Acct 213 ACCT 213: Financial Accounting Financial Analysis/Report Project In this project, you will assess the financial health of a publicly-traded merchandising* business and, using financial analysis tools in your textbook, decide whether to invest in the stock of the company. Include the following sections in your analysis, and fully explain your final decision. Include detailed calculations. 1. 2. 3. 4. 5. Trend analysis for net sales and net income Profitability analysis Evaluation of the ability to sell merchandise inventory Evaluation of the ability to pay debts Evaluation of dividends. Each section should include a table with financial information and the necessary ratio calculations to analyze that area of the company. After each table, provide approximately one paragraph of analysis. The analysis should include a comparison to industry averages for your company. Conclude the report with your final decision (invest or not invest), incorporating the information and analyses from each section. Resources available/needed include, but are not limited to: • Balance sheet and income statement for your chosen company (at least 5 years) • ProfitCents – for industry comparison • Textbook Chapter 15 Submit your project in a Word document on Canvas. Include the following documentation with your analysis: • Copy of all balance sheets and income statements used • Copy of industry information used from ProfitCents *Company should be at least 70% merchandising Page 1 of 2 Acct 213 ACCT 213: Financial Accounting Financial Analysis/Report Project Please Note: This assignment may be used to evaluate Analytical & Problem-Solving Skills for the College of Business & Management’s Assurance of Learning* process. All student information is removed from the submission when used in this manner. Evaluation of the submission for this purpose is based on the rubric provided below. This rubric may differ from the grading criteria used by your instructor but should be considered as you complete the assignment. *Assurance of learning refers to the processes for demonstrating that students achieve learning expectations for the programs in which they participate. Schools use assurance of learning to demonstrate accountability and assure external constituents such as potential students, trustees, public officials, supporters, and accrediting organizations that the school meets its goals. Assurance of learning also assists the school and faculty members to improve programs and courses… (Definition from AACSB Eligibility Procedures and Accreditation Standards for Business Accreditation) Page 2 of 2 ACCT213 Fall 2016 Financial Accounting Financial Analysis/Report Project What is the name of the business you are reporting on? Apple Computer Refer to your income statement, prepare a trend analysis of Sales and of Net Income (or Net Loss) for all the years reported. Also, state what page in your annual report has your income statement. Net Sales Trend Percentages Net Income Trend Percentages 2015 $ 233,715 128% $53,394 134% Sales (2015 Industry Avg Growth – 17.42%) 2014: 182,795/170,910 = 106.95% (6.95% growth) 2015: 233,715/182,795 = 127.85% (27.85% growth) 2014 $ 182,795 107% $39,510 107% 2013 $ 170,910 $37,037 Net Income (2015 Industry Avg Growth – 15.91%) 2014: 39,510/37,037 = 106.67% (6.67% growth) 2015: 53,394/39,510 = 135.14% (35.14% growth) In your opinion, are the trends in Sales and Net Income good or bad? Please briefly explain your opinion. The trend is very good! Both sales and net income appear to be growing steadily, and the rate of growth appears to be increasing each year as well. Comparing Apple’s growth to industry averages, the results are good as well. Apple’s growth rate of both sales and income exceeded the industry average that year considerably. Page 1 of 4 ACCT213 Fall 2016 Financial Accounting Financial Analysis/Report Project Refer to your income statement, prepare a profitability analysis., evaluating Profit Margin Ratio, Earnings per Share, and Return on Assets. Net Income Net Sales Total Assets Profit Margin Ratio Earnings per Share Return on Assets 2015 $53,394 $233,715 $290,479 22.84% $9.28 20.45% 2014 $39,510 $182,795 $231,839 21.61% $6.49 2013 $37,037 $170,910 21.67% $5,72 Profit Margin Ratio (2015 Industry Avg – 27.86%) Return on Assets (2015 Industry Avg 3.73%) 2013: 2015: 37,037/170,910 = 21.67% Average Assets = (290,479 + 231,839)/2 = 261,159 Return on Assets = 53,394/261,159 =20.45% 2014: 39,510/182,795 = 21.61% 2015: 53,394/233,715 = 22.84% In your opinion, are the results of this profitability good or bad? Please briefly explain your opinion. Apple’s profitability is good. Profit margin is steady and growing slightly, although their profit was slightly below industry average in the most recent year. The return on assets is significantly higher than Apple’s competitors (20.45% for Apple vs. 3.73% for the overall industry), indicating that Apple was much more effective at generating income from its assets than its average competitor. Finally, the earnings per share is steadily growing, indicating Apple is an attractive stock to own. Page 2 of 4 ACCT213 Fall 2016 Financial Accounting Financial Analysis/Report Project Refer to your income statement and balance sheet, and evaluate your company’s ability to sell merchandise. Be sure to evaluate Gross Profit and Inventory Ratios. Net Sales Cost of Goods Sold Gross Profit Gross Profit Percentage 2015 $233,715 $140,089 $93,626 40.05% Inventory Turn Ratio (2015 Industry Avg 5.52) 2015: Avg Inventory = (2,349 + 2,111)/2 = 2,230 Inventory Turns = 140.089/2,230 =62.82 2014 $182,795 $112,258 $70,537 38.58% 2013 $170,910 $106,606 $64,304 37.04% Days Sales in Inventory (2015 Industry Avg 66.08) 2015: Days’ Sales in Inventory = 365/62.82 = 5.81 days In your opinion, are the results of this merchandising analysis good or bad? Please briefly explain your opinion. Apple’s ability to sell merchandise profitably is excellent. The industry average Gross Profit Percentage for 2015 was 27.86%, suggesting that Apple consistently outperforms their competitors in this area. In addition, the trend of this metric seems to be improving each year. In terms of ability to turn over inventory, Apple again outperforms their competition. Apple only holds onto inventory for an average of 5.81 