fsa project fall 2012

7/30/2019 FSA Project Fall 2012

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Assignment on Financial Statement Analysis

Course: Financial Statement Analysis

Class: BBA 5/7

Marks: 16

Submission Date: As per the Schedule given below

Assignment Date:

Instructor: Syed Babar Ali

Here is the detailed description of the assignment that we briefly discussed in the introductory session. The

assignment is based on the analysis of financial statements of two relatively equal-sized listed companies

from the same industry. It is to be submitted in stages the deadlines of which are:

Stages Deadline

Approval of the Name of the Companies

Introduction and Business Analysis of the CompaniesRecasting of the Financial Statements

Usage of the Analytical tools such as ratio analysis,

Horizontal and vertical analysis.

Prospective Analysis

Final Report with the Executive summary Nov 20, 2012

Nature of the above-mentioned stages

Now I am giving an account of what is required of you in terms of these stages. Each stage is to be submitted

as an individual assignment except the final assignment when the work is to be submitted as a whole report

Meet the deadlines otherwise a mark-deduction-penalty of 0.5 marks per day would be applied.

Approval of the Name of the Companies

I have already discussed with you why it is important. Getting my approval would ensure that no two groups

are working on the same companies and also that the selection is appropriate. When I say equal-sizedcompanies it is either the sales or the amount of total assets that you have to consider. For some reasons I am

not allowing businesses other than manufacturing concerns. To avoid multiple attempts you can keep

yourself updated by me for the name of the companies already selected by the other groups. My approvawould not be complete if you dont submit the copies of the latest annual reports. Come to me with the

values of the assets and sales of the companies written on a piece of paper so that I can determine whether

these are equal sized companies. Dont just make a mistake of trying to get the companies approved without

having access to the full-fledged annual reports. Also as warning I would say that obtaining annual reportsmight not be an easy matter so you have to start early and seek all possible sources. ( Stock exchange record

room, registered office of the company and sometime electronic information providers).

Introduction and Business Analysis of the Companies

Write briefly about the management and the presence of the business in terms of products, divisions andgeography. The size of the companies, shareholding pattern, market capitalization and the name of the

industry within which they operate are to be mentioned as well. Perform a SWOT analysis using the

information contained in the annual report. Explain what business strategy the company is following and list

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the unfavorable and favorable situations the company is facing in terms of the elements of the portercompetitive factors theory.

Recasting of the Financial Statements

What happens in terms of the published financial statements is that some of the crucial information on

financial statements components is hidden in the notes to those statements. So recast the components in

terms of breaking them up meaningfully. For example inventory is presented as a single figure in the

financial statements when those three or four types of inventories are individually very important for thepurpose of financial statement analysis.

Usage of the Analytical tools such as ratio analysis, Horizontal and vertical analysis.

This includes processing financial statement into meaningful relationships to be used for the analysis. Tools

such as Comparative financial statements analysis, Common-size financial statement analysis, Ratio analysis

are to be applied using an excel template. If available report the industry data as well. For ratio analysisfollow the following categories and individual elements:

a) Credit Analysis

I. Liquidity1) Current ratio

2) Acid-test ratio3) Collection period

4) Days to sell inventory

II. Capital Structure and Solvency

1) Total debt to equity

2) Long-term debt to equity3) Times interest earned

b) Profitability Analysis

I. Return on Investment

1) Return on assets

2) Return on common equity

II. Operating Performance

1) Gross profit margin2) Operating profit margin

3) Pretax profit margin

4) Net profit margin

III. Asset Utilization

1) Cash turnover

2) Accounts receivable turnover3) Sales to inventory

4) Working capital turnover

5) Fixed assets turnover6) Total assets turnover

c) Valuation

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Market Measures

1) Price-to-earnings ratio

2) Earnings yield3) Dividend yield

4) Dividend payout rate

5) Price-to-book

Prospective Analysis

Prospective analysis includes forecasting of the balance sheet, income statement and statement of cash flows

Prospective analysis is central to security valuation. Prospective analysis is also useful to examine theviability of companies strategic plans. For this assignment make a projection of two years and make sure

that you employ properly developed assumptions. Give a clear account of these assumptions.

Final Report with the Executive summary

Making use of all of the previous submissions the final report is to broken into the following categories:

Introduction and Business AnalysisSales Analysis by Source

Comparative Financial Statements

Further Analysis of Financial Statements

Short-term Liquidity

Capital Structure and Solvency

Return on Invested Capital

Analysis of Asset Utilization

Analysis of Operating Performance and Profitability

Forecasting and ValuationSummary Evaluation and Inferences

Appendices

To keep you in the right direction I would make available an illustration once we are well into the semester.

The estimated date of the availability of this material is __________.

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fsa project fall 2012

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