Lastname, Firstname
Main Company, Comparison Company
Analysis of (Company’s) 20xx – 201x Financial Statements
Firstname Lastname
Texas A&M University-Commerce
Class Name, Number and Section Numbe
FINANCIAL STATEMENT ANALYSIS
(Spring/Fall/Summer Term) 201x
[DO NOT INCLUDE PHOTOS/GRAPHICS ON COVER PAGE]
The purpose of this document is to provide you with an example of how your paper could be structured, as well as to provide you with some hints of what to include/exclude to maximize your grade. The categories are not comprehensive. Further, it is merely an example and there is no requirement that you conform to it if you prefer a different approach that is equally or more effective than this. See the syllabus and eCollege for more information about paper requirements and grading.
The italics throughout this template represent sample wordings. For printing efficiency I have single-spaced the material, but your paper should be double-spaced.
INTRODUCTION
The purpose of the introduction is to tell the reader what your paper is about, what you recommend, and why. This is a
ief section (1-2 paragraphs). Your introduction should include the following:
BACKGROUND
About the company and industry: One-two paragraph description of Main Company and the primary industry in which it competes. Include the primary SIC and NAIS codes.
ANALYSIS OF THE INCOME STATEMENT
Vertical Common Size Analysis (CSA)
[Your CSA discussions should focus on those items and trends that are key for your company either because of the industry they are in, or because there have been positive/negative changes. You do not have to discuss every item, but don’t overlook the key information. Do not expect the typical reader to wade through the details contained in the tables. If it’s important, discuss it. Also, make sure you discuss what caused the changes. Finally, explain/summarize the overall result of the analysis.]
TABLE X: COMMON SIZE ANALYSIS: INCOME STATEMENT - VERTICAL ANALYSIS[footnoteRef:1][footnoteRef:2] [1: Include the source of your data unless you used FinSAS.] [2: This table, and those that follow, are simply examples of a wide variety of formats you can utilize. Just make sure it is easy to read and do not use one large table for all ratios. Make sure you “clean up” the table and get rid of bad characters, etc.
]
Main Company
Comparison Company
INCOME STATEMENT
2012
2011
2010
2012
2011
2010
-
----------
----------
----------
----------
----------
----------
Net Sales
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Less: Cost of Goods Sold
40.95%
40.94%
43.53%
61.66%
63.84%
67.45%
----------
----------
----------
----------
----------
----------
Gross Profit
59.05%
59.06%
56.47%
38.34%
36.16%
32.55%
Other Operating Revenue
0.00%
0.00%
0.00%
3.37%
3.20%
3.53%
Less: Operating Expenses
39.60%
39.79%
40.22%
28.18%
28.52%
28.00%
----------
----------
----------
----------
----------
----------
Operating Income
19.45%
19.28%
16.26%
13.53%
10.84%
8.08%
ET CETERA
TABLE X: COMMON SIZE ANALYSIS: INCOME STATEMENT – HORIZONTAL ANALYSIS
Balance Sheet
Summary of Vertical Common-Size Analysis
Overall, this analysis suggests/shows/means/etc…..
ANALYSIS OF THE BALANCE SHEET
LIQUIDITY
Introduce the section by explaining what liquidity means as in the F/S context. Also, define/explain the meaning of the specific ratios. If you use a reference such as the text to help you with this, do not forget to properly cite your sources. Ordinarily, our textbook should be sufficient so if you use a different source, make sure there’s a good reason, e.g., another source provides additional insights not provided by our text. If you paraphrase another author’s words, just a reference is required. If you copy the source ve
atim or nearly so, the use of quotation marks is required.
Discuss the results of your ratios and the trends. Try to figure out why you are seeing changes by going back to your CSA’s and the MD&A. It is not sufficient to say, e.g., “This analysis shows that the ratio was higher than in other years.” It is more insightful to say, e.g., “Receivables turnover increased from 59 days to 72 from 2009 to XXXXXXXXXXSince the company only extends credit for 60 days, this suggests that the company is experiencing significant issues with timely collections.“ Again, make sure you focus on ratios that are important to the company/industry and tell the reader what the trends mean. (No change is a finding as well – it’s great if the ratios paint a positive picture; it’s not great if the company isn’t improving a problematic solution.)
Compare your company to the competitor you selected. Again, I don’t expect a ratio by ratio comparison – just a couple of summary level comparisons. You do not have to do a detailed analysis of Comparison Company, nor do you have to do a ratio-by-ratio comparison, but you need to make some general comparisons, at a minimum. Also, if they have significantly different accounting policies (e.g., credit, inventory valuation) that are relevant to the ratios, this is a good time to discuss them.
