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BUS 170, Section 1 Financial Analysis Project On your first job assignment as an equity analyst, you need to analyze one of two companies Facebook (FB) or Twitter (TWTR). Please complete the following tasks: 1. Download the annual income statements, balance sheets, and cash flow statements for the last 4 fiscal years from MarketWatch (www.marketwatch.com), SEC Website, annual reports, or other site. Enter each company's stock symbol and then go to "financials". Copy and paste the financial statements into Excel. You can also use a subscription software, such as CapitalIQ, and utilize the Excel plug-in. 2. Find historical stock prices for each firm (Yahoo! Finance, finance.yahoo.com is one site that has this information). Enter the stock symbol, click on "historical prices" in the left column, and enter the proper date range to cover the last day of the month corresponding to the date of each financial statement. Use the closing stock prices (not the adjusted close). To calculate the firm's market capitalization at each date, multiply the number of shares outstanding (see "Basic Weighted Shares Outstanding" on the income statement) by the firm's historic stock price. 3. For each for the 4 years of statements, compute the following ratios for each firm: Valuation Ratios Price-earnings ratio (for EPS use diluted EPS total) Profitability Ratios Operating margin (Use operating income after depreciation) Net profit margin Return on equity Financial Strength Ratios Current ratio Deb-equity ratio (indicate Book or Market) 4. Obtain industry averages for each firm from Reuters.com (www.reuters.com/finance/stocks). Enter the stock symbol at the top of the page in the "Symbol lookup" and then click on the "Financials" button, and then click on "Search". Scroll down to "Valuation ratios", and compare each firm's ratios to the available industry ratios for the most recent year. (Ignore the "Company" column as your calculations will be different.) Comment on each firm's valuation compared to its industry. 5. Analyze the performance (from profitability ratios) of each firm versus its industry and comment on any trends in each individual firm's performance. 6. Identify any strengths or weakness you find in each firm. Notes: The statements from MarketWatch seem to group things differently: For example, in their gross profit ("gross income") calculation, they include depreciation & amortization under COGS. To calculate operating income, you don't have to subtract D&A again since it's already reflected in "gross income". What you need to do is to take out "SG&A expense" and "other operating expense" to get operating income. Some of you get negative operating income, because you subtracted SG&A, R&D, and other SG&A from gross income. But actually SG&A is the sum of R&D, and other SG&A. Sorry for the confusion. If you found a clearer format of financial statements for the two companies, feel free to use them. I don't really care of the source of information, as long as they are official! Points breakdown (20 points) #1: 4 #2: 3 #3: 6 #4: 3 #5: 4 #6: 4 Financial analysis 1 Financial analysis Name institution Financial analysis 2 Get Income Statement for: income Statement View: Annual Data | Quarterly Data Period Ending Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses All numbers in thousands Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 12,466,000 7,872,000 5,089,000 2,153,000 1,875,000 1,364,000 10,313,000 5,997,000 3,725,000 2,666,000 2,653,000 - 1,415,000 1,778,000 - 1,399,000 1,788,000 - Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items 4,994,000 2,804,000 538,000 4,910,000 4,910,000 1,970,000 (15,000) 2,925,000 2,754,000 2,754,000 1,254,000 (9,000) 1,491,000 494,000 494,000 441,000 (21,000) 32,000 - - Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 2,925,000 2,925,000 1,491,000 1,491,000 Period Ending Dec 31, 2014 Assets Dec 31, 2013 32,000 32,000 Dec 31, 2012 Financial analysis Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets 3 4,315,000 6,884,000 1,678,000 793,000 13,670,000 3,967,000 17,981,000 3,929,000 637,000 40,184,000 3,323,000 8,126,000 1,109,000 512,000 13,070,000 2,882,000 839,000 883,000 221,000 17,895,000 2,384,000 7,242,000 1,170,000 471,000 11,267,000 2,391,000 1,388,000 57,000 15,103,000 1,244,000 