The specific purposes of this project are:
1. Apply to actual companies the basic knowledge and analytical techniques learned from our course.
2. Prepare vertical common-size financial statements, several profitability and horizontal common-size financial statements, and risk ratios.
3. Detect the time trend of the firm's profitability and riskiness, and compare the evaluated results with competitors.
4. Present/summarize 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).
For these firms, download the most recent annual report to begin your work, including financial statements, footnotes to the financials, and the management discussions and analyses. Alternatively, you may use the 10-K report. You can download the 10-K from the company's website or the SEC's website (i.e., EDGAR online
Tips:
1. Public companies usually publish annual reports at investor relation web pages.
2. You may search EDGAR by company name or by trading ticker symbol. An advantage of using EDGAR 10-K report is that you may quickly 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 vertical common-size balance sheets and income statements for both companies.
Note: Compute for the most recent THREE years, i.e., 2010, 2011, and 2012.
(2) Prepare horizontal common-size income statement and balance sheet (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 following 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) Comment on the analytical results of the two companies. Your comments should concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you should interpret the numbers and make suggestions as to why the ratio of one company might be higher/lower than the other.
(5) Write 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.
(6) Record a short presentation (about10 minutes) 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.
A. Report body requirements:
1. Cover page. List the title of the project, your names, and semester/year.
2. Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.
3. Table of Contents.
4. Main body. Use the following sequence for report content:
a. Introduction to the two companies and to the purpose of the report
b. Analytical section. This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the vertical and horizontal common-size statements and the ratio analyses for both companies.
c. Comparisons of companies and all other analysis (observations and/or interpretations
d. Conclusions and recommendation for investment.
Minimum length: 8 pages