You are an analyst for a private company who has been assigned the task of preparing a liquidity, profitability and solvency analysis of a new customer. The analysis will be in the form of a Memo to the Files, which the head of your department will review.

Instructions:

1. Obtain a copy of the annual report for your selected company. Read the financial statements, notes to the statements and Management Discussion & Analysis sections. Below are several recommended sites that should contain such data:
   • Your companys homepage. Usually the investor relations or about the company sections.
   • Tadawul website https://www.tadawul.com.sa/wps/portal
   • Yahoo Financials http://finance.yahoo.com/

2. Outline a draft of your memo and include the following sections in the body of the memo:

• Introduction

• Ratio Analysis and Interpretation
• Recommendations

3. Calculate the ratios that indicate liquidity: the Current Ratio, Quick Ratio, Net Sales to Working Capital, Receivable Turnover Ratio and Inventory Turnover Ratio. Prepare the ratios for the two most recent years.

4. Calculate the ratios that indicate profitability. Sample profitability ratios include Gross Margin, Before Tax Margin, Net Income, Return on Assets, Return on Equity, Earnings per Share, and Price-Earnings Ratio. Prepare the ratios for the two most recent years. Your responsibility is to represent the profitability category of ratios in your memo. If your particular company has other profitability ratios, choose the ratios that are available. Just be sure to interpret the ratios you describe.

5. Calculate the ratios that indicate solvency. Suggested solvency ratios include the Debt Ratio, Total Liabilities to Net Worth Ratio, and Coverage Ratio (times interest earned). Prepare the ratios for the two most recent years. Your responsibility is to represent the solvency category of ratios in your memo. If your particular company has other solvency ratios, choose the ratios that are available. Just be sure to interpret the ratios you describe.

6. Analyze the trends over time (increasing, decreasing, fluctuating, etc.). Explain what the numbers might indicate based on the financial statements and your knowledge of accounting.

7. Prepare a typewritten memo reporting your findings, interpretations, and recommendations. (five page MAXIMUM length plus an appendix containing ratio calculations). The following format is provided an example.

MEMO TO: Credit Files

FROM: Your Name

DATE: Due Date of Assignment

SUBJECT: Credit Analysis of "Your Company's Name"

Introduction: Describe what you will and will not cover and why it is important to the reader.

Ratio Analysis: In two-five paragraphs, describe the numbers and facts, and interpret them (i.e., their impact on the lending decision). Include also in your analysis managements own view of its performance according to its Management Discussion and Analysis. Ratio calculations may be attached as an appendix.

Recommendations: Explain why you should or should not grant credit.

Reading and Using Annual Reports: Financial Statement Analysis

PART B Profitability (2 Marks)

You have recently inherited a large sum of money. After enjoying a brief, but intense, spending spree, you plan to invest $5,000 to purchase the stock of a publicly traded company. You have decided to prepare a valuation analysis of your prospective purchase. Prepare your analysis in the form of a Memo to the Files.

Instructions:

1. Use the same annual report data required in parts A and B above: financial statements, notes to the statements, and Management Discussion & Analysis sections.

2. Outline a draft of your memo and include the following sections in the body of the memo:

• Introduction
• Valuation Analysis and Interpretation

• Recommendations

3. Prepare a MAXIMUM three-page typewritten memo, reporting your findings, interpretations and recommendations. Include also in your analysis managements own view of its performance according to its Management Discussion and Analysis. The following format is- provided as a sample:

MEMO TO: The Files

FROM: Your Name

DATE: Due Date of Assignment

SUBJECT: Profitability Analysis of "Company Name"

Introduction: Describe what you will and will not cover and why it is important to the reader.

Valuation Analysis: describe the numbers and facts, and interpret them (tell their impact on your investment decision). valuation calculations may be attached as an appendix.

Recommendations: Explain why you should or should not invest.

Reading and Using Annual Reports: Financial Statement Analysis

PART C Complete Company Report (4 Marks)

You are an employee of a successful accounting firm and have been asked to prepare a complete company analysis on a prospective new client for the firm. You should include relevant findings from the memos you completed in Parts A, B. However, you will also need to include additional research of the industry in which the company operates. Include also critical issues facing the company. in addition to preparing a written report, you will need to prepare a brief presentation of your recommendations.

Instructions:

1. Draft the company report. Use the sample table of contents below for guidance:

Sample Table of Contents

Executive Summary: Summarize your results in two-three paragraphs.

Company Background: Summarize the companys business segments, products, services, and length of time in business, size, major competitors, etc., in two-three paragraphs.

Financial Analysis: sections covering Liquidity, Solvency & Profitability. Your financial analysis MUST compare your company to its industry.

Valuation: describe the numbers and facts and interpret them (tell their impact on your investment decision). valuation calculations may be attached as an appendix.

Summary and Conclusion: Take two-three paragraphs to wrap things up. Include your recommendations.

Reference List: Use and cite at least five sources

Appendix: Charts, graphs, ratio computations, horizontal and vertical analyses, etc. may be included in the appendix.

4. Prepare a brief (15-20 slides) PowerPoint presentation describing relevant facts about your company. Include a financial summary in your present