Compare your company to industry averages. You probably won’t find extensive industry data, but you will be able to find some. Again, a detailed discussion is not necessary but summarize how the company stacks up to the industry.
Summarize the section. Finally, take a step back and ask yourself what the overall liquidity picture is. Is it increasing/decreasing/etc? Is that good
ad/indifferent? What the implications are for the company? Use this analysis to summarize the overall liquidity picture. For example:
Overall the company has experienced a significant decline in liquidity over the past four years. In addition to accounts receivable increasing by 13 days, inventory turnover has increased by 7 days, for a 20 day increase in the operating cycle. The cu
ent ratio which has decreased slightly from 2.3 to 2.1 over this same period still appears adequate. However, the cash ratio has declined steadily from 1.1 to .6 leaving the company vulnerable to having to prematurely liquidate assets for less than fair market value to meet its immediate obligations.
TABLE X: LIQUIDITY
Main Company
Comparison Company
LIQUIDITY
2012
2011
2010
2012
2011
2010
Days' Sales in Receivables
Accounts Receivable Turnove
A/R Turnover in Days
ET CETERA
LONG-TERM DEBT PAYING ABILITY
Table X: LONG-TERM DEBT PAYING ABILITY
Main Company
Comparison Company
LONG-TERM DEBT-PAYING ABILITY
2012
2011
2010
2012
2011
2010
Times Interest Earned
Fixed Charge Coverage
Debt Ratio
PROFITABILITY
Table X: PROFITABILITY
Main Company
Comparison Company
PROFITABILITY
2012
2011
2010
2012
2011
2010
Net Profit Margin
Total Asset Turnove
Return on Assets
INVESTOR ANALYSIS
Table X: INVESTOR ANALYSIS
Main Company
Comparison Company
INVESTOR ANALYSIS
2012
2011
2010
2012
2011
2010
Degree of Financial Leverage
Earnings per Share
Price/Earnings Ratio
CONCLUSION
Your conclusion wraps up the ideas you have presented in your paper. The point is to reiterate your claim and the key elements of your argument. One or two paragraphs should suffice. Make sure that you do not introduce new information in this section.
REFERENCES
[USE APA FORMAT. See, e.g., http:
owl.english.purdue.edu/]
Page 2 of 5
HOME DEPOT, INC. VS. LOWE’S COMPANIES INC.
Page 1 of 25
Analysis of the Top Two Competitors in the
Home Improvement Industry’s XXXXXXXXXXFinancial Statements:
Home Depot, Inc vs. Lowe’s Companies Inc.
Texas A&M University-Commerce
Financial Statement Analysis, Accounting 575 01W & 02W
FINANCIAL STATEMENT ANALYSIS
FALL 2018
HOME DEPOT, INC. VS. LOWE’S COMPANIES INC.
INTRODUCTION
Purpose of the Paper
The purpose of this paper is to analyze the home improvement industry’s top two leading
companies, Home Depot, Inc (HD) and Lowe’s Companies, Inc. (LOW). I will evaluate each
company’s financial strengths and weaknesses, compare the operating philosophies, and analyze
the most recent financial statements to determine the financial health of the companies. This
analysis will help in determining which of the industry’s giants is the best company to purchase
stock and which is, if either, demonstrates the most risk for long-term investment.
Recommendation
HD and LOW have continued to show growth over the past several years maintaining
their top positions in the home improvement industry. My examination of the XXXXXXXXXXannual
financial reports enclosed support my recommendation of purchasing HD’s stock for long-term
investment. HD’s performance offers an overall safer investment appeal providing better
earnings per share and dividend yield.
In this paper, I will first give a
ief background of the home improvement industry,
provide an overview of HD and LOW’s historical growth, products and services, strategic goals
each company is striving to achieve, and list the critical financial events during the XXXXXXXXXX
period that effected the retailers. Secondly, I will evaluate the annual financial statements by
doing a three-year vertical and horizontal common-size analysis of the income statement and
alance sheet. Next, I will analyze the liquidity ratios to determine the liquidity of receivables
and inventories to evaluate the company’s ability to pay debts with cu
ent assets. Then, analyze
the profitability ratios to determine each company’s return on investment. Finally, based on the
HOME DEPOT, INC. VS. LOWE’S COMPANIES INC.
Page 3 of 25
analysis described above, I will provide support for my recommendation to invest in HD as the
etter long-term investment for investors.
BACKGROUND
Home Improvement Store Industry
The home center and hardware store industry, also known as the home improvement store
industry, is an established retail industry with two primary competitors offering similar
merchandise, such as construction and building supplies, home repair and improvement products,
and lawn and garden supplies. The Standard Industrial Classification (SIC) code for