Financial Statement Analysis Individual and Group Project
This is a two part assignment. The first part is a Financial Statement Analysis of the firm you have been covering for your group (to be completed individually by each student).
Common-size and base-year your firm’s financial statements for the most recent 5 years. (If your firm doesn’t have this year or last year as its most recent available financial statement, do not use this firm. It may have gone out of business or been acquired.) Compute the common financial ratios shown in the PowerPoint slides posted for this project. Be sure to use DuPont Analysis to decompose ROA and ROE into profit margin, turnover, and leverage. Discuss your firm’s strengths and weaknesses relative to the other firms in your group with respect to leverage and coverage, profitability, liquidity and turnover, and market values. In particular, you should be trying to explain your firm’s relative market value ranking using the other ratios. For example, if your firm’s market value ratios tend to be higher than those of the other firms in your group, your firm might do a better job of using debt (some to boost ROE but still having good coverage), might be more profitable or have faster turnover, and might have reasonable but not excessively high liquidity. Note here that because leverage and liquidity have costs and benefits and because high profit margins tend to lead to low turnover and vice versa, having intermediate levels of these ratios might be more desirable than highest or lowest values. Be sure to provide tables or charts to display the ratios you reference and “prove” the points you are making.
In addition to the ratio analysis, I would like you to do two things: 1. Compute your firm’s beta using regression analysis. (You may have done this in 3824 but we will discuss it in class as well.) Discuss how the