Financial Statement Analysis and Decision Making Activity

Financial Statement Analysis and Decision Making Activity

Purpose of Assignment 
Students also learn to analyze financial statements and use managerial tools to make decisions from an investor’s and creditor’s standpoint. The activity requires students to perform research and analysis on competing companies and the potential implications of international standards. This real-world analysis is key to understanding how a company’s profitability, liquidity, and solvency can be useful for all users.
Assignment Steps 
Resources: U.S. Securities and Exchange Commission (SEC), websites such as Annual Reports (AnnualReports.com) Tutorial help on Excel ® and Word functions can be found on the Microsoft ® Office website. There are also additional tutorials via the web offering support for Office products. 
Select two competing companies, one of which must be an international company, and locate annual reports for these two companies on the Internet. 
Research the two companies on the Internet and download the Income Statement, Statement of Shareholders’ Equity, Balance Sheet, and Statement of Cash Flows. 
Develop a minimum 525-word examination of the financial
statements and include the following:
• Make a 5-year trend analysis for each company, using 2011 as the
base year, of:
◦ Net sales.
◦ Net income. Discuss the significance of the trend results.
• Compute for 2015 and 2014 the:
◦ Debt to assets ratio.
◦ Times interest earned. How would you evaluate each

company’s solvency?
• Compute for 2015 and 2014 the:
◦ Profit margin.
◦ Asset turnover.
◦ Return on assets.
◦ Return on common stockholders’ equity. How would you

evaluate each company’s profitability? 

• Evaluate the financial opportunity presented by the companies. If you were a creditor, which company would you be more likely to lend money to? Defend your decision.
• Which company would you recommend as an investment?  Discuss the items that were considered in your decision.
• Research global implications for the international company selected. How might changing environmental factors affect organizational choices? 
• Consider the ethical climate (internal or external) of your chosen companies. Describe the ethical issues and impact on the stakeholders. What has been/is being done to resolve these issues? Do you agree with these methods for resolution? If not, what might you do differently?
Show your work in Microsoft ® Word or Excel ® . 
Complete calculations/computations using Microsoft ® Word or Excel ® .    
Include the four financial statements along with your assignment.
Format your assignment consistent with APA guidelines.
Click the Assignment Files tab to submit your assignment.

Ham plc acquired 100% of the common shares of Burg plc on 1 January 20X0 and gained control. At that date the statements of financial position of the two companies were as follows:

Notes:

1 The fair value is the same as the book value.

2 £15,000 of the negative goodwill arises because the net assets have been acquired at below their fair value and the remainder covers expected losses of £3,000 in the year ended 31/12/20X0 and £2,000 in the following year.

Required:

(a) Prepare a consolidated statement of financial position for Ham plc as at 1 January 20X0.

(b) Explain how the negative goodwill will be treated.

Ethics and Financial Reporting

Reading (Required)

Les Livingstone (2nd edition, 2011) Ethics made easy an inexpensive paperback available at amazon.com, all chapters.

Our purpose this week: studying the ethics and the integrity of financial reporting. Show us that you have read and understood the required readings, links and attached files – quote them where appropriate.

Financial reporting includes the financial statement information that corporate owners (such as stockholders) and creditors (such as lenders and suppliers) rely upon to evaluate the performance of top management employees, who are entrusted with managing the assets and affairs of the enterprise. Those employed in top management have a fiduciary responsibility to owners to perform prudently, honestly and in the best interests of the owners, as well as to provide owners with full and fair information on their performance.

A crooked top management is tempted to falsify this information, in order to look better than it deserves, and to cover up poor or dishonest performance. This happened in such financial scandals such as Enron, WorldCom and other financial frauds. Therefore it is essential for financial reporting to have integrity. This makes the integrity of financial reporting a fiduciary duty and an ethical issue.

For explanations about Audits and Audit Committees click here:

http://www.caqforinvestors.org/

Learning Team Assignment: Financial Statement Analysis and Decision Making Activity
Purpose of Assignment
The activity requires students to perform research and analysis on competing companies and the potential
implications of international standards. This real-world analysis is key to understanding how a company’s
profitability, liquidity, and solvency can be useful for all users. Students also learn to analyze financial
statements and use managerial tools to make decisions from an investor’s and creditor’s standpoint.
Resources Required
U.S. Securities and Exchange Commission
Annual Reports (AnnualReports.com)
Tutorial help on Excel ® and Word functions can be found on the Microsoft ® Office website. There are also
additional tutorials via the web offering support for Office products.
Grading Guide

Content Met Partially

Met Not Met Comments:

Select two competing companies, one of
which must be an international company, and
locate annual reports for these two
companies on the Internet.

Researched the two companies on the
Internet and downloaded the Income
Statement, Statement of Shareholders’
Equity, Balance Sheet, and Statement of
Cash Flows.
Made a 5-year trend analysis for each
company, using 2011 as the base year, of:
o Net sales.
o Net income. Discuss the significance
of the trend results.
Computed for 2015 and 2014 the:
o Debt to assets ratio.
o Times interest earned. Answered the
following question:
 How would student evaluate each
company’s solvency?
Compute for 2015 and 2014 the:
o Profit margin.
o Asset turnover.
o Return on assets.
o Return on common stockholders’
equity. Answered the following
question:
 How would student evaluate each
company’s profitability?

Evaluated the financial opportunity presented
by the companies. If student were a creditor,
which company would student be more likely
to lend money to? Defended decision.
Answered the following question:
 Which company student would
recommend as an investment? Discussed
the items that were considered in
student’s decision.
Researched global implications for the
international company selected. Answered
the following question:
 How might changing environmental
factors affect organizational choices?
Considered the ethical climate (internal or
external) of student’s chosen companies.
Described the ethical issues and impact on
the stakeholders. Answered the following
questions:
 What has been/is being done to resolve
these issues?
 Does student agree with these methods
for resolution? If not, what might student
do differently?
Showed work in Microsoft ® Word or Excel ® .
Completed calculations/computations using
Microsoft ® Word or Excel ® .
Included the four financial statements along
with assignment.
The examination is a minimum 525 words in
length.

Total
Available
Total
Earned
7 #/7

Writing Guidelines Met Partially

Met Not Met Comments:

The paper—including tables and graphs,
headings, title page, and reference page—is
consistent with APA formatting guidelines and
meets course-level requirements.
Intellectual property is recognized with in-text
citations and a reference page.
Paragraph and sentence transitions are
present, logical, and maintain the flow
throughout the paper.

Financial Statement Analysis and
Decision Making Activity Grading
Guide ACC/561 Version 7
4

Sentences are complete, clear, and concise.
Rules of grammar and usage are followed
including spelling and punctuation.

Total
Available
Total
Earned
  3 #/3

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