This Portfolio Project has two parts: calculations and a 4- to 6-page essay. While the computations requirements of this assignment are significant, equally significant are your discussion and analysis of quantitative results of AT&T financial statement. You have to create two files:1) a spreadsheet containing AT&T’s horizontal and vertical analysis (and perhaps AT&T ratios) and 2) a word document containing your essay.
Select publicly traded company (AT&T, Inc) and carry out the expanded analysis on financial statements. Use the most current 10K statements available on www.sec.gov http://www.sec.gov or annual statements in finance.yahoo.com http://finance.yahoo.com.
Part 1: Complete following for your selected firm in the Excel spreadsheet:
1. Horizontal and vertical analysis of Income Statements for the past three years (all yearly balances set as a percentage of total revenues for that year).
2. Horizontal and vertical analysis of Balance Sheets for the past three years (all yearly balances set as a percentage of total assets for that year).
3. Ratio analysis (eight ratios of your choosing) for past three years PLUS a measurement for the credit worthiness of your firm as measured by Altman’s Z-score. Note that if you used your chosen firm for our ratio-related discussion posts, then you must also present industry-average ratios or current year competitor ratios for your ratio analysis. Comparing your firm’s ratios to a close competitor or an industry-average ratio makes your analysis much more meaningful.
Part 2: The Paper:
• 4-6 pages in length.
• Include a proper introduction and conclusion.
• Include a reference page.
• Your paper must provide your reader with the overall understanding of the financial health of your chosen firm including the following:
i) Discussion of the ratio analysis results, including rationale for the ratios chosen.
ii) Discussion of all horizontal and vertical analysis.
iii) Discussion of four items from the management discussion of the firm that support the conclusion formed in your discussion of the financial results.
Much of this course has concentrated on learning financial statements, mainly as there was not an accounting prerequisite. Because of this concentration, you may find this assignment challenging. Though, if you understand the financial statements, then the horizontal and vertical analysis must (hopefully) be rather intuitive. Such as, if you see sales rise by 20%, then should not you also see net income rise by 20% or more if the managers are effective at controlling costs? If you see sales rise by 20% and assets rise by 40%, we have to ask why this is happening. It would appear that assets have risen too far given the sales that are generated from those assets—why did this occur? You may have to research that type of problem and discuss it in your analysis.
You have had some experience with financial ratios through Discussion Board. I’d suggest that you start your ratio analysis with four ratios found in DuPont equation. If you discover the weakness in one component of DuPont ratios, then it would make sense to look at ratios which are closely related to troublesome ratio. Such as, if you discover that the asset turnover is declining over time, then take a look at some related ratios like the inventory turnover rate or the average collection period. If you discover that the equity multiplier is increasing (indicating greater reliance on debt), then look at some related ratios such as the debt ratio or Times Interest Earned.