presented according to the US GAAP as part of the form 10-K. Samsung, on the other hand, is also a
multinational electronic Korean company with its headquarters in Suwon, South Korea. It was founded on
January 13 1969. It is also a publically trading company whose shares are traded at the Korea Exchange. Its
financial statements are presented following the IFRS guidelines.
The difference in the accounting standards employed by the two companies, therefore, necessitates the
need for financial ratios as a tool to analyze the companies and make a decision on the best company to invest

Looking at the side by side comparison between the two companies, specifically taking a look at the
short-term liquidity ratios, we see that Samsung is at a better position to pay up is short-term debts as compared
to Apple Inc., therefore, a creditor who is keen on this would prefer Samsung to Apple. Looking further at the
long-term liquidity ratios, Apple is in a better position to handle its long-term debt more comfortably as
compared to Samsung. In addition, it is also able to pay up its interest expense more comfortably than Samsung.
A review of the efficiency ratios indicates that Apple is selling its inventory at a slightly higher rate than
Samsung although its debt collection period is too long compared to that of Samsung. Also, the accounts
receivables ratio for Apple is quite high compared to that of Samsung which is not a very good indication of
efficiency. The profitability rations reveal that Apple Inc. is a more profitable company than Samsung. This is
shown by the high ratios of net profit margin, return on equity ratio and return on assets ratio.
Lastly, a review on the market ratios indicates that Samsung offers better earnings compared to Apple.
Therefore an investor who is keen on earnings will invest in Samsung while a potential creditor who is keen on
profitability and security will invest in Apple Inc.

(In millions, except number of shares which are reflected in thousands and per share amounts)

Years ended

September 30,

Net sales


Cost of sales

September 24,

229,234 $

September 26,

215,639 $








Research and development




Selling, general and administrative




Total operating expenses










Income before provision for income taxes




Provision for income taxes




Gross margin
Operating expenses:

Operating income
Other inco...

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