Project II
Project II (60 points)
The goal of this project is to complete a comprehensive analysis of two companies in the same
industry. I picked two companies that compete for customers like us: Walmart vs. Amazon.
Everyone probably has personal experiences with these two companies, and it is the time for us
to look at their financial data.
Requirements:
• Download the annual reports for each company and peruse them.
Use the SEC EDGAR website to locate the recent Form 10-k. Download a spreadsheet
version of financial statements. Use Appendix 1A as a guide.
• Use the annual report and the financial statements, along with any websites, to assess the
companies’ business environment. Use a SWOT analysis to
iefly analyze the
competitive landscape for the two companies. The aim is to understand the competitive
position of each company so we can assess their financial statements in a
oader
usiness context.
• Explore the financial statements, and familiarize yourself with the company basics. The
following give an indication of some questions that guide us as we look for answers.
o What accounting standards are used, U.S. GAAP, IFRS, or other?
o What is the date of the most recent fiscal year-end?
o Determine the relative proportion of short- and long-term assets.
o Determine the relative proportion of liabilities and equity.
o Calculate the return on assets (ROA) for the most recent year. Disaggregate ROA
into the two component parts as shown in Exhibit 1.7. Compare the
numbers
atios for each company.
o Find the companies’ audit reports. Who are the auditors? Are any concerns raised
in the reports? Do the audit reports differ significantly from the one for Apple Inc
in Exhibit 1.10?
• Balance Sheet Analysis. Prepare a common-size balance sheet. To facilitate this, obtain
the balance sheet in spreadsheet form from the SEC website at the “Interactive Data” link
on the search results page. Look for major differences over time. Some questions to
consider:
o What are the company’s largest assets? Largest liabilities?
o What proportion of total assets is financed by owners? (Hint: Compare with total
equity.)
o What proportion of total assets is financed by nonowners?
• Income Statement Analysis. Prepare a common-size income statement. Express each item
on the income statement as a percent of total sales or revenue. Do this for all years on the
income statement. Look for major differences over time and between the companies. Do
any patterns emerge? Some questions to consider:
o What are the major expenses?
o Are there any unusual or discontinued items? Are they large in magnitude?
o Was the company more or less profitable when compared with the prior year?
• Statement of Cash Flows Analysis. Determine the size and direction (cash source or use)
of cash flows from operations, investing, and financing. One goal is to understand the
company’s pattern of cash flows and to form an opinion about the general strength of its
cash flows. Some questions to consider:
o What were the cash flows from operations? Were they positive?
o Were operating cash flows smaller or larger than net income?
o Did the company generate or use cash from investing activities?
o Did the company generate or use cash from financing activities?
• Market Capitalization. Determine the market capitalization at the most recent year-end.
Determine the number of shares outstanding from the balance sheet. Recall that shares
outstanding is total shares issued less any treasury shares. Obtain the year-end stock price
from an investment website such as Seeking Alpha or Yahoo Finance. Compare market
cap with the book value (total equity) of the company.
• Compute ROE for the most recent year reported on the income statement. (Hint: Do your
companies report noncontrolling interest on the income statement and balance sheet? If
so, make certain to use income available to the controlling interest (NICI) in the
numerator and equity of the controlling interest (CI) in the denominator.)
• Compute RNOA and its two components (NOPM and NOAT) for the most recent year
eported on the income statement. Examine the income statements and balance sheets to
determine the operating and nonoperating items. Please use 22% as statutory tax rate for
oth companies. (Hint: Use an online source to understand any line items not described in
the textbook.) Compare ROE and RNOA and identify differences between the
companies. Evaluate the companies’ returns and answer questions such as the following:
o Which company is more profitable?
o How do the operating and nonoperating portions of ROE compare?
The report for this project should be written in a word file. But you can attach financial
statements and related financial statement analysis in an Excel file.