Course Project: A Financial Statement Analysis A Comparative Analysis of Nike, Inc. and Under Armour, Inc. Below is the link for the financial statements for Nike, Inc. for the fiscal year ending 2014. First, select 2014 using the drop-down arrow labeled Year, and then select Annual Filings using the drop-down arrow labeled All. You should select the 10k dated 7/15/2014, and choose to download in PDF, Word, or Excel format. http://investors.nike.com/investors/news-events-and-reports/?toggle=filings Below is the link for the financial statements for Under Armour, Inc. for the fiscal year ending 2014. First, select Annual using the drop-down arrow labeled View, and then select 2015 using the drop-down arrow labeled Year. You should select the 10k dated 2/20/2015, and choose to download it in PDF or Excel format. http://www.uabiz.com/sec.cfm A sample project template is available for download from the Course Resources page’s Course-Specific Resources section. The sample project compares the ratio performance of Tootsie Roll and Hershey using the 2014 financial statements of Tootsie Roll and Hershey provided at their websites. Description This course contains a Course Project, where you will be required to submit one draft of the project at the end of Week 5, and the final completed project at the end of Week 7. Using the financial statements for Nike, Inc. and Under Armour, Inc.,respectively, you will calculate and compare the financial ratios listed further down this document for the fiscal year ending 2014, and prepare your comments about the two companies’ performances based on your ratio calculations. The entire project will be graded by the instructor at the end of the final submission in Week 7, and one grade will be assigned for the entire project. Overall Requirements For the Final Submission: Your final Excel workbook submission should contain the following. You cannot use any other software but Excel to complete this project. 1. A Completed Worksheet Title Page tab, which is really a cover sheet with your name, the course, the date, your instructor’s name, and the title for the project. 2. A Completed Worksheet Profiles tab which contains a one-paragraph description regarding each company with information about their history, what products they sell, where they are located, and so forth. 3. All 16 ratios for each company with the supporting calculations and commentary on your Worksheet Ratio tab. Supporting calculations must be shown either as a formula or as text typed into a different cell. The ratios are listed further down this document. Your comments for each ratio should include more than just a definition of the ratio. You should focus on interpreting each 1 | Course Project: A Financial Statement Analysis ratio number for each company and support your comments with the numbers found in the ratios. You need to specifically state which company performed better for each ratio. 4. The Summary and Conclusions Worksheet tab is an overall comparison of how each company compares in terms of the major category of ratios described in Chapter 13 of your textbook. A nice way to conclude is to state which company you think is the better investment and why. 5. The Bibliography Worksheet tab must contain at least your textbook as a reference. Any other information that you use to profile the companies should also be cited as a reference. Required Ratios for Final Project Submission 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Earnings per Share of Common Stock Current Ratio Gross (Profit) Margin Percentage Rate of Return (Net Profit Margin) on Sales Inventory Turnover Days’ Inventory Outstanding (DIO) Accounts Receivable Turnover Days’ Sales Outstanding (DSO) Asset Turnover Rate of Return on Total Assets (ROA) Debt Ratio Times-Interest-Earned Ratio Dividend Yield [For the purposes of this ratio, use Yahoo Finance to look up current dividend per share and stock price; just note the date that you looked up this information.] 14. Rate of Return on Common Stockholders’ Equity (ROE) 15. Free cash flow 16. Price-Earnings Ratio (Multiple) [For the purpose of this ratio, for Nike, use the market price per share on May 30, 2014, and for Under Armour, use the market price per share on December 31, 2014.] The Excel files uploaded in the Dropboxes should not include any unnecessary numbers or information (such as previous years' ratios, ratios that were not specifically asked for in the project, etc.). Please upload your final submission to the Week 7 Dropbox by the Sunday ending Week 7. For the Draft: Create an Excel spreadsheet or use the project template to show your computations for the first 10 ratios listed above. The more you can complete regarding the other requirements, the closer you will be to completion when Week 7 arrives. Supporting calculations must be shown either as a formula or as text typed into a different cell. If you plan on creating your own spreadsheet, please follow the format provided in the Tootsie Roll and Hershey template file. Please upload your draft submission to the Week 5 Dropbox by the Sunday at the end of Week 5. Other Helpful Information: If you feel uncomfortable with Excel, you can find many helpful tutorials on Excel by performing a Google search. Chapter 13 contains ratio calculations and comparison comments related to Apple and Dell, so you will likely find this information helpful. 