Accounting for Decision Making

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power point presentation 

Your selection: Starbucks Corp (Nasdaq: SBUX)

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Accounting for Decision Making Professor Brillant Project 1 The Story Behind the Numbers Financial statements tell the story of a company’s business activities in financial language. Managers use this information for insight into the company’s operations and to make decisions about future performance. Project Overview To make strategic decisions, a manager must first understand the story behind the numbers in the financial statements. In this project you will use the concepts we have learned in class to gain an understanding of the financial statements of an assigned company. This is an individual project. You are required to prepare PowerPoint slides answering the questions below. You are also required to prepare a 15-minute video presentation to provide a summary of your findings. Grading As we will learn in class, the financial statements of a company are linked, therefore, your analysis of each statement should not be performed in isolation. Major company events likely impact more than one financial statement, and your presentation should demonstrate these linkages. See the grading rubric on Moodle for a break-out of possible points. Project Requirements 1. Obtain the annual report for your assigned company by using the SEC EDGAR website to locate the Form 10-K. Use the information contained in this report and any additional sources (textbook, company website, analyst reports, news articles, earnings releases, etc.) to gain an understanding the company’s financial statements by answering the below questions for each statement. 2. PowerPoint Slides: Complete all the questions below. Prepare PowerPoint slides to reflect your answers to all the questions below. 3. Video Presentation: After completing step 2, select the questions/answers you believe are most important to understanding the “Story Behind the Numbers” for your selected company and create a 15-minute video presentation with PowerPoint slides. This selection should be made from the perspective of a manager. Another way of saying this is, as a manager, what is important to include in the video presentation to tell the story behind the financial statements. View the below questions as a menu of items to choose from for the video presentation. For example, if a company has little to no debt on its balance sheet, spending video presentation time on liquidity measures would not demonstrate that you have a good understanding of the balance sheet. Note: The number of PowerPoint slides in Step 2 should be significantly more than the number of slides included as part of your video presentation. 4. Record a video presentation and provide a link to your video on Moodle in Week 4’s Forum. Submit your PowerPoint presentation on Moodle in Week 3’s assignment. Please contact me if you believe you are spending time on a topic or area and are unsure of its importance. Video Requirements 5. Please turn your camera on when recording your video (I want to see you present). 6. Please treat this presentation as you would a professional presentation at work (professional attire, minimize background distractions, etc.). 7. Please use YouTube to record your video. See Moodle for instructions on how to record with YouTube. Important Reminders: You will use the Form 10-K as a resource to complete this project. Please keep in mind that this assignment is not to provide a summary of the 10-K, but rather for you to use the document as a resource in performing your own analysis. Also keep in mind that this Project is assigned during Class 1, with the purpose of you having a real company to apply the concepts we learn in class. Therefore, if you decide to jump ahead in the assignment, some of the material needed to complete the analysis questions will not be covered until Week 2. Introduction/Background: Gain an understanding of the company’s business environment: What is the nature of the company’s business? How does the company make money? What did you learn about the company’s strategic plans from reading their annual report? Describe the company’s business environment using the “Analyzing the Competitive Environment” beginning on page 1-22 of the textbook as a guide. Balance Sheet and Statement of Stockholders’ Equity: EXPLAIN Explain the major components of the balance sheet. Identify and explain any asset or liability line item that comprises over 10% of the total balance of its perspective total. Your explanation should include the nature and composition of the line item and how it relates to the business (e.g. is it unique to this industry or company). [NOTE: You may find the following Modules of the textbook helpful if you need additional information on a specific balance sheet line item: Modules 6, 7, and 8.] Create a common size balance sheet for the periods presented (see pages 2-11 and 4-38 of the textbook). Identify items on the balance sheet that would be important to a manager and determine whether your assigned company’s performance related to these items appears to be improving, deteriorating, or remaining stable. Explain the factors causing these conditions. For the equity section, explain the following: • Compare the number of shares of stocks outstanding to the number of shares authorized for issuance. In your opinion, does the company have owner financing as a readily available option and should they use this option for future needs? Why or why not? • Did the company pay dividends during the year? If so, how much? • Did any items other than net income and dividends impact retained earnings? If so, explain the other types of balances included in stockholders’ equity. • Does the company have accumulated earnings or losses? Explain. • Do you see any significant changes in stockholders’ equity from the prior year? Explain. ANALYZE Provide an analysis of the significant line items. Consider the following in your analysis: • Determine the relative proportion of short-term and long-term assets. Explain the proportion based on your understanding of the company’s industry and business environment (see page 1-22 of the textbook). • What are the company’s largest assets? Largest liabilities? Did they change significantly between periods? What caused any changes? • What proportion of total assets is financed by owners? • What proportion of total assets is financed by nonowners? • Explain the above proportion based on your understanding of the company’s