Example 1: Practice Questions: Company Analysis

BUSI 3360: Finance I

Look at the performance of a listed company (either on TSX, NYSE or NASDAQ) by examining some key ratios for return and profitability over the last five years. You should be able to understand the relationship between financial numbers and various business strategies that the company is pursuing.

Ben Graham said regarding security analysis in his classic, The Intelligent Investor in 1949:

"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate or differ." (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.)" (Graham, 2006, p. 524)

General Instructions

The information should only come from the 10-K (annual report) of your chosen company. You may use other sources only to help you understand technical terms about the company's products, operations, or the industry.

Explain into depth your interpretation of the results

As discussed in class, the 10-K is where the company discloses material information about its business including its audited financial statements. be sure that your data is coming directly from the company's annual report.

The Mount has recently subscribed to a financial database called MergentOnline. Mergent provides financial information of both US listed and international companies. You can learn about the database here: https://www.mergentonline.com/noticescm.php?pagetype=about

You can access the database from visiting Business research guide through our

library website: http://libguides.msvu.ca/c.php?g=114487&p=5015597 From campus, you can use the direct link: http://www.mergentonline.com I will show you how to use the database in the class.

Specific Instructions

In an excel spreadsheet, input the relevant information that you need to calculate the following ratios in the format prescribed below for the last five years.

Categories

Ratios

2019

2018

2017

2016

2015

Short-term solvency/Liquidity ratio

Current ratio

Quick ratio

Long-term solvency or financial leverage ratios

LT Debt/Equity

Time Interest Earned/Interest coverage ratio

Asset management/Turnover ratio

Inventory turnover

Receivables turnover

Profitability measures

Gross profit margin

Operating profit margin

Net profit margin

Return on invested capital

discuss the company's financial performance explaining/interpreting the ratios (or changes to the ratios) that you calculated from the financial statements. You may like to compare your company's ratio with a major competitor or the industry average. Try to identify the causes of the major differences between the two companies.

Comment specifically on whether the company has durable competitive advantage (or wide moat) based on the ratio. You may also like to consider the qualitative factors discussed in the class. The appended materials for chapter 4 can come handy when you are commenting on wide moat.