FOR PROFESSOR JIM — More Helpful Information to Properly Complete Assignment 2

First page is the cover sheet


Second page is the Abstract – Briefly introduce what paper is about

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Third page is the Introduction – Brief introduction of each company as if you did not have an abstract. Then begin to each of the four items. Read the rubic for Assignment 2 and information below to be nothing is missed.


Item 1) Again, begin with a brief introduction of the companies and then talk their 10ks. Take a look it from the perspective of an investor. It is very formal and stuffy or very casual and use lots of graphs? Did they go out of their way to help those w/o an MBA degree understand it? Is it from a positive tone or did the company recently go through an issue and is trying to put a spin on it?


1)      Compare and contrast style of 10K. What is senior mgmt trying to convey to investors? Would you, as in investor, be happy with this sort of reporting if you were investing 10k to 1M in this company?


2)      For example, give the background of the industry and presentation of the company’s annual report. How is mgmt choosing to use/present this information?


a.       All companies must file a 10K but there is latitude with the amount of detail – For instance, is the company using as a marketing tool or strategy showing lots of great results and highlighting new initiatives, making it simple for ppl to learn and think positive about their company from an investment or general standpoint?


b.      Or do they see it as a necessary evil – not really interested in ppl knowing about their company to gain new investors. Don’t want competitors to undercover something that they can use against them. Don’t want the info shared with the public sector. It’s restrictive!


Item 2) The end product is mostly a paper but it has to be data driven by financials. Use the Excel template and show all work. Enter data and show calculations for all 3-4 years. Look for measures that are relevant – use 6-8 ratios. Compare and contrast for the two companies. Incorporate a simple table into the paper that shows the 6-8 ratios you are discussing.  Answer these questions and add more:


1)      What is data telling you?


2)      Is one company doing better than the other?


3)      Has one chosen to use debt and the other funding primarily through equity?


4)      Do they have similar trends where they both are improving inventory and getting better at using their inventory more efficiently.


Must have a 5-6 sentence paragraph on each of the 6 to 8 ratios. For example: For Company A, ratio _____ has increased, decreased, or remains the same, whereas Company B has……

This means for every dollar in current assets, Company A….

Then talk about the implication– Does this mean Company A is healthier than Company B or are both in the same boat? Wrap up with comments or references about that particular ratio. You can use references from Investopedia, Wiki, or other resources.


It may helpful to print off the Data tab of the spreadsheet. It will show the dollar amount and percentage of change increase or decrease over the past year. The Results tab gives the list of ratios – What 6-8 ratios are you talking about? The Sample tab gives an example of how to interpret the ratio/a brief intro of how to interpret the results. Do your research to find out what is an acceptable minimum ratio in that industry. For example, if the company has a loan due in 12 months, 1.0 ratio for current assets might be the bare minimum to pay bills. Yet, 3X as much current assets is definitely enough to pay bill and banks will not worry about giving the company a loan. What does the inventory ratio mean? Look at the ratio and ask is the number good or bad – getting better or getting worse? What does that mean?


Item 3) Look at the cash flow over the last 3 years — Where it is coming from?


1)      Base operation


       2)      Taking out debt


3)      Selling off buildings


4)      Investing heavily


5)      Etc.  


Bottom-line—Analyze (calculate and discuss similarities and differences in trends) the cash flow statements.  What is happening on the cash flow statement for each company? Share the story and provide your perspective– Do you see it as healthy? For example, if the business is selling assets and taking out huge loans, it might mean issues down the road with trying to generate sufficient cash flow to pay the bills. Discuss how these patterns reflect on the stated strategies of the organizations.

Look at the company notes to gain knowledge. For example, is the company planning to retire bonds and trying to maintain a healthy cash flow for that?


Item 4) Discuss the most significant accounting policies adopted by the two organizations (revenue recognition; inventory valuation).  Select the same two for each company. Explain the choices made by both companies and comment on any differences that you see.


Talk about the choices the two companies have made in this area. Use the notes of the financial statement to help answer this question. For example:

      1)      What inventory valuation are they using — FIFO, LIFO, weighted average?


2)      What kind of depreciation are they using – straight line or accelerated?


3)      How are they accounting for bad debt?


Tip: Use SEC Edgar to find more information on the companies. Always include something about the competitors.


Thank you!


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