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https://www.sec.gov/Archives/edgar/data/887921/000088792118000003/rev201710-k.htm#s40889507D3E756628877A12DFC0F5971https://www.sec.gov/Archives/edgar/data/1600033/000160003318000014/q42017form10-k.htm
Write a 2- to 4-page business memo that provides an investment recommendation based on your financial analysis and comparison of two selected companies.For this problem, you will need to select two publicly traded companies. For comparison purposes, the two companies should be competitors within the same industry. Once you have selected two publicly traded companies, obtain Form 10-K for each company for the most current fiscal year. Use the EDGAR database from the U.S. Securities and Exchange Commission (SEC) or the investor (or investor relations) page on the company's site.

Your supervisor has given you an important task to complete for one of the firm's top clients. The client has identified two companies within the same industry to add to his current portfolio. He does not want to add both since these are competing companies. Your task is to complete an analysis on these companies, compare the results, and provide a recommendation to the client.

Complete your analysis for the client using the financial statements and your prior knowledge of accounting, supplemented by textbooks or other references of your choosing, to answer the following questions and computations:

What method does the company use to determine the cost of inventory for the fiscal year?

Compute the inventory turnover ratio for the fiscal year. Also compute it for the previous two fiscal years. What conclusions can you make?

What method of depreciation does the company use? Does the company use the same method for all fixed assets, or are different classes of assets depreciated differently?

What is the amount of accumulated depreciation and amortization at the end of the most recent reporting year?

For depreciation purposes, what is the estimated useful life of furniture and fixtures?

What was the original cost of leasehold improvements owned by the company at the end of the most recent reporting year?

What amount of depreciation and amortization was reported as expense for the most recent reporting year?

How many shares of common stock are authorized at the end of the current year? How many shares are issued and outstanding at the end of the current year?

Is there more than one class of common stock? If so, what is the name of each class of common stock?

Is there any preferred stock? If so, what is the dividend rate on the preferred stock, as a percentage of the par value of the preferred stock?

Did the company pay dividends on the common stock during the most recent reporting year? If so, what was the total amount of dividends paid and how much were they per share?

Does the company have any treasury stock? If so how much?

Has the company issued a stock dividend or a stock split over the past three reporting years? If so, what percentage and in what year or years?

Does the company's common stock have par value? If it does, what is the par value?

Did the common stockholders buy back a significant amount of shares in the current year? You can see this in the Statement of Stockholders' Equity as a reduction in shares.

Does the company have any marketable securities at the end of the year? How many dollars of marketable securities? How are they classified? Short-term, long-term, or both?

How much cash did the company use to purchase marketable securities during the current year, if any? Where did you look to find this information?

Is the total amount of cash flows from operations the exact same amount regardless of whether the direct or the indirect method is used? Explain.

How about the Financing and Investing Cash Flow sections? Are they the exact same regardless of whether the direct or the indirect method is used?

Which method, the direct or indirect method, was used to report cash flows from operating activities? How can you be sure about this? Include in your answer the first three items in the Cash From Operations section.

What is the major use of cash in the Cash From Investing Activities section?

What is the major source of cash in the Cash From Investing Activities section?

Are there any sources of cash in the Cash From Financing Activities section? What are they?

Has the company paid cash dividends during the last three years? How do you know?

Deliverable to the Client: Summary and Investment Recommendation

Prepare a business memo addressed to the client summarizing your analysis and comparison of both companies and providing a recommendation on investing in one of the companies.

Write 2–4 pages in a professional format appropriate for the information you are presenting.

Make sure you have answered all of the provided questions and computations in your analysis. If a question or computation does not apply, there should be a statement within your memo stating that the aspect does not apply and why. For example: "Based on the review of the XYZ Company, there were no dividends paid for the year ending 20XX."

Include support for your conclusions and investment recommendation. Cite your own analysis and comparison of the companies, the companies' financial statements, and other references of your choosing.

unifolks_636620034829869767_118391_1.docx

Aarti J · Accepted Answer

Business Memorandum
To: Mr Robert
From: ABC Advisory
We have been doing analysis of the Financial Statements of Revolon, Inc. and following are our observations out of it–
· The company uses the lower of cost or net realizable value to calculate the cost of inventory. The cost of the product is based on the standard costs and production variances which is based on the first in first out.
· The inventory turnover ratio helps in analysing that how quickly the company is able to sell its inventory. The company has low inventory turnover ratio which shows that the company has weak sales and thus have extra inventory in hand. The inventory turnover ratio for the year 2016 was 2.16 whereas the inventory turnover improved slightly in 2017 and reached 2.31, but it still shows weak sales.
	
