Financial Statement Reporting and Analysis
Financial Statement Analysis Project
You have done an excellent job for your
company. The executives have been considering to promote you to a position with
more responsibilities and higher pay. Whether you will have this promotion
depends on your performance for this project the executives assign you to do.
The specific tasks are:
Collect a most recent 10-K for at least three years of
financial data, including financial statements, their footnotes, and management
discussion for ONE of the following primary firms: (Note: DON’T print out
10-K.)
Chipotle Mexican Grill
Inc.
Then, you need
to find one major competitor of the firm you select above, and also download
its most recent 10-K with at least 3 years of data. You need to explain why you
select this firm as the competitor for your project study. In addition, you
need to collect industrial benchmarks or ratios for the ratios you need to
calculate (See 3 below), and to investigate what formulas from which these
benchmarks are calculated. (5 points)
Summarize the management discussion and analysis. Pay close
attention to the adjective terms in the description they use to excuse
themselves from unsatisfactory performance. Do you think that the firm
discloses its financial situation sufficiently? (10 points)
For the two companies (the primary and the competitor), do
numerical analyses on: their common-size (vertical and horizontal) ratios,
year-to-year ratios, liquidity
of short-term assets and related debt-paying, activity efficiency, long-term debt-paying ability or coverage, and the firms’ profitability. Note: Do as many
ratios as you can. (20 points)
Comments on the major findings of the primary firm based on the
analytical results in Item 3 above, in comparison with those of the
competitor and industrial benchmarks. (10 points)
Comment on the accounting treatments of the primary firms. To
do this, you need to read management discussion and analysis and footnotes
carefully. In general, your comments should concentrate on whether the
firms are conservative or not for account classification and estimates,
and whether there are accounting policy changes and why. If the firms use
different accounting methods, such as for depreciation and amortization,
you need to specify them. Your evaluation should be based upon the
criteria we have learned in this course and the accounting quality
hierarchy. Particularly, concentrate on the following issues: (25 points)
Do the firms recognize their revenue and related expenses properly?
Explain. (You need to support your evaluation with your understanding of
management discussion and analysis, and the footnotes)
Examine accounting quality for fixed assets and intangible
assets. Pay close attention to the valuation and estimation methods used.
Explain. (You need to support your evaluation with your understanding of
management discussion and analysis, and the footnotes.)
Review liability recognition and related expenses. Explain
whether you agree or disagree with the treatment of the firms. (You need
to support your evaluation with your understanding of management
discussion and analysis, and the footnotes.)
Select one company from the two companies studied, and explain
why you select this specific firm for possible investment. Your selection
should be based upon your ratio analyses and comments. (5 points)
Do pro forma financial statements: Balance Sheet and Income
Statement for the company you choose to invest in, and further do the
ratio analysis (above Step 3) and explain (above Step 4) to confirm or
refute your decision. (20 points)
Cosmetic work. Your report from the project should follow the
typesetting requirements, as listed on the next page. (5 points)
Optional: Graphing major ratios of your analysis. (Note: you
need not graph all the ratios. Bonus: 3 points)
Other Issues:
Though not mandatory, I request you to submit your first draft
of your project to me at least one week before the due date for my
preliminary evaluation and comments. I will also give you a preliminary
grade and point it out which parts you should make corrections and
changes.
The deadline for submitting the project is May 14, Saturday midnight.
If you have to delay your submission, you must give me a reason in
advance.
Report
Format Requirements
1. Report body requirements:
Cover page. It lists the title of the project, names of group
members, and semester/year.
Abstract or Executive Summary. It is on a separate page. It
should cover the purpose of the project, what are the major findings, and
the conclusion. Provide recommendations and suggestions, if any.
Contents. It lists all numbered pages (except the cover page
and abstract page).
Main body. It should list in the following sequence of the
report content: Introduction, summary of management discussion and
analysis, analytical section (ratio calculation), result explanation and
discussion, and conclusion and suggestion. This main body should contain
sections of above requirements Items 2 to 7. If you choose to put your
tables in the Appendices, you should refer to which table or graph you are
talking about.
Reference. List all major reference sources.
Appendices. List all your tables and graphs. For reference
convenience, give a title to each separate item, such as Table 1. Note: do
not put the original financial statements of the companies you choose to
study into any part of the paper, including Appendices.
2. Typesetting requirements:
Use 12 font size. Time New Roman is preferred.
One and half space between lines.
Number all pages, but the cover and abstract pages.
Single side printing, if printout (Only if you must turn in the
report in person).
One inch on all sides.
Total page numbers: 25. (No more than 35 pages)