Guidelines for the Financial Statement Analysis Project

AC-11

Guidelines for the Financial Statement Analysis Project

1. Use the most recent annual financial statements of any trading or manufacturing company you have access to (that sells products or merchandise ,

2. Calculate the financial ratios mentioned below for this company for two consecutive years,

3. You need to show your work of how you calculated each ratio,

4. For each ratio, shortly explain what the ratio means in your own words,

5. For each ratio, compare and comment on ratio changes between the two years. Your comment should include whether or not you think the company is improving on that front,

6. Your report should be posted to Blackboard as an MS Excel file no later than our final exam day,

7. The financial ratios used in the analysis are: (Review the PowerPoint files and see the back cover of the textbook for calculation of these ratios)
   1. Working Capital
   2. Current Ratio
   3. Current Cash Debt Coverage Ratio
   4. Inventory Turnover Ratio
   5. Days in Inventory
   6. Receivables Turnover Ratio (you can use total sales if credit sales are not separately disclosed)
   7. Average Collection Period
   8. Debt to Total Assets Ratio
   9. Cash Debt Coverage Ratio
   10. Gross Profit Rate
   11. Profit Margin Ratio
   12. Return on Assets Ratio
   13. Asset Turnover Ratio

8. You will notice that some of these ratios use the simple average of some account (i.e., the inventory or accounts receivable average) which is the total of that account at the end of this year and the end of the prior year divided by two. Therefore, if you are calculating the ratios for years 2016 and 2015 for example, you will also need some numbers from the financial statements of 2014.