04 Jun REVIEW INDUSTRY DATA AND DETERMINE WHERE THESE TWO COMPANIES FIT WITHIN THAT INDUSTRY. ARE THEY LEADERS/FOLLOWERS?
FIN301A
Principles of Finance
RESEARCH
PROJECT
Objective: Familiarize
students with the application of ratio and trend analysis.
This project allows students the
opportunity to perform critical thinking, by addressing specific financial
trends and industry comparisons for a company of their choosing. This
project will be a comparison/contrast paper that shows a demonstration of the
application of financial analysis and critical thinking in a large
organization. The student will be performing trend analysis and industry
comparisons on 3-4 years worth of financial statement data (whatever tells the
story).
Trend Analysis & Ratio Analysis
Ratio analysis uses percentage or decimal
calculations of comparison to at least two different sets of financial
data. You are comparing how one relates (compares) to another.
Decision makers use ratios because they illuminate relationships between
financial data taken from the company’s statements.
Although ratio analysis can be used to
evaluate financial performance, the number, by itself, does not reveal the
entire story. To take the analysis to the next level, one must engage in
trend analysis. Trend analysis utilizes the aforementioned ratios and
shows the changes in those ratios, over time. Stakeholders can use trend
analysis to not only compare “this year” to “last year” for
this company, but can compare each year to the industry as a whole and even to
the number one competitor for benchmarking purposes.
When you are setting up your paper, it
would help to group your ratios and analysis together by content area
(profitability, debt management, asset utilization, liquidity, and market value
ratios).
Deliverables
Choose a publicly traded, publicly held,
U.S. company. This means you need to pick a
company that is public and has stock. You will use a variety of
sites to find your financial date. Start with These
two sites will allow you to capture one year of data for each of the two
companies you are going to review as well as the industry ratios you will need.
You will need to acquire annual reports for the company sites for years older
than the most current year. You will need to review three – five years of
financial information on this company, more years of data will produce a more
thorough analysis.
Specific areas of analysis are noting
major ratio categories and identifying whether the trend is up or down, whether
that is good or bad, and why. Once the data are gathered, analyzed, and
trends revealed; the student will acquire the same information for a competitor
within the same industry. The same ratio and trend analysis will be
gathered for the competitor. A comparison will ensue, identifying
specific strengths and weaknesses of various components of the financial
statements. Upon completion of the original company trend analysis
and the competitor’s trend analysis, an analysis and trend comparison with the
industry is required. This will allow the student to demonstrate an
understanding of financial ratios and what trends are present among two different
companies in one industry, as well as, being able to determine the position of
the industry and be able to project future trends and how the company being
evaluated can budget for changes in the industry.
So . . . .what is required . . . .
1. Your chosen company (financial ratios and
trend analysis)
a. Using the data provided at the Yahoo!
Finance site, use the ratios in the textbook and determine the status of your
chosen company based on those ratios. Also, identify any trends you
notice and what the impact might be if those trends continue. The ratios
you will be reviewing are the same ratios as you will find in chapter 3, page
95 of the text. Note that some of these ratios may not be applicable to
your company. Some ratios are specific to certain types of firms.
Not all firms carry significant accounts receivable as an example.
2. A competitor in the same industry
(financial ratios and trend analysis)
a. Using the data provided at the site, use
the ratios in the textbook and determine the status of your chosen competitor
based on those ratios. Also, identify any trends you notice and what the
impact might be if those trends continue.
3. The industry as a whole; how does your
chosen company compare and what evaluations can you make (predict) for future
financial success?
a. Review industry data and determine where
these two companies fit within that industry. Are they
leaders/followers? What does the future hold for this industry?
4. Using your chosen company and the current
conditions in the financial markets, assume the firm needs to raise a large
amount of cash. Compare the choices of raising these funds in the capital
market (selling new shares of stock) versus the bond market (debt financing),
and make a decision as to what is best and why. Also, consider ethical implications
of financial reporting and how it relates to acquiring additional investors and
accessing markets for additional capital.
5. Take one of the following positions and
justify your decision:
a. You are a banker who has been approached
by this company to borrow a sum of money (you decide how much, and why).
Based on the company’s financials and its future business prospects, would you
loan the money? Why or why not.
b. You are an investor with a large sum of
money (or a company looking for an investment), and buying either the company
or shares of stock in the company is being considered. Determine, based
on the company’s financials and its future business prospects, whether you will
invest in this company or not.
There is no specific number of pages
required to do this assignment, but past experience has shown it takes at least
8-10 pages of text to adequately complete this assignment. This is a
critical thinking assignment so all the specifics are not laid out in front of
you. You must research, assess, analyze, and strategize about the company
you have chosen, the competitors, and the industry as a whole.
When using the Yahoo! Finance
site or other similar financial sites, you are going to have access to a large
volume of data, as well as company websites. Understand this must be
cited using APA methodology. DO NOT COPY and PASTE anything from this or
other sources without proper citing. Failure to properly do this will
result in a violation of the Baker College Academic Honor Code, which can
result in failure of assignment or failure of the course (for a first offense
in the College), to dismissal from the College if a pattern is discovered.
This project is due on Sundayof Seminar 6. There is no late
submission allowed for this assignment. This assignment is worth 225
points.
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