Step 1. Collect the company’s financial statements from the last three to five years including:
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- Balance Sheets
- Cash Flow Statements
- Income Statements
- Notes to financial statements
Step 2. Analyze these financial statements and scan them in order to look for large movements in specific items from one year to the next. For example, “Did revenues have a big jump, or a big fall, from one particular year to the next? Did total or fixed assets grow or fall?”
Also, look for suspicious activity. If anything jumps out at you, research what you know about the business to find out why an item is suspicious-looking. For instance, did the company sell off some of its operations during the period of time you’re analyzing?
Step 3. Analyze the Balance Sheet to see if there are large changes in the company’s assets, liabilities, or equity.
Step 4. Examine the Income Statement to identify trends over time.
Step 5. Analyze the company’s Cash Flow Statement. Have there been changes in sources and uses of cash? Are they cash flows stable? Discuss how cash has been used and where is it coming from. Is there anything in the cash flow statement that you see them might be of concern to an investor?
Step 8. Calculate financial ratios for three years
- Current Ratio
- Quick or Acid-Test Ratio
- Debt to Equity Ratio
- Times Interest Earned Ratio
- Return on Sales Ratio (also known as Net Profit Margin)
- Gross profit margin (if the income statement provides gross income)
- Return on Equity
- Return on Assets
- Earnings per Share (this should be reported on the income statement)
- Price/Earnings Ratio (also call P/E Ratio)
- Market Cap
Step 9. Determine the company’s key competitors.
Step 10. Using the following information, get comparative ratios.
- Go to Mergent Online, login with MBU credentials (username and PIN)
- Watch this video,
- Create your report for industry averages
Step 11. Compare your company ratios to the industry averages in the report. Analyze how well your company is doing in comparison to its competitors.
Step 12. Create a graph of the company’s stock price and P/E ratio over the three year period
Step 13. Using all your data, discuss the future of your company. Do you have concerns? Are there things they do a lot better, or a lot worse? What recommendations would you make to the company based on your analysis?
- Use APA for citations, but it isn’t necessary to have all the components in an APA paper, e.g., margins, title pages, headings, etc. You paper should make sense and be logically ordered and easy for me to follow.