The Financial Reporting Project
NOTE: This report should not exceed 5 pages text (double spaced; 12 pt) Exhibits and supporting calculations do not count as part of the total 5 pages.
The purpose of this report is help you develop a basic understanding of your company and the business environment in which it operates. The information contained within Annual Report and 10-K of your company, along with other readings and resources, will help you complete this report.
Company Background
A. What is the ticker symbol of your company? Identify the stock exchange(s) where your company stock trades.
B. Read the auditor's report included in the annual report of the company and explain its purpose. Identify the name of the auditing firm.
C. Explain the major operations of your company. What products does it sell and/or services does it render? Identify the major competitors of the company.
D. Using the Wall Street Journal or Internet to record the closing price on May 23, 2013.
Developments relating to the Company
A. Is the demand for the products and services provided by this company increasing, decreasing, or staying stable? Explain the factors that are influencing the demand for products and services of this company.
B. Identify and briefly explain at least two significant events (technological breakthroughs, regulatory changes) that may have affected the company recently.
Understanding the Annual Report and 10K (Note: Show your computations)
1. How does current year's sales revenues and net income (i.e., earnings) compare with that in previous years? Compute the annual growth rate for the last five years for both sales revenue and net income . [For example, if revenues in Year 1 and 2 are 100 and 125 respectively, the growth rate from Year 1 to Year 2 is 25%]. What earnings trend do you observe and what factors may be causing this trend?
2. Calculate the gross margin percentage (Gross Profit divided by Net Sales) for each period presented in the income statement. What trend in gross margin do you observe and what factors may be causing this trend?
3. Where are the resources of your company employed? Do this by calculating a percent of the total assets for each asset displayed in the balance sheet. The total should equal 100%. What are the three largest assets as a percentage of the total?
4. What method(s) of depreciation does your company use? Does the company use the same method of depreciation for all types of long-lived assets? Where did you find this information?
5. What method(s) does your company use to value its inventory? Compute the inventory turnover ratio for the last two years. This may require you to look up the financial statements for the most recent three years in order to compute average inventory. Comment on the trend observed.
6. Examine the financial structure of the company. Do this by calculating the amount of total liabilities and stockholders' equity as a percentage of total assets. The total should equal 100%. Which is the primary source of funding for assets and what conclusions can you draw from this?
7. Identify the major components of stockholders' equity by examining the Statement of Stockholders Equity. What types of accounts and transaction resulted in major changes in the Stockholder Equity accounts during the most recent year?
8. The 10K provides some important information to interested parties, including the stockholder, which is not found in the Annual Report. Briefly explain the nature of the some of this additional information contained in this SEC filing. Include at least two items of interest.