Financial Statement Reporting and Analysis

Financial Statement Analysis Project

You have done an excellent job for your company. The executives have been considering to promote you to a position with more responsibilities and higher pay. Whether you will have this promotion depends on your performance for this project the executives assign you to do.

The specific tasks are:

1. Collect a most recent 10-K for at least three years of financial data, including financial statements, their footnotes, and management discussion for ONE of the following primary firms: (Note: DON'T print out 10-K.)
2. ConocoPhillips (COP)

b.Occidental Petroleum

Then, you need to find one major competitor of the firm you select above, and also download its most recent 10-K with at least 3 years of data. You need to explain why you select this firm as the competitor for your project study. In addition, you need to collect industrial benchmarks or ratios for the ratios you need to calculate (See 3 below), and to investigate what formulas from which these benchmarks are calculated. (5 points)

1. Summarize the management discussion and analysis. Pay close attention to the adjective terms in the description they use to excuse themselves from unsatisfactory performance. Do you think that the firm discloses its financial situation sufficiently? (10 points)

1. For the two companies (the primary and the competitor), do numerical analyses on: their common-size (vertical and horizontal) ratios, year-to-year ratios,liquidityof short-term assets and related debt-paying,activityefficiency, long-term debt-paying ability orcoverage, and the firms'profitability.

1. Comments on the major findings of the primary firm based on the analytical results in Item 3 above, in comparison with those of the competitor and industrial benchmarks. (10 points)

1. Comment on the accounting treatments of the primary firms. You need to read management discussion and analysis and footnotes carefully. In general, your comments should concentrate on whether the firms are conservative or not for account classification and estimates, and whether there are accounting policy changes and why. If the firms use different accounting methods, such as for depreciation and amortization, you need to specify them. Your evaluation should be based upon the criteria we have learned in this course and the accounting quality hierarchy. Particularly, concentrate on the following issues: (25 points)

1. Do the firms recognize their revenue and related expenses properly? Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes)
2. Examine accounting quality for fixed assets and intangible assets. Pay close attention to the valuation and estimation methods used. Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)
3. Review liability recognition and related expenses. Explain whether you agree or disagree with the treatment of the firms. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)

1. Select one company from the two companies studied, and explain why you select this specific firm for possible investment. Your selection should be based upon your ratio analyses and comments. (5 points)

1. Do pro forma financial statements: Balance Sheet and Income Statement for the company you choose to invest in, and further do the ratio analysis (above Step 3) and explain (above Step 4) to confirm or refute your decision. (20 points)

1. Cosmetic work. Your report from the project should follow the typesetting requirements, as listed on the next page. (5 points)

1. Optional: Graphing major ratios of your analysis. (Note: you need not graph all the ratios. Bonus: 3 points)