Question

Chapet. Please select a company for which you can analyze their financial statements. You will need to request these financials by contacting the company or search the web for these financials (these can generally be viewed on the web under financial information or annual reports for public companies – search by company name). Imagine you have been asked to prepare a brief management report summarizing the financial position and future prospects for the company chosen. Write a one-page memo summarizing your findings and making a recommendation as to whether an investment in the company is warranted. Be creative using your critical thinking skills. You may want to review chapter 13 for a guide as well. Please include: 1) Comment on EPS performance 2) Utilize chapter 13 concepts to analyze financial position of company 3) Analysis of capital structure 4) What is the short-term and long-term strategy of the company? Is there adequate planning and resources for their plans? 5) Evaluate the company’s overall value Other possible suggestions: 1) Are they positioned for long-term growth as well as short-term opportunities? 2) Comment on dividend policy 3) What is the current debt status? 4) Analyze the company’s cash flows 5) Evaluate profitability relative to sales, assets, equity and share value 6) Assess liquidity / risk 7) Analyze inventory management Please, I need help as soon as possible. The chapter is analysis Financial Statements.

Answer 1

Analysing Financial Statements for Investment:

W.r.t. Balance Sheet:

1.Balance sheet reflects true financial Position of the Company. Calculate Netwoth = Total Assets - Outside Liabilies. If Networth is more then Company May Perform well. Preferable to make Investment in the company

2. Check Debt Equity Ratio of the Company it should not be more than 2:1.If it is lower than 2:1 then it is advisable to make Imvestment.

3.Check whether Company Debts Increased from Previous Year to Current Year then Verify Whether Debt is raised to meet Future Commitmments or for Internal sources.If it is for Internal Sources then check the cash flows of the company whether Company is generating income to Carry out its Operations or Purely depending on its Debt.If Company is not purely depending on its Debt then it is advisable to make Investment in the company.

W.r.t. Income Statement:

Income Statement Provides true Profit or loss of the Company.

1. Go through whether sales of the Company is in uptrend i.e.increasing then advisable to investment

2. Go through the Expenses whether it is increasing or decreasing. If decreasing we can assume that company has taken cost reduction Techniques there by preferable to make Investment.

3. Go through the Earnings of the Company whether Company is reporting More Earnings compared to Previous year then it resembles company is performing well and advisable to Invest

W.r.t. EPS:

1. Calculate EPS of the Company.A higher EPS is the Sign of higher Earnings, Strong Financial Position and there fore company is more reliable to invest

W.r.t.Dividend Analysis:

Company distributes dividend only if Company earns Profits.Go through the Dividend Payouts made by the company from this we can decide that Company has real cash to pay dividend and earning Profits Consistently.Therefore it is Preferable to make investment by this analysis

W.r.t Financial Ratios:

1. P/E Ratio:

Calculated by divivding Market Price by EPS. If P/E ratio is higher it means investors can anticipate higher growth in future and preferable to make investment

2. Current Ratio:

Calculated by dividing Current assets by Current Liabilities.

If Current asset ratio is more than 1 then Company is able to pay its Current liabilities there by not required to sell Non Current assets to pay Current Liabilities. Therefore if it more than 1 preferable to make investment