ACCT 2200-003: Financial Analysis Project
Assume you have $10,000 of savings and would like to invest in a company’s stock. You are very interested in Best Buy Company but you are not sure if it is a good investment target. You need to find the company’s annual financial statement for the three most recent years and conduct a preliminary financial analysis to determine whether the company is doing well in a growing trend. Write up your analysis in a Word document (no more than 10 pages).
Your report should include the following sections:
1. Introduction (10 points): Briefly describe the company’s main business. List the names and years of the financial statements you studied to conduct your analysis.
2. Initial Review (15 points): Describe the key messages in the auditor’s report for the most recent year. Brief the highlights in the management’s discussion and analysis (MDA) in the most recent year. Describe any unusual events or characteristics you found.
3. Liquidity Analysis (30 points): Compute the company’s liquidity ratios (including current ratio, quick ratio, average sales per day, collection period, cost of goods sold per day) for the three most recent years and list them in a table. Briefly discuss the trend in the company’s liquidity - Is it getting better, worse, or not much change?
4. Profitability Analysis (30 points) : Compute the company’s profitability ratios (including gross profit percentage, operating income percentage, return on equity, return on assets, cash return on assets, quality of income, earnings per share) for the three most recent years and list them in a table. Briefly discuss the trend in the company’s profitability – Is it getting better, worse, or not much change?
5. Solvency (capital structure) Analysis (15 points): Compute the company’s solvency ratios (including financial leverage, debt-to-equity ratio) and list them in a table. Briefly discuss the trend in the company’s solvency – Is it getting better, worse, or not much change?
6. Conclusion (10 points): Present your overall thought about the company based on the above analysis. Did the company do well in its main business? Do you think it will get better and worse? Do you think it will make a good candidate of your investment portfolio?
7. Profitability comparison with the key competitor (10 bonus points): Identify a key competitor for the company. Compare the company’s profitability ratios in the most recent year to its competitor’s. List the numbers in a table and briefly describe what you observe.
Refer to Chapter 11 for details of different types of analysis. You can usually find the company’s annual reports on the company’s Web site, under the “About the company” section, and “Investor relations” subsection. Another possible starting point is http://finance.yahoo.com. Look for 10K statement when you search the company’s SEC filings.
The solution begins with a brief introduction to Best Buy Plc. Then an initial review of the financial statements of the last three years are presented.The ratios computed for the three years are:
1. Liquidity Analysis:
Avg. Sales per day
Cost of goods sold per day
No. of days in inventory
2. Profitability Analysis:
Gross Profit percentage
Operating Income percentage
Return on Equity
Return on Assets
Cash Return on Assets
Quality of Income
3. Solvency Ratios:
Debt to Equity Ratio
Debt to Asset Ratio
Times Interest earned
4. Comparison with key competitor: Wal-Mart
No. of Words: