Analyzing Financial Statements Course
This Portfolio Project has two parts:
calculations and a 4- to 6-page essay. While the calculation requirements of
this assignment are important, equally important are your discussion and
analysis of the quantitative results. You will submit two files: 1) a
spreadsheet containing your horizontal and vertical analysis (and perhaps your
ratios) and 2) a word document containing your essay.
Choose a publicly traded company and perform
an expanded analysis on the financial statements. Please use the most current
10K statements available or annual statements in finance.yahoo.com.
complete the following for your chosen firm in an Excel spreadsheet:
1. Horizontal and
vertical analysis of the Income Statements for the past three years (all yearly
balances set as a percentage of total revenues for that year).
2. Horizontal and
vertical analysis of the Balance Sheets for the past three years (all yearly
balances set as a percentage of total assets for that year).
3. Ratio analysis (eight ratios of your
choosing) for the past three years PLUS a measurement for the creditworthiness
of your firm as measured by Altmanâs Z-score. Note that if you used your
chosen firm for our ratio-related discussion posts, then you MUST also present
industry-average ratios or current year competitor ratios for your ratio
analysis. Comparing your firmâs ratios to a close competitor or an
industry-average ratio makes your analysis much more meaningful.
Part 2:The Paper:
? 4-6 pages in length.
? Include a proper introduction and conclusion.
? Include a reference page.
? Your paper should provide
your reader with an overall understanding of the financial health of your
chosen firm including the following:
o Discussion of
the ratio analysis results, including rationale for the ratios chosen.
o Discussion of
all horizontal and vertical analysis.
o Discussion of four items from the
management discussion of the firm that support the conclusion formed in your
discussion of the financial results.
Much of this course has concentrated on
learning the financial statements, primarily because there was not an
accounting prerequisite. Because of this concentration, you may find this
assignment challenging. However, if you understand the financial statements, then
the horizontal and vertical analysis should (hopefully) be rather intuitive.
For example, if you see sales rise by 20%, then shouldnât you also see net
income rise by 20% or more if the managers are effective at controlling costs?
If you see sales rise by 20% and assets rise by 40%, we have to ask why this is
happening. It would appear that assets have risen too far given the sales that
are generated from those assetsâwhy did this occur? You may have to research
that type of question and discuss it in your analysis.
Youâve had some experience with financial
ratios through Discussion Board. Iâd suggest that you start your ratio analysis
with the four ratios found in the DuPont equation. If you discover a weakness
in one component of the DuPont ratios, then it would make sense to look at
ratios that are closely related to the troublesome ratio. For example, if you
discover that the asset turnover is declining over time, then take a look at
some related ratios such as the inventory turnover rate or the average
collection period. If you discover that the equity multiplier is increasing
(indicating greater reliance on debt), then look at some related ratios such as
the debt ratio or Times Interest Earned. These ratios are discussed in our
textbook, even though you may not have been assigned to thoroughly read the
Finally, please read through the rubric that
will be used to grade your assignmentâyou will get a feeling of expectations by
doing so. Your instructor is here to help you through this project. If you have
questions, please let your instructor know. He or she may be willing to take a
quick look at your horizontal and vertical analysis to give you feedback in
advance since you will not have had much experience on that calculation prior
to the project. Always communicate right away with your instructor when you