days before it is sold, whereas their competitors take more than 66 days to sell inventory, on average. These suggest that Apple is a very successful merchandiser. Page 3 of 4 ACCT213 Fall 2016 Financial Accounting Financial Analysis/Report Project Refer to your balance sheet, and evaluate your company’s ability to pay its debts. Total Assets Current Assets Total Liabilities Current Liabilities 2015 $290,479 $89,378 $171,124 $80,610 Debt to Asset Ratio (2015 Industry Avg 62.67%) 2015: $171,124/$290,479 = 58.9% 2014: $120,292/$231,839 = 51.9% 2014 $231,839 $68,531 $120,292 $63,448 Current Ratio (2015 Industry Avg 1.56) 2015: $89,378/$80,610 = 1.11 2014: $68,531/$63,448 = 1.08 In your opinion, are the results of your debt analysis good or bad? Please briefly explain your opinion. Apple has slightly less debt than its average competitor, which means that less of Apple’s future income is dedicated to paying debts, a lower risk strategy. However, Apple seems to be less prepared to pay current liabilities with current assets than their competitors. Their current ratio is strong, but not as strong as their average competitor. Refer to your income statement, and dividends paid. Annual Dividend Per Share Earnings Per Share Dividend Payout 2015 $1.98 $9.28 21.3% 2014 $1.82 $6.49 28.0% 2013 $1.64 $5.72 28.7% In your opinion, does your company’s dividend history make the stock attractive to stockholders? Please briefly explain your opinion. Apple does pay dividends, which is good for shareholders who prefer to receive a share of annual earnings via dividend. However, the dividend payout seems to be declining, which may make the stock less attractive to those investors. Apple may be retaining more earnings to fund growth, which is common in technology companies. In this case, investor returns may come from rising stock prices more than dividend payouts. So, the attractiveness of the stock will depend on investors’ goals. Based on your analysis, would recommend investing in your company? Explain your answer. Apple seems to be a strong and growing company. Sales and Income both exceed industry averages in the most recent years. Apple is able to generate a higher return on assets then their competitors, and earnings per share are also growing each year. Apple is an exceptional merchandiser, generating a significantly higher Gross Profit Percentage than their competitors, and handling inventory very efficiently. They are well prepared to repay debts, both long term and current, which are both positive measurements. Finally, Apple pays out some earnings in the form of dividends, although the trend seems to be falling. Investors who depend on quarterly or annual dividends may be less inclined to purchase Apple than stock of companies that are less focused on growth. I feel that Apple would be a great company to invest in. Page 4 of 4 Acct 213, Financial Accounting, Winter 2018 Financial Analysis/Report Project In this project, you will assess the financial health of the business in question, using financial analysis tools in your textbook. Please make your work neat and show all computations. For some of your computations, you will be comparing your results with averages of businesses within your business’s industry. For assistance in obtaining industry averages, see the Reference Desk at the library. Attach the sheet(s) obtained which show industry averages to this paper. In some cases, the industry averages sheet may not have the specific ratio, but you may be able to compute the ratio using the information on the industry average sheet. If no industry average is given, but you are able to compute the industry average, please do so. What is the name of the business you are reporting on? A popular analysis technique is a trend analysis (also known as Horizontal Analysis), in which you analyze the change over time of specific financial data. This is shown on pages 806 and 807 of your textbook. Refer to your income statement, prepare a trend analysis of Sales and of Net Income (or Net Loss) for all the years reported. Also, state what page in your annual report has your income statement. In your opinion, are the trends in Sales and Net Income good or bad? Please briefly explain your opinion. The Current Ratio is defined on page 203. Please give a brief definition of the current ratio here. From the balance sheet, compute the current ratio for all years presented. What is the industry average for the current ratio? Is your company’s current ratio weak or strong? Briefly explain your opinion. Page 1 of 3 Acct 213, Financial Accounting, Winter 2018 Financial Analysis/Report Project The formula for the Debt to Total Assets Ratio is Total Liabilities/Total Assets. Please look up the ratio (it isn’t in your textbook) and give a brief definition of the ratio here. From the balance sheet, compute the debt to total assets ratio for all years presented. What is the industry average for this ratio? Is your company’s debt to total assets ratio weak or strong? Briefly explain your opinion. The Profit Margin Ratio is defined on page 820. Please give a brief definition of the Profit Margin ratio here. From the income statement, compute the Profit Margin ratio for all years presented. What is the industry average for this ratio? Is your company’s profit margin ratio weak or strong? Briefly explain your opinion. Page 2 of 3 Acct 213, Financial Accounting, Winter 2018 Financial Analysis/Report Project The Inventory Turnover Ratio is defined on page 346. Please give a brief definition of the Inventory Turnover ratio here. From the financial statements, compute the Inventory Turnover ratio. What is the industry average for this ratio? Is your company’s inventory turnover ratio weak or strong? Briefly explain your opinion. Following up on the Inventory Turnover Ratio you computed above, please compute the Days Sales in Inventory ratio, which is also defined on page 346 of your textbook. Please give a brief definition of the Days Sales in Inventory ratio here. From the financial statements, compute the Days Sales in Inventory for the most recent year presented. What is the industry average for this ratio? Is your company’s Days Sales in Inventory ratio weak or strong? Briefly explain your opinion. Page 3 of 3
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