114,000 66,000 1,424,000 119,000 2,545,000 4,088,000 823,000 239,000 38,000 1,100,000 237,000 1,088,000 2,425,000 488,000 534,000 30,000 1,052,000 1,991,000 305,000 3,348,000 6,099,000 30,225,000 (228,000) 36,096,000 14,186,000 3,159,000 12,297,000 14,000 15,470,000 13,748,000 1,659,000 10,094,000 2,000 11,755,000 10,367,000 Financial analysis 4 TWITTER Period Ending Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Dec 31, 2014 Dec 31, 2013 1,403,002 664,890 446,309 266,718 956,693 398,172 Dec 31, 2012 316,933 128,768 188,165 691,543 804,016 - 593,992 440,011 - 119,004 146,244 - Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items (538,866) (635,831) (77,083) (5,500) (578,351) (578,351) (531) (577,820) (4,455) (647,146) (647,146) (1,823) (645,323) 399 (79,170) (79,170) 229 (79,399) - - - Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares (577,820) (577,820) (645,323) (645,323) (79,399) (79,399) BALANCE SHEET Period Ending Assets Current Assets Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Financial analysis 5 Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets 1,510,724 2,111,154 418,454 215,521 841,010 1,393,044 247,328 93,297 203,328 221,528 112,155 17,455 Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc. Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets 4,255,853 557,019 622,570 105,011 42,629 5,583,082 2,574,679 332,662 363,477 77,627 17,795 3,366,240 554,466 185,574 68,813 3,753 18,962 831,568 281,474 112,320 393,794 1,494,970 43,209 24,706 1,956,679 138,304 87,126 225,430 110,520 20,784 59,500 416,234 61,043 48,836 109,879 65,732 19,437 12,156 207,204 3 (1,572,446) 5,208,870 (10,024) 3,626,403 2,898,822 3 (994,626) 3,944,952 (323) 2,950,006 2,508,902 835,430 37,106 1 (349,303) 101,787 (657) (248,172) (320,738) Financial analysis 6 PRICE EARNING RATIO. Price earnings ratio is given by MPS/EPS. PROFITABILITY RATIO Operating margin Facebook profitability ratio operating margin -twitter 2014 2013 2012 -538,866 1403002 -635,831 664890 -77,083 316933 -38.40807069 -95.62950262 -24.3215443 2013 2012 4994000 12466000 2804000 7872000 538000 5089000 40.06096583 35.6199187 10.57182158 2014 2013 2012 Net Income Total Revenue 2925000 1403002 1491000 664890 32000 316933 net profit margin 2.084815275 2.242476199 0.100967712 2014 2013 2012 -577,820 12466000 -645,323 7872000 -79,399 5089000 Operating Income or Loss Total Revenue face book-operating margin 2014 Operating Income or Loss Total Revenue net profit margin facebook Net Income Total Revenue -4.635167656 return on equity- Facebook 2014 Net Income -577,820 -8.197700711 -1.560208292 2013 2012 -645,323 -79,399 Financial analysis 7 Total Stockholder Equity 36096000 return on equity 15470000 -1.600786791 11755000 -4.171447964 -0.675448745 return on equity- twitter 2014 2013 2012 2925000 3626403 1491000 2950006 32000 -248,172 80.65843758 50.54227008 -12.894283 Net Income Total Stockholder Equity twitter-current ratio 2014 Total Current Assets Total Current Liabilities 2013 2012 4,255,853.00 2,574,679.00 554,466.00 393,794.00 225,430.00 109,879.00 10.80730788 11.42119061 5.046150766 2013 2012 13070000 11267000 1100000 1052000 11.88181818 10.71007605 Facebook-current ratio 2014 Total Current Assets 13670000 Total Current Liabilities 1424000 9.599719101 The face book inc. Operating margin is better than that of twitter which made a significant loss operating margin in all the years. It signifies that the company cannot operate efficiently. Unlike face book which had a significant and favorable operating margin ratio. The profitability ratio of face book considering the net profit margin is adverse in all the years than it is in the case for twitter inc.It signifies that the company made profit from its operation with a significance improvement in 2012, 2013 and 2014.facebook made a an increasing loss from 2012 to 2014. The reason is due to the increase in expenses over the years and a corresponding decrease in sales revenue. The strengths and weaknesses of face book inc. One of the strengths of the face book Inc includes; Financial analysis Increased revenue through rampant advertisement Reduced operating expenses Weakness Persistent loss making attributed to high operating expenses. Strength-twitter. Good current ratio implying that the company 'asset is able to meet the liabilities Weakness Higher debt ratio 8