COMPANY REPORT:FINANCIAL STATEMENT AND COMPANY RISK ANALYSIS
Financial Statement and Company Risk Analysis is the second part of the complete valuation report for your chosen company. Past performance may provide valuable insight into future cash flow. Value is impacted by how well (or how poorly) a company has performed in the past. Sometimes the company’s financial statements require adjustment for discretionary or nonrecurring items or even for unusual accounting practices to arrive at “normalized” cash flows. Although a valuation estimate is a function of future value, the best way to forecast the future is to thoroughly evaluate the past and to glean information from past operations to properly assess the riskiness of any forecasted future cash flows.
For this assignment, you need to have your chosen company’s most recent annual report and the report two years prior to that (e.g., 2019 and 2017 or 2020 and 2018). With two years of annual reports, you will have four years of income statements (e.g., 2016, 2017, 2018 and 2019 if you have the 2017 and 2019 annual reports or 2017, 2018, 2019 and 2020 if you have the 2018 and 2020 annual reports).
Using the financial statement data in the company’s annual reports, create a comprehensive written analysis of the company’s financial operations for the four most recent fiscal years. You written report should be structured as follows:
- Part I: Construct common size income statements for the four most recent fiscal years (that is why you need the two most recent annual reports). Also, include a line listing the annual growth rate in net revenue (or sales) for the four most recent years.
- See the next page for an example of what your table should look like.
Write an analysis of the table you created. For example: What trends do you observe? What appears to be areas of strength or weaknesses? For what areas would you like additional information? What are any potential areas of significant concern? Anything else?
- Part II: Construct a table of ratios for the four most recent fiscal years (that is why you need the two most recent annual reports).
- See the next page for an example of what you table should look like (note these are the minimum ratios that you must include; if you believe others are interesting and/or instructive, add those to this table).
Write an analysis of the ratio table you created. For example: What trends do you observe? What appears to be areas of strength or weaknesses? What are any potential areas of significant concern? Anything else?
- Part III: Create a statement of cash flows table for for the four most recent fiscal years (that is why you need the two most recent annual reports). For this statement, you only need to list the three net accounts (i.e., Net Cash Flows from Operating Activities, Net Cash Flow from Investing Activities, and Net Cash Flow from Financing Activities). Then, evaluate these statements over this time period. What has been the major source of cash each year and what has been the major use of cash? Has the company generated sufficient internal cash to finance any capital spending? Anything else?
- Part IV: Based on your comprehensive analysis of your chosen company, identify specific risk factors that you should consider when doing your valuation estimate.
Your paper should include an Introduction, the four “parts” listed above, and a Conclusion. Embed your tables into your paper where they flow with the discussion (that is, do not put tables in an appendix). It is best create your tables in Excel and then to copy and paste special into your word file using “Picture (Enhanced Metafile).”
- Assignment length: At least 8 pages, double-spaced (excluding title page and references) in current APA format.
- Number of citations: At least 3 (with a minimum of 2 articles per major topic). Remember: any article/source listed in your references must be cited at least once in your paper.
- Accepted sources: Books or other scholarly/professional sources. Remember, Investopedia, Wikipedia, websites, periodicals (e.g., newspaper, magazine, newsletters), and blogs are not scholarly/professional sources. You can use these in your paper (if properly cited), but they do not count towards the required number of citations.
Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.
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