Sanderson Farms is the third largest poultry producer in the United States and produces 9.375 million chickens per week. It is the only Fortune 1000 company headquartered in Mississippi.

Sandersons financial statements for the three years ended December 31, 2012, 2013 and 2014, are provided as supplementary material.

1. Profitability Analysis
   1. Compute Sanderson return on assets (ROA) for 2014 and 2013. What trend do you observe in Sanderson ROA? (2 points)

2. Decompose Sanderson ROA for 2014 and 2013 to its two main components we learned in class. Comment on which of the two components is causing the trend you observed in question 1(a) (4 points)

3. Identify the two line items in the relevant financial statement that can explain the trend you observed in questions 1(a) and 1(b) (use common size analysis and/or percentage change analysis to show the change). (4 points)

4. Briefly explain what could have caused the change in the two line items you identified in 1(c) (4 points)

2. Risk Analysis
   1. Can the company pay off its current liabilities within the following year? Use the most appropriate ratio. (3 points)

2. If all of Sanderson Current liabilities were due within a few days, will the company be able to pay them off? Use the most appropriate ratio. (3 points)

3. Did Sanderson short term liquidity risk increased or decreased in 2014? Use the ratios you calculated in 2(a) and (b). (2 points)

3. Cash Flow Statement
   1. In your opinion, in which life cycle phase is Sanderson? Briefly explain (7 points)

4. Accounting Quality
   1. Compute two distinct ratios from the financial statements which helps detect early warnings signs of earnings management (6 points)

2. The table below presents analysts EPS consensus forecast (Wall St.) and actual EPS. Based on the data from the table, is there any early evidence that might suggest Sanderson management is managing earnings? (3 points)
3. Based on the evidence in 4 (a) and (b) Briefly comment whether you believe Sanderson management is managing earnings (2 points)
4. Based on the analysis you conducted in questions 1-4, would you recommend an investment in Sanderson Farms? Briefly explain (Bonus 5 points)

EPS FQ1 '13 FQ3 '13 FQ4 '13 FQ1 '14 FQ2 '14 FQ3 '14 FQ4 '14 FQ2'13 0.86 2.65 2.34 1.68 3.77 Wall St. Wall St. High Wall St. Low -0.11 0.05 0.94 1.23 4.15 4.92 1.00 3.42 2.74 1.74 4.03 -0.47 0.72 1.73 2.10 0.66 1.57 3.48 3.74 Actual -0.31 1.06 2.95 1.97 1.25 2.21 3.30 4.04 EPS FQ1 '13 FQ3 '13 FQ4 '13 FQ1 '14 FQ2 '14 FQ3 '14 FQ4 '14 FQ2'13 0.86 2.65 2.34 1.68 3.77 Wall St. Wall St. High Wall St. Low -0.11 0.05 0.94 1.23 4.15 4.92 1.00 3.42 2.74 1.74 4.03 -0.47 0.72 1.73 2.10 0.66 1.57 3.48 3.74 Actual -0.31 1.06 2.95 1.97 1.25 2.21 3.30 4.04