	2017
	2016
	Inventory turnover
	2.31
	2.16
	Cost of goods sold
	1151.3
	917.1
	Divide: Inventory
	497.9
	424.6
· The depreciation method that is used by the company is straight line method. All the assets which includes the land improvement, building and equipment are depreciated on the basis of straight line method of depreciation.
· The leasehold improvement of the company is reported to be $51.4 million in the year 207 whereas in 2016, the land improvement was reported at $46 million. 
· The company has class A common shares with the par value of $0.01 per share. The company has 900000000 shares authorized and the company has issued 54556100 shares as on 2017 while the outstanding shares as on 2017 is 52597582 shares. 
· The company does not hold any preferred stocks.
· The company has not paid any dividends over last two years. 
· The company has the treasury stock of $21.7 million as on 2017. The company owns 1114528 shares of treasury stock. The company did not purchase any treasury stock in the year 2017. 
· The company does not have any stock dividends or stock split over the years nor the company has any buy back shares. 
· The company does not have any marketable securities.
· The cash flow from operating activities can be prepared using the direct method or the indirect method. In the direct method, the company add all the cash receipts and deducts all the cash payments made for its operating activities to analyze the cash balance for operating activities whereas in the indirect method, the net income is adjusted to the cash flow from operating activities. Both the cash flow methods results in same cash flows. The company has used the indirect method of reporting the cash flows from operating activities. The cash flow from operating activities reported by the company is $-139.3 million. 
· Cash flow from financing activities: The cash flow from financing activities is prepared only through the direct method whereas all the cash inflows from the financing activities and all the cash outflows from the financing activities are calculated. The cash flow from financing activities is $136.9 million whereas in the year 2016, the cash inflow from financing activities was 829.9 million.
· Cash flow from investing activities: The cash flow from investing activities is prepared through the direct method and reports the cash outflow of 108.3 million in the year 2017 as compared to the cash outflow of 1087.5 million in the year 2016.
· Major use of cash from operating activities: The major activities in the cash flow from operating activities includes:
	
	2017
	2016
	Increase in inventory
	-63
	74.5
	Prepaid expenses
	-21.2
	8.2
	Purchases of permanent displays
	-65.5
	-52.1
The major activities for the cash flows from operating activities includes the increase in inventory where the company has invested in inventory for 63 million in 2017, whereas in 2016, the inventory was decreased by 74.5 million. In the year 2017, there was an increase in the prepayments as well as permanent displays which resulted in the negative cash flow from operating activities. 
· Major use of cash from investing activities: In the year 2017, the major use of the cash was the capital expenditure i.e. purchase of asset whereas in 2016, the major investment was on acquisitions which amounted to $1028 million.
	
	2017
	2016
	Capital expenditure
	-108.3
	-59.3
	Acquisition
	0
	-1028.7
· Major use of cash from financing activities: The major uses of financing activities is from the proceeds of the loans and the repayments of the loan. In 2017, the company took the loan of $157 million whereas repaid the loan of $18million. As compared to 2016, the company took less loan and repaid less.
	
	2017
	2016
	Borrowings
	157
	1791
	Repayments
	18
	-1310
· From the consolidated report, we can see that the company reports the assets of $3056.9 million and the liabilities of $3827.3 million. The company reports the deficit shareholder’s equity of $770.4. This shows that the company is highly debt and is on the verge of insolvency because of high debt and negative owner’s equity. This indicates the weak financial position of the company.
· The company reports $923.3 million of current liabilities which are the result of the short term borrowings, accounts payable and accrued expenses. The company has high accounts payable which amounts to be $336 million and high accrued expenses which includes 412.8 million. The company also has very high long term debt which is reported to e $2653.7 million. The company is highly governed by debt.
· The company holds the cash and cash equivalent equal to 87.1 million and the trade receivables of the company is 444.8 million. The inventory held by the company is 497.9 million. The total current assets held by the company is 1143.2 million and the fixed assets of the company us 372.7 million. We can see that the company has high current assets and intangible assets whereas the fixed assets held by the company are less.
· The company holds class A common stock and has the common stock of 1040 million but the accumulated deficiency of $1560.8 million and other losses of $228.4 million results in the deficient balance of shareholder’s equity.
· The current ratio of the company is 1.23 for the year 2017 as compared to 1.59 for the year 2016. The company has average current ratio which states that the company is able to meet its short term obligations. But as the company holds high inventory, the company has low quick ratio.
	
	2017
	2016
	Current ratio
	1.23
	1.59
	Current assets
	1143.2
	1123.7
	Current liabilities
	932.3
	708.7
· The sales of the company reported for the year 2017 is 2693.7 million as compared to 2334 million in the year 2016. The company’s sales has improved during the years. In the year 2017, the sales increased by 15.41% whereas in 2016, the sales increased by 21.92%.
	
	2017
	2016
	2015
	Sales
	2693.7
	2334
	1914.3
	Increase
	15.41%
	21.92%
	
· The company has high expenses in respect to the sales. The company reports the expense of $1467 million for the year 2017 as compared to 1161 million in 2016. This states that the company having high expenses in selling its products.
· Gross profit ratio: The gross profit margin of the company is around 50%.
	
	2017
	2016
	2015
	Gross profit margin
	57.26%
	60.71%
	65.12%
	Gross profit
	1542.4
	1416.9
	1246.5
	Sales
	2693.7
	2334
	1914.3
· Net profit margin: The company’s net profit margin has decreased over the years because of increased expenses. This shows that the company is not profitable. 
	
	2017
	2016
	2015
	Net profit margin
	-6.80%
	-0.94%
	2.93%
	margin
	-183.2
	-21.9
	56.1
	Sales
	2693.7
	2334
	1914.3
Recommendation:
Considering the companies for analysis i.e. Elf Beauty and Revlon, I would recommend to invest in Elf Beauty as it has much better profitability as well as performance as compared to Revlon. Elf beauty has higher liquidity as well as net profit margin as compared to Revlon. So, I would recommend to invest in Elf beauty and not in Revlon because of its low performance.

https://www.sec.gov/Archives/edgar/data/887921/ XXXXXXXXXX/rev201710-k.htm#s40889507D3E756628877A12DFC0F5971https://www.sec.gov/Archives/edgar/data/1600033/ XXXXXXXXXX/q42017form10-k.htm Write a 2- to...

Deliverable to the Client: Summary and Investment Recommendation

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