industry and business environment (see page 1-22 of the textbook). • Does the company have positive or negative working capital? What is driving this measure? What does this tell you about the company? • Are there any unusual items recorded in any period presented? • Discuss the effects of any major acquisition or divestitures on the balance sheet line items. • Calculate the return on assets (ROA) for the periods presented. What information does this tell you about the company? • Calculate the asset turnover ratio for the periods presented. What does this tell you about the company? • Calculate the current ratio and quick ratio from Appendix 4C of the textbook for each period. Compare the ratios and identify differences over time. Do the ratios change over time? If yes, does this make sense given the economic and competitive factors that impact the industry and company? Are there any concerns about the company’s ability to meets its short term (liquidity) and long term (solvency) debt obligations based on your calculations? • Calculate the liabilities-to-equity ratios from Appendix 4C of the textbook and compare your calculation to the industry norms in the bar chart in Exhibit 4C on page 4-37 of the textbook. If the ratios differ from the industry norm, explain what could be driving the deviation. • Determine the market capitalization (market cap) of your assigned company at the most recent year-end. You should be able to determine the number of shares outstanding from the balance sheet. Obtain the year-end stock price from an investment website such as Yahoo Finance or Seeking Alpha. Compare the market cap to the book value (total equity per the Statement of Stockholders’ Equity) of the company. Calculate the marketto-book ratio (see page 2-12 of the textbook). What does this tell you about the company? What are five factors that could cause the differences between market capitalization and book value? Income Statement: EXPLAIN Explain the format (e.g. subtotals/measures presented) and the major components of the company’s income statement. Identify and explain any line item that comprises over 10% of revenue or expenses, respectively. Your explanation should include the nature and composition of the line items and how it relates to the business (e.g. is it unique to this industry or company). Identify items on the income statement that would be important to a manager and determine whether your assigned company’s performance related to these items appears to be improving, deteriorating, or remaining stable. Explain the factors causing these conditions. Create a common size income statement (see pages 2-16 and 4-38 of the textbook) for all years presented. Look for major differences over time. Do any patterns emerge? Were there any significant changes in the company’s cost structure during the most recent year? ANALYZE Provide an analysis of the significant line items. Consider the following in your analysis: • How does the company generate revenue? What are its largest sources of revenue? Has it changed over time, and if so, why? • Does the company report cost of sales or cost of goods sold? What are these costs and how do they relate to revenue? • Is interest a significant expense for this company? Why or why not? Relate this analysis to the balance sheet’s discussion on debt. • Do you see any changes in Earning Per Share (EPS) in the periods presented? Are these changes significant? Compare the changes in EPS with the changes in the companies’ stock prices during the corresponding period. Are the changes consistent? Explain any observations. [See pages 8-23 and 8-24 of the text for information on EPS.] • Calculate the profit margin ratio and net income as a percentage of sales. Was the company more or less profitable when compared to the prior years? What is driving any changes? Is this measure what you would expect based on the company’s business environment? How does the company compare to its peers? • Calculate return on equity (ROE) for the periods presented. Is this measure what you would expect based on the company’s business environment? How does the company compare to its peers? • Are there any unusual items recorded in any period presented? Discuss effects of any major acquisition or divestitures on revenue, expenses, and net income. • Do the answers to the above questions make sense based on the company’s industry and business environment? Why or why not? • Based on the above considerations, do you see any weaknesses or strengths in the company’s operations? Statement of Cash Flows: EXPLAIN Explain the major components of the statement, including any line item that comprises over 10% of the total balance of its perspective total. [NOTE: You may find Module 11 of the textbook helpful if you need additional background information on the statement of cash flows.] ANALYZE Analyze your assigned company’s operating, investing, and financing activities for the most recent year as identified in the statement of cash flows, specifically identifying the two largest operating activities, the two largest investing activities, and the two largest financing activities. Determine the direction of the activity (cash source or cash use). Consider the following in your analysis: • Are operating cash flows smaller or larger than net income? Why? • What are the major differences between operating cash and net income? • Were operating activities a source or use of cash? Explain. • Were investing activities a source or use of cash? Explain • Were financing activities a source or use of cash? Explain. • Evaluate the company’s ability to pay its debts (short term liquidity) by comparing the total current liabilities amount as of the most recent balance sheet to the amount of cash generated from operating activities. Can the company pay its bills? • Did the company purchase new property and equipment (capital expenditures) during the year? • Did the company issue new debt during the year or was debt repaid? If so, what were the proceeds from the new debt used for? • Did the company issue new stock? If so, what were the proceeds from the issuance used for? • Did the company pay dividends? If so, compare this amount to the amount reported on the statement of stockholders’ equity. Explain why the amounts are different or the same? • Do the answers to the above questions make sense based on the company’s industry and business environment? Why or why not? • Based on the above considerations, do you see any weaknesses or strengths in the company’s cash flow activities?
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