CONDUCTING AN IN-DEPTH FINANCIAL ANALYSIS OF A COMPANY

You have read the financial report for at least 3 companies. It’s now time to conduct an in-depth financial analysis.

Solve the Problem

Choose a company from the list of which you will conduct a financial analysis.

• Best
• Barns and Noble
• Quiznos
• J.C. Penney
• Sears
• Radio Shack
• Ford
• Martha Stewart Living

Include:

• Name and description of the company
• Perform an accurate analysis of a company’s financial statements.

Guidelines:

1. Obtain the company’s financial statements for the last 3-5 years. You can find these on the web. You will want to find the company’s balance sheets, income statements, shareholders equity statements (if any) and any cash flow statements.
2. Conduct a quick review of all of the statements to look for big jumps or losses in any area during this period.  When you come to a questionable issue, dig deeper into the change to see if you can find out why. For example, Quiznos had a major drop in sales in 2007 that has continued to plague the company. You would want to find out what happened around that time and why it affected sales.
3. Examine the balance sheet to again look for changes in assets, liabilities, or equities.  Is their debt growing or have they taken measures to reduce the debt? Have they had a new infusion of capital? Research any areas of concern.
4. Examine the income statement.  Look for trends over time.  Calculate and graph the growth of the following entries over the past several years.

• Revenues (sales)
• Net income (profit, earnings)
• What do the graphs show you?  Are you seeing growth over time, a downward trending, or an erratic up and down in revenue? Is there excessive spending in any one area? Is there an unusual expense?  Research and report on any unusual events.

1. Examine the shareholder’s equity statement.  Has the company issued new shares, or bought some back?  What are the stock prices doing?  What does this suggest about the company?  Review the dividend payouts and stock prices over time.  Again, research any activity that is unusual.
2. Examine the cash flow statement, which gives information about the cash inflows and outflows from operations, financing, and investing.  How is the company using its cash?

• Cost of Equity
• Calculate financial ratios in each of the following categories, for each year.
• You can also find guidance on calculating rations at:
• Accounting Coach- Financial Ratio Calculator
• Quick review of statements
• Calculate financial ratios