BAT4M

Summative

Annual Report Analysis

Introduction

You will analyse and compare the current annual reports of two Canadian corporations in the same industry. Your final report will be presented in a word processor document with accompanying spreadsheets. It should include a table of contents and a works cited page, which will include the citation for both annual reports.

The annual reports that you choose must meet all of the following criteria:

a) detailed financial statements that provide you with enough data to calculate ratios; use the Consolidated Financial Statements

b) company follows Canadian GAAP, International Financial Reporting Standards;

c) the company's stock trades on the Toronto Stock Exchange;

d) most recent annual report available.

Tips for Success

In order to get the best "results" from this assignment:

• use SEDAR and/or Industry Canada to determine the industry;
• choose corporations that had profitable results, i.e. net income not a net loss, for the past two years;
• do not choose corporations in these industries:investment companies and funds, financial management, conglomerates, scholarship plan;
• do some investigating and reading before making your selection.

Before you begin the analysis:

Submit the names of these two corporations along with the dates of the annual reports to your teacher for approval. If possible, include a link to the annual reports. Your teacher will give you the go-ahead to proceed with your analysis or suggest a change if necessary.

Report Contents

Your report will contain the following information for both corporations.

Part 1 - Background Information

1. Describe the company including:

-its name and the name of its CEO/president

-the address of the head office of the corporation

-the area(s) of business activity

-the number of branches or production facilities

-its TSX ticker symbol and its name per stock quotations

-the length of time it has been in existence

-the fiscal period covered by the annual report

2. Who are the auditors? What did they conclude?

3. What are the company's major sources of revenue?

4. What valuation method was used for the corporation's inventories?

5. What depreciation (depletion, amortization) method(s) did the company use?

6. Describe any extraordinary items that appear on the financial statements.

7. Describe, in detail, the share capital of this corporation.

8. Did the company have a successful year according to the CEO?Explain.

9. What is the "outlook" of the company as outlined by the CEO?

Part 2 - Ratio & Trend Analysis

Ratio Analysis: Calculate the following ratios, for each corporation, from the data provided.Use a spreadsheet to show your calculations and display your answers... use the Consolidated Financial Statements

1. Current Ratio
2. Quick Ratio
3. Working Capital

b) Inventory Turnover or Receivables Turnover

c) Profit Margin

d) Return on Assets

e) Asset Turnover

f) Return on Equity

g) Earnings per Share

h) Debt to Total Assets

Horizontal Analysis

a) Using a spreadsheet, include a horizontal analysis of the consolidated balance sheet. Calculate the increase or decrease in each account from the previous year, in both $ and %.

b) Using a spreadsheet, include a horizontal analysis of the consolidated income statement. Calculate the increase or decrease in each account from the previous year, in both $ and %.

Vertical Analysis

a) Using a spreadsheet, include a vertical analysis of this year's consolidated balance sheet and the previous year's consolidated balance sheet. Calculate component % for each B/S account, compute as a % of total assets.

b) Using a spreadsheet, include a vertical analysis of this year's consolidated income statement and the previous year's consolidated income statement. Calculate component % for each I/S account, compute as a % of net sales.

Part 3 - Conclusion - Weighted the heaviest when I evaluate it!

In this section, you will pull together all of the information you gathered and analysed in the first two sections.You will compare and contrast:

a) The main similarities and differences in the two annual reports.

b) Each corporation's financial position and performance based on the results of your ratio and trend analysis. Substantiate your comments by referring to your numbers and commenting on liquidity, profitability and solvency.

c) In the final paragraph of your report, identify which corporation is in a better financial position.

Here is an example of the type of comment you will be expected to make:

In the current fiscal period, ABC Corporation had a profit margin of 15% that was 3% higher than XYZ's profit margin of 12%. Both corporations experienced a decrease in profit margins from the year before.