Modified instructions taken from textbook page 1-45(Please submit your answer in word or excel. You also can submit a file if needed. Select two publicly traded companies that compete with each other. Ongoing project: 2 firms.)An important part of learning is application. To learn accounting, we must practice the skills taught and apply those skills to real world problems. To that end, we have designed a project to reinforce the lessons in each module and apply them to real companies. The goal of this project is to complete a comprehensive analysis of two (or more) companies in the same industry. We will then create a set of forecasted financial statements and a valuation of the companies’ equity. This is essentially what financial analysts and many creditors do. We might not aspire to be an analyst or creditor, but by completing a project of this magnitude, we will have mastered financial reporting at a sufficient level to be able to step into any role in an organization. The goal of Module 1’s assignment is to obtain and begin to explore the financial reports for two publicly traded companies that compete with each other.(Note: Please do not use the same company as you used in the Robinhood project. There are many firms you can choose from. In the US, there are about 6000 public firms.)Select two publicly traded companies that compete with each other. They must be publicly traded, as private company financial statements will not be publicly available. While the two companies do not need to be head-to-head competitors, their main lines of business should broadly overlap.Download the annual reports for each company, and peruse them. At this stage, choose companies that are profitable (net income is positive) and that have positive retained earnings and stockholders’ equity. Select companies whose financial statements are not overly complicated. (Probably avoid the automotive, banking, insurance, and financial services industries. Automotive companies have large financial services subsidiaries that act like banks for customers, which complicates the analysis. Banking, insurance, and financial services have operations that differ drastically from the usual industrial companies common in practice. While these companies can be analyzed, they present challenges for the beginning analyst.)• Use the SEC EDGAR Website to locate the recent Form 10-K (or other annual reports such as 20-F or 40-F) (www.sec.gov). Download a spreadsheet version of financial statements. Use Appendix 1A as a guide.E.g:https://www.sec.gov/edgar/searchedgar/companysearch.html (Links to an external site.) (Links to an external site.)https://www.sec.gov/cgi-bin/browse-edgar?CIK=JD&owner=exclude&action=getcompany&Find=Search (Links to an external site.) (Links to an external site.)https://www.marketwatch.com/investing/stock/aapl/financials (Links to an external site.)Explore the financial statements, and familiarize yourself with the company basics. The following give an indication of some questions that guide us as we look for answers.What is the date of the most recent fiscal year-end? (e.g. 12/31/2019. 60% of public firms have 12/31 as fiscal year-end. It should be the last date of a month. Sometime, it could be 1 or 2 days off due to weekends or holidays.)What is liabilities in dollar? Equity? Total assets? ( Most of the time, the unit is in Million. But some small firms use thousands or even 1 dollar as unit.)Why Total assets= Liabilities+ Equity?Calculate the return on assets (ROA) for the most recent year.Disaggregate ROA into the two-component parts as shown in Exhibit 1.7. Compare thenumbers/ratios for each company. (ROA=Profit Margin * Asset turnover) (average assets =(beginning year assets + ending year assets)/2)Find the companies’ audit reports in the 10-K. Who are the auditors? Are any concerns raised in the reports? (Audit Report is in 10-k. You can search the keyword” Public accounting firm” to locate it. It should be item 8 or 9, right after the financial statements.)Modified instructions taken from textbook page 2-37:The goal of this module’s project is to perform a vertical analysis of the balance sheet and income statement, assess cash flows, and determine market capitalization.Balance Sheet Analysis. Obtain the balance sheet in spreadsheet form from the SEC website at the “Interactive Data” link on the search results page. Look for major differences over time.• What are the company’s largest assets? Largest liabilities? Please provide the account names and amount.• What proportion of total assets is financed by owners? (Hint: Compare with total equity.)• What proportion of total assets is financed by nonowners?Income Statement Analysis.What are the major expenses? Please provide the account names and amount.Statement of Cash Flows Analysis. Determine the size and direction (cash source or use) of cash flows from operations, investing, and financing. One goal is to understand the company’s pattern of cash flows and to form an opinion about the general strength of its cash flows. Some questions to consider:• What were the cash flows from operations? Please provide the account names and amount.• Were operating cash flows smaller or larger than net income?• Did the company generate or use cash from investing activities?• Did the company generate or use cash from financing activities?
