Step 2: The purpose of this step is to help students understand the importance of benchmarking.

Create a new excel worksheet in the same excel file and name it Common Size. Copy the financial statements from your first worksheet (Financial Statements) to this new worksheet. This will be the basis of your common size calculations. Right next to the financial statement information, construct the common-size financial statements.

Remember common sizing is dividing each balance sheet item by the Total Asset item of the same year, dividing each income statement item by the Total Sales (or Total Revenue) item of the same year. You will do that for each of the five years.

Common size financial statements:

Help us compare firms of different sizes.

Help us understand the composition of assets, and liabilities, as well as the expenses.

Step 3: The purpose of this step is to help students understand the importance of trend analysis.

Create a new excel worksheet in the same excel file and name it Common Base-Year. Same as Step 2, copy the financial statements from your first worksheet (Financial Statements) to this new worksheet. This will be the basis of your common base-year calculations. Right next to the financial statement information, construct the common base-year financial statements.

Remember common base-year approach is dividing each financial statement item in any given year by the same item in the base year. For our analysis, we pick 2016 as our base year so that you can compare the firm before and after 2016.

Common base-year financial statements:

Help us track down the changes related to a firms assets, liabilities, profitability, etc. over time.

Help us understand the composition of assets, and liabilities, as well as the expenses.

Step 4: The purpose of this step is to help students understand the importance of financial ratio analysis.

Create a new excel worksheet in the same excel workbook and name it Financial Ratios. Copy the financial statements from your second worksheet (named Financial Statements) and paste on the left side of your fourth worksheet (Financial Ratios). This will be the basis of your ratio calculations.

For this step, you will calculate the following ratios for each of the five years:

Liquidity ratios: Current ratio, Quick ratio

Leverage ratios: D/E ratio, TIE ratio

Profitability ratios: Profit margin, ROA, ROE

Asset management ratios:

Turnover ratios: Total asset turnover, Inventory turnover, Receivables turnover

Days sales ratios: Days sales in inventory, Days sales in receivables

Market value ratios: Earnings per share (EPS), Price-to-earnings (P/E)

Financial ratios help us:

Focus on different aspects of the firm.

Understand how well or poorly the firm is doing in these aspects.

Track how the firms performance changing over time.