2 | Course Project: A Financial Statement Analysis BigCharts.com provides historical stock quotes. Either APA or MLA style can be used to complete the references on your Bibliography tab. There is a tutorial for APA and MLA style within the Plagiarism link, which can be accessed through the Syllabus. Grade Information The entire project will be graded by the instructor at the end of the final submission in Week 7, and one grade will be assigned for the entire project. The project will count for 15% of your overall course grade. Category Points % Description Documentation and Formatting 9 6% The report will be submitted in the form of an Excel Workbook, with each page (worksheet) of the workbook named appropriately. Please do not use any other software (such as MS Works or Lotus) to complete the project. A quality report will include a Title Worksheet tab, a Worksheet tab for the profile of the two companies, a Worksheet tab for the ratio calculations and comments, a Worksheet tab for the summary and conclusion, proper citations if applicable, and a Bibliography Worksheet tab for the references. Organization and Cohesiveness 6 4% A quality report will include the content described above in the documentation and formatting section. The ratios should be listed in the same order in which they appear in the project information above. Editing 15 10% A quality report will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Ratios will be expressed as numbers or percentages, depending on what is appropriate, as is shown in the textbook. Note that not all ratios are shown as percentages. You should be consistent with the number of decimal places used in the Course Project template. Content 120 80% A quality report will have correct ratio calculations and accurate supporting commentary. Any assumptions, if made, should be spelled out clearly. Supporting calculations must be shown, either as a formula, or as text typed into a different cell. Total 150 100% A quality report will meet or exceed all of the above requirements. 3 | Course Project: A Financial Statement Analysis 4 | Course Project: A Financial Statement Analysis Go to the Course Resources page within the CourseSpecific Resources section. The Course Resources page is under Course Home. Complete your Title page on this tab. Please include your name, the course, the date, your instructor's name, and the title for the project. Complete one paragraph, profiling each company's business, including information such as a brief history, where they are located, number of employees, the products they sell, and so forth. Please reference any websites that you used for the Profiles on the Bibliography tab. Tootsie Roll Industries began in a small candy store in New York in 1896. Tootsie Roll is now headquartered in Chicago and primarily sells their products in the United States, Canada, and Mexico. According to Yahoo Finance, Tootsie Roll has 2,000 full-time employees. Tootsie Roll sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2014 net product sales of $539.9 million. Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo Finance, Hershey has 20,800 full-time employees. Hershey is famous for Good & Plenty, Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Rolo, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $7.4 billion for 2014. Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary. The 2014 financial statements used to calculate these ratios are available in the Investor Relations section of the Tootsie Roll and Hershey websites. Tootsie Roll Interpretation and comparison between the two companies' ratios (reading Chapter 13 will help you prepare the commentary). Hershey The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember—each ratio below requires a comparison. Earnings per Share of Common Stock (basic - common) Current Ratio As given in the income statement $ 1.05 $ 3.91 Current assets Current liabilities $264,621 $64,459 = 4.11 $2,247,047 $1,935,647 = 1.16 Gross margin Net sales $198,962 $539,895 = 36.9% $3,336,166 $7,421,768 = 45.0% Net income Net sales $63,298 $539,895 = 11.7% $846,912 $7,421,768 = 11.4% Inventory Turnover Cost of goods sold Average inventory $340,933 $66,118 5.2 times $4,085,602 $730,289 Days' inventory outstanding (DIO) 365 Inventory turnover 365 5.2 = 71 days 365 5.6 = 65 days Accounts Receivable Turnover Net sales (assume all sales are credit sales) Average net accounts receivable $539,895 $41,987 = 12.9 $7,421,768 $537,426 = 13.8 Days' Sales Outstanding (DSO) 365 Accounts receivable turnover 365 12.9 28.4 days 365 13.8 = 26.4 days Net sales Average total assets $539,895 $899,398 = 0.60 $7,421,768 $5,493,502 = 1.35 = 7.0% = 