Homework 1: Financial statement and ratio analyses
You need to choose three companies that belong to the same industry/sector. Next, using one of the sources below, you need to download their financial statements (Income statement and balance sheet) for the two most recent consecutive years (2019 and 2018; 2018 and 2017). Then you need to calculate ratios below for each firm each year and create a table similar to Table 3.5 of the book and the handout. Before choosing your companies, make sure you can find all the available ratios and have access to all financials. Sometimes, some of the financial firms, such as banks and insurance companies, do not have a typical financial statements. Therefore, make sure to check the companies before choosing them.
All your final work should be in a PDF format, along with the firms' financial statements. You need to send me ONLY ONE PDF FILE that contains all information related to companies analyses.
Preferably, create a pdf file in which the first pages include the firm's financial statements for both years. Next page has a table with all the ratios on it, and the last page contains your recommendation and analyses about the current situation of the firm.
Last part of the assignment includes your overview of the firm. You need to compare each ratio with that of the competitor firm and industry average (look at the end of next page***). Then argue, in what part the firm struggles and in what part the firm is doing good (at least 3 for each). Then using their financial statements and your best judgment, speculate what could be the reason behind this and how they can fix this issue (similar to the argument we had in class).
· Ratios needed:
· Current ratio
· Quick ratio
· Inventory turnover
· Average collection period
· Total asset turnover
· Debt ratio
· Net profit margin
· Return on total asset (%)
· Return on common equity (%)
How to find companies’ financial statements:
The first (and best) source to find the firms’ financial statement is the company’s website. On the website, look for the “Investor relations” part, usually on the bottom of their homepage. In a new page look for the “Financials” or “Financial statements.” From there, choose to see the “Annual reports” and choose the years brochures that you want to see (for example, 2019 and
2018). Look at the reports and under the financial reports, and you will be able to find the company’s financial reports you are looking to find. 1. Go to Yahoo finance: https://finance.yahoo.com/
2. On top search part, write the name of the company you're interested in and choose the correct option from the given search results.
3. Under the firm’s stock price, choose “Financials.”
4. Over there, you can have access to the firm's income statements and balance sheet for two years (ignore the TTM).
Other websites you can use to get the firms’ financial statements are : https://www.morningstar.com/ https://www.reuters.com/
Final report should include:
1. Firms’ financial statements for both years
2. Ratio analyses table
3. Your review/report on the companies
*** For numbers related to the industry average use those on Table 3.5. Depending on your firms belong to one of those industries (or closely related to them) choose those numbers as benchmark.