The assignment is on Abercrombie and Fitch

Instructions

Read the attached case, Financial Statement Analysis for Small Business, A Resource Guide. Focus on how the author uses the ratios to interpret the business performance.

Select a public listed company with less than $1 billion market cap. The list of candidate stocks is available from web sources such as http://www.nasdaq.com/reference/stock-screener.aspx.

Collect at least 3 years of financial information from Morningstar.com. Morningstar.com generally provides 5-year history if it is available. Some ratios need to be calculated.

Websites like http://www.bizstats.com/ provides industry benchmark ratios. However, the latest update is only accessible through a paid subscription, but you can get delayed information for free. For our study, you can use the delayed data for your analysis.

Use the suggested framework below and answer each of the listed questions.

Study the financials from the perspectives of different groups: owners, managers, short-term creditors, long-term creditors, and market.

For each question, include the related financial ratios and explain the changes over time. It is not required to include comparison against benchmarks, but you can try including the free delayed benchmark data for practice.

Introduction

Short description of the company background

Owners

1-1. How well is the company doing as an investment?

Return on Equity or Investment:

	Industry	2016	2015	2014	2013	2012
ROE

Comments: ??

1-2. How well has management employed the company's assets?

Return on Asset: ??

	Industry	2016	2015	2014	2013	2012
ROA

1-3. List of the sources for the change of Return on equity using DuPont Identity.

ROE = (Net profit margin) * (Total asset turnover) * (Equity multiplier)

Explain how the three components contributed to the change of return on equity.

	Industry	2016	2015	2014	2013	2012
Net profit margin
Total asset turnover
Equity multiplier
Return on equity

1-4. Comment the track records of free cash flow over the recent years?

Using Morningstar.com

cash flow statement

Free cash flow = Operating cash flow Capital expenditure

Managers

2-1. Are profits high enough, given the level of sales?

Net profit margin

	Industry	2016	2015	2014	2013	2012

2-2. How well are the company's assets being employed to generate sales revenue?

The Asset Turnover ratio [Sales Average Total Assets]

	Industry	2016	2015	2014	2013	2012

2-3. Are receivables coming in too slowly?

The Average Collection Period [(Average A/R Annual Sales) x 365]

	Industry	2016	2015	2014	2013	2012

2-4. Is too much cash tied up in inventories?

The Inventory Turnover [Cost of Goods Sold Expense Average Inventory]

	industry	2016	2015	2014	2013	2012

2-5. What is the breakeven revenue?

VC = Variable cost = cogs

CFC = (Admin + marketing + other operating expense) + (interest expense)

R = Revenue

SR = Survival revenue = CFC / (1 VC / R)

	2016	2015	2014	2013	2012
R
VC
CFC
SR
Ratio of R / SR

Comments

Short-Term Creditors

3-1. Does this customer have sufficient cash or other liquid assets to cover its short-term obligations?

The Current Ratio [Current Assets Current Liabilities]

The Quick Ratio [Cash + Marketable Securities + A/R Current Liabilities]

	Industry	2016	2015	2014	2013	2012

3-2. How quickly does the prospective customer pay its bills?

The Average Age of Payables [(Average Payable Net Purchases) x 365]

	Industry	2016	2015	2014	2013	2012

Long-Term Creditors

4-1. As a potential or present long-term borrower,

Debt-to-Equity (D/E) [Total Debt Total Equity]

	Industry	2016	2015	2014	2013	2012

4-2. Are earnings and cash flow sufficient to cover interest payments and provide for some principal repayment?

The Times Interest Earned (TIE) [Income + (Interest + Taxes) Interest Expense]

The Cash Flow to Total Liabilities [Operating Cash Flow Total Liabilities]

	Industry	2016	2015	2014	2013	2012

Market

5-1. How the financial performance is priced by the financial markets?

Price-book ratio = price per share / book value per share

Price-earnings ratios = price per share / earnings per share

	2016	2015	2014	2013	2012
Price per share
Book value per share
Earnings shares
Price-book ratio
Price earnings ratio

Comments

Summary

6-1. How to evaluate the overall financial profiles (ratios) of the company?

List major conclusions from the financial analysis.

6-2. Was the price movement an accurate reflection of the change in the financial profile?

Is the stock over-priced or underpriced compared against the fundamentals (financial profiles)?

6-3. Is the stock a good candidate to invest? Buy or Sell?