15.4% Gross (Profit) Margin Percentage Rate of Return (Net Profit Margin) on Sales Asset turnover Rate of Return on Total Assets (ROA) Debt Ratio Times-Interest-Earned Ratio Dividend Yield (Please follow the Course Project instructions to calculate the current dividend yield.) Rate of Return on Common Stockholders' Equity (ROE) Free cash flow Price-Earnings Ratio (Multiple) (Please see the Course Project instructions for the dates to use for this ratio.) Rate of return on sales times asset turnover = 5.6 times Total Liabilities Total Assets $219,250 $910,386 = 24.1% $4,109,986 $5,629,516 = 73.0% Income from operations Interest expense $83,923 $99 = 847.7 1,389,575 83,532 = 16.6 Dividend per share of common stock (Yahoo Finance 12/24/2015) Market price per share of common stock (Yahoo Finance 12/24/2015) $0.36 $32.04 = 1.1% $2.33 $90.32 = 2.6% Net income - Preferred dividends Average common stockholders' equity $63,298 $685,721 9.2% $846,912 $1,567,791 = 54.0% = Net cash provided by operating activities minus cash payments earmarked for investments in plant assets Market price per share of common stock as of 12/31/2014 Earnings per share = $30.65 $1.05 = $ $78,065 29 492,274 = $103.93 $3.91 = 27 You all get the chance to play the role of financial analyst below. The summary should be a comparison of each company's performance for each major category of ratios listed below. Focus on major differences as you compare each company's performance. A nice way to conclude is to state which company you feel is the better investment and why. Measuring Ability to Pay Current Liabilities: Tootsie Roll has the advantage for the current ratio. Tootsie Roll has $4.11 in current assets for every dollar in current liabilities, while Hershey has only $1.16 in current assets for every dollar in current liabilities. Measuring Turnover: Hershey has the advantage for the inventory turnover and accounts receivable turnover ratios. Hershey turns over its inventory 5.6 times to Tootsie Roll's 5.2 times, and Hershey turns over its accounts receivable 13.8 times to Tootsie Roll's 12.9 times. Measuring Leverage - Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as evidenced by Tootsie Roll's 24.1% debt-to-asset ratio as compared to Hershey's 73% debt-to-asset ratio. Tootsie Roll can cover its interest expense 847.7 times with income before interest and taxes, while Hershey can only cover its interest expense 16.6 times with their income before interest and taxes. Tootsie Roll has the advantage for each of these ratios. Measuring Profitability: Hershey has the advantage for 4 of the 5 profitability ratios. Hershey has a significant edge in return on common stockholders' equity, with a 54% return on common stockholders' equity, as compared to Tootsie Roll's 9.2% return on common stockholders' equity. Hershey has a higher gross profit rate (45.0%–36.9%), while Tootise Roll has a higher net profit margin ratio (11.7%–11.4%). Hershey also has a significant advantage for asset turnover (1.35–.60) and rate of return on total assets (15.4%–7.0%). Analyzing Stock as an Investment: Hershey returns a 2.6% dividend yield to its investors, while Tootsie Roll's yield is 1.1%. Hershey has positive free cash flow of $492.2 million, while Tootsie Roll has positive free cash flow of $78.1 million. Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or buy back stock. Conclusion: Tootsie Roll is the safer investment when you examine their ability to pay current liabilities and overall liabilities; however, Hershey has the advantage for the turnover and profitability ratios. For the conservative investor, Tootsie Roll looks like the way to go because of their strong current and timesinterest-earned ratios. For the growth-oriented investor, Hershey is the way to go because of their stronger profitability ratios and large amount of free cash flow. Your textbook and any information that you use to profile the companies should be cited as a reference below. Big Charts for Hershey (12/31/2014). Retrieved December 24, 2015 from http://bigcharts.marketwatch.com/historical/default.asp?symb=hsy&closeDate=12%2F31%2F14&x=0&y=0 Big Charts for Tootsie Roll (12/31/2014). Retrieved December 24, 2015 from http://bigcharts.marketwatch.com/historical/default.asp?symb=tr&closeDate=12%2F31%2F14&x=0&y=0 Harrison, W.T., Horngren C.T. & Thomas, C.W. (2015). Financial Accounting, 10th ed. Upper Saddle River, NJ: Hershey's 2014 Annual Report (2015). Retrieved December 24, 2015 from http://www.thehersheycompany.com/pdfs/PDF_Proxy%20Statement_2014.pdf HSY Profile (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q/pr?s=HSY+Profile HSY Stock Price (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q?s=hsy&ql=1 Tootsie Roll Industries 2014 Annual Report (2015). Retrieved December 24, 2015 from TR Profile (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q/pr?s=TR+Profile TR Stock Price (2015). Retrieved December 24, 2015 from http://finance.yahoo.com/q?s=TR&ql=1 erence below.
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