Financial Statement Analysis
The specific purposes of this project are:
1. Apply to real company the basic knowledge and analytical techniques learned from our course.
2. Prepare vertical common-size financial statements, horizontal common-size financial statements, and various risk ratios and profitability.
3. Detect the time trend of the firm's profitability and riskiness, and compare the evaluated results with competitors.
4. Summarize/ present the analyses and make investment recommendations.
You will be analyzing the subsequent firms:
a. Costco Wholesale Corp (ticker: COST).
b. Wal-Mart Stores, Inc (ticker: WMT).
Tips:
1. Public companies generally publish annual reports at investor relation web pages.
2. You can search EDGAR by company name or by trading ticker symbol. An advantage of using EDGAR 10-K report is that you may rapidly copy those tables into Excel. Use the filter (filing type) to show 10-K filings only. Click the "document" button and the first htm file will be the 10-K report.
The required tasks are detailed below:
(1) Prepare income statements and vertical common-size balance sheets for both companies.
Note: Compute for the most recent THREE years, i.e., 2010, 2011, and 2012.
(2) Prepare balance sheet and horizontal common-size income statement (in percentage) for both companies. You should compute for the most recent THREE years.
(3) Prepare ratio analyses (for the same THREE year time period) for both companies. At least, you should include the subsequent ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.
(4) Prepare a conclusive summary on the firms you have studied. Based upon your conclusions, recommend the better performing firm for potential investment. Your conclusions should be based upon, and specifically reference, the analyses prepared in this report.
(5) Prepare a short summary in which you briefly introduce the two companies and their industries, highlight some of your major findings from the above analyses, and conclude with an investment suggestion.