Comparing ratios from year to year and determining the level of change allows important insight as to a company’s financial position.
You will analyze and evaluate the financial statements of two companies in the same industry using an Excel spreadsheet, and also prepare a 3- to 4-page summary of your findings.
Step 1. Research
Identify two companies from the same sector and locate their most current financial statements (These may be found on the company’s website on the investor page. Look for fourth quarter earnings presentations or annual reports). You can pick companies in the retail sector, financial sector, energy sector, information technology sector, or another sector.
Step 2. Calculate the financial ratios of the two companies in Excel utilizing the following:
Change in Financial Position – [Net Assets(e) – Net Assets(b)]/Total Revenues(e)
e = end of time period
b = beginning of time period
(Ratio shows change in financial position over period of time.)
(Current Ratio – Current Assets)/Current Liabilities
(Ratio shows ability to cover obligations with existing resources.)
[Quick Ratio – (Cash + Current Investments)]/Current Liabilities
(Ratio shows ability to cover obligations with most liquid assets.)
(Debt-to-Assets Ratio – Total Liabilities)/Total Assets
(Ratio shows degree of resources to repay debt.)
(Debt-to-Net Assets Ratio – Total Liabilities)/Net Assets
(Ratio shows degree of available resources to repay debt.)
Step 3. Analyze
For each individual company, compare each ratio from the year to the prior year, and determine the level of change.
Has the company’s financial position improved? Explain your answer by using the ratio analyses.
Compare the current year ratios of one company to the ratios of the other company. Which company has a stronger financial position? Explain your answer by using the ratio analyses.
Step 4. Prepare a summary your findings.
Write an introduction explaining the companies you selected and the industry sector they represent.
For each ratio, state your findings, comparing the change in ratios from one year to the next for each company, and the difference in ratios between the two companies.
Write a conclusion describing the condition of each company and comparing one company to the other.
Step 5. Copy and paste the Excel spreadsheet with the ratio calculations as an appendix to your 3- to 4-page APA-formatted summary, including separate title and reference pages.
Notes:
1. This assignment requires a minimum of 3 sources. Please include the two sources that are attached to this assignment and use one other source of your choosing..
2. Please include a concluding paragraph and avoid the words “In conclusion..” and similar transition phrases.
3. Please note this is to be written at the doctoral level and must adhere to APA 7th edition formatting. Note the ratio calculations are to be attached as an appendix. The paper is to be in essay format, omitting data calculations into the essay portion of the assignment.
4. Please follow all instructions strictly.
