Accounting II Project

Evaluation of an Annual Report

Objectives of the Project:

to read a financial statement

to become familiar with the typical contents of an annual report

to assess the condition of the company using ratio analysis, horizontal or vertical analysis, and charting. (Chapter 17 is the chapter with ratio analysis.)

A written paper using APA format (no abstract required) for the questions/topics below must be submitted on Monday, July 23, 2018 at 7:00 a.m.using the assignment link in Blackboard. Late projects will not be accepted. The link or file to your annual report must also be submitted with your final project. Please proofread your work for spelling and grammatical errors. Accountants are professionals and I expect this to look like it was written in a professional manner. The summaries should address all questions individually. Please list the page range where you found the information for each question (Annual report, p.2). The suggested length of your final report is four to five pages.

Select a Company. Choose a company that is listed on a stock exchange, rather than a private company. Best bets: Retailers!! You will post your choice in the Discussion Board and to ensure that only one person chooses each company. In your post you will include a link to the annual report for your company so that I can review and make sure it is a good choice for this project. This must be done by May 28, 2018 at 7:00am. You will find the annual report posted on the Companys Website. Look for investor relations and it is usually listed in there. You may be able to download a PDF (if so save it so you have easy access.) This is the document you will use to complete your project. The only other source you will need is Yahoo Finance to do the market price. If you get to a topic and cannot find the information, you need to reach out to me for help. Don't skip it or use other sites. Remember you are noting the pages so will need to find it in the annual report. No other websites should be used unless instructed without permission from the instructor. If you need ideas for companies, we can discuss.

General Outline of Final Project

I. Description of the Company.

a. Review the annual report and identify the major parts of the report. (i.e. letter to stockholder, financial statements, etc.). While doing so, identify the Company name, the services or products they provide, the major industries in which they compete, geographical locations in which they do business, and major competitors, if known.

b. For this next part, you will use Yahoo! Finance. You need to indicate the exchange on which the companys shares are traded, the companys ticker symbol, and the current price of the companys stock. You will chart this companys stock price from May 21-July 2nd. Determine how much you would have gained or lost if you had owned 1,000 shares of that companys stock. Make sure you list each weeks price and your value with your profit or loss at the end.

II. Income Statement Describe the trend of each of the following? Sales, Cost of Goods Sold, Expenses, and Net Income. You may wish to calculate percentage change in each element, or draw graphs showing trends. Did the company have an increase or decrease in revenues? Was this company profitable during the most current year of operations? How do you know? What does the management of the company have to say about the future earnings of the company? Prepare a common size income statement for two years and compare/contrast the changes. (review exhibit 17.9 in chapter 17 and pages 724-727)

III. Balance Sheet Describe the trends in assets, liabilities and stockholders equity? Have they increased, decreased? What does that mean for the company? How many shares of stock does the company have outstanding? Has the company paid any dividends in the past two years?

IV. Statement of Cash Flows The cash flow statement is divided into 3 areas: operations, financing, and investing. Describe the major cash flow items in each area? What is the trend of cash flows over a 2-year period in the operations section? Does the company have a positive cash flow from operations?

V. Ratio Analysis of Financial Statements Apply the analysis techniques discussed in Chapter 17 to evaluate the Liquidity and Efficiency, Solvency, and Profitability of this company. Is the companys financial position improving over time (to know this you must do at least two years of ratios)? The ratios that you should provide are: current ratio, acid-test ratio, inventory turnover, days sales uncollected, total asset turnover, debt ratio, equity ratio, debt-to-equity ratio, time-interest-earned ratio, profit margin ratio, gross margin ratio, return on total assets, return on return on common stockholders equity, basic earnings per share. Provide analysis of each ratio to tell whether it has improved or deteriorated.

VI. Notes to the Financial Statements This should be the most interesting part of your reading. Describe the methods used for inventories, depreciation (also list the useful lives of the assets), intangibles, income taxes, etc.? Other notes may indicate the presence of lawsuits, product liabilities, etc. Sometimes the discussion is beyond your (and my) scope -- but do the best you can.

VII. The Auditors Opinion What are the auditors willing to say about these financial statements? Describe the type of audit opinion your annual report was given and what that means for the company. (Unqualified, Qualified, Disclaimer of opinion, Adverse; Hint: Google to see what each kind of opinion means if you dont know.)

VIII. Conclusions In your opinion, describe the most interesting part of the annual report and why? Describe the least interesting and why? What is your prognosis for this company? Do you foresee success, failure, market leadership, stagnation, improvement, decline? Why? You may point to economic, political, regulatory, resource, market, or other factors that will have an impact on the success of this company.