Financial Accounting Reporting and Analysis

Project # 2

ACCT6351 Spring 2020

*** Warning: The companies and ratios presented in the sample projects are different from what required in the current projects. Therefore, you CANNOT directly follow the samples. Some modification is needed.

The specific purposes of the projects are:

1. Apply to actual companies the knowledge and analytical techniques learned from our course.

2. Perform vertical and horizontal analysis and various ratios on the financial statements.

3. Compare the calculated results with competitor and across different years.

4. Summarize the analyses and make investment recommendations.

You will be analyzing the following firms:

a. Home Depot

b. Lowes.

Please check the blackboard for the financial statements.

The required tasks are detailed below:

(1) Prepare vertical common-size income statements and balance sheets for both companies.

Note: Use Total Sales and Total Assets as the denominators for income statement

and balance sheet, respectively. Compute for 2018, 2017, and 2016.

(2) Prepare horizontal analysis on income statements and balance sheets for both companies.

(3) Prepare ratio analyses (for 2018, 2017, and 2016) for both companies. You should

include the following ratios in your computations:

Profitability ratios

• Gross Profit margin
• Profit margin
• Return on assets
• Return on equity

Productivity

• Inventory Turnover
• days inventory days outstanding
• PPE Turnover
• Asset Turnover

Solvency

• Debt-to-equity
• Times interest earned
• Return on Financial leverage

Liquidity

• Current Ratio
• Quick Ratio
• Operating cash flow to current liabilities
• Working capital

(4) Comment on the analytical results of the two companies based on your work in excel.

In addition to contrasting the ratios between the companies, you should interpret the

numbers and make suggestions as to why the ratio of one company might be higher/lower

than the other.

Note: General discussions of the ratios are given in our textbook, which will help you

structure your comments.

(5) Write a conclusive summary on the firms you have studied. Based upon your conclusions,

recommend the better performing firm for potential investment. Your conclusions should

be based upon, and specifically reference, the analyses prepared in this report.

Report Format Requirements:

A. Report body requirements:

1. Cover page. List the title of the project, your name, and semester/year.

2. Main body. Use the following sequence for report content:

a. Introduction to the two companies and to the purpose of the report

b. Analytical section. This should include all your numerical analyses. This is where

you will discuss the results of, comments on, and conclusions about, the Common

Size, horizontal, and the ratio analyses for both companies.

c. Comparisons of companies and all other analysis (observations and/or

interpretations). (You may combine b and c if you wish, as long as both are well

covered.)

d. Conclusions and recommendation for investment.

3. References. List all major reference sources.

4. Appendices. Include tables and graphs of your numerical analyses. For reference

convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.

B. Typesetting requirements:

1. Use size 12 font. Times New Roman is preferred.

2. Double space between lines.

3. Number pages.

4. One inch on all sides.

C. Miscellaneous

The total report should be approximately 20 pages.

Notes