I. Executive Summary. This section should provide a brief context for your finan

I. Executive Summary.
This section should provide a brief context for your financial statement analysis and a summary
of your principal findings.
§ Provide a brief context for the company that helps situate it in the larger business
environment. Be sure to explain how this context impacts financial statement analysis. For
example, how large is the company? What industry is it in? What companies are its major
competitors? What trends or recent events might affect company or industry performance?
How might these things be reflected in financial statements?
§ Summarize key findings and recommendations from your analysis clearly and concisely. For
example, what does your analysis suggest regarding internal changes? Would outside
investors find your company attractive? This should be one high-level summary paragraph.
Supporting details and rationale will be provided in later sections.
II. Analysis.
Use this section to present your findings based on quantitative and qualitative analysis of the
financial statements. Include a copy of the financial statements and any ratios or analysis in an
appendix as support for your text. In particular, this section should cover:
a) Role of financial statements
§ The financial statements’ role in evaluating company performance.
§ Explain why it is important that these statements be completed accurately and ethically
and what the ramifications are if they are not.
b) Approach. Briefly and in general terms, explain the types of analysis you performed and
why. You should focus on the key measurements and how you used them to inform your
analysis.
c) Key Ratios. Use this section to discuss key performance indicators (ratios). Be sure to show
your calculations for each indicator in an appendix. Specifically, you must look at:
§ Profitability: Accurately present and explain the significance of the profit margin, return
on assets, return on equity, and return on capital ratios for this company. In other
words, what are the ratio values for this company, and what do they suggest for
informing decisions to buy or sell company shares or change management procedures?
§ Liquidity: Accurately present and explain the significance of the current, quick, and cash
ratios for this company. In other words, what are the ratio values for this company, and
what do they suggest for informing decisions to buy or sell company shares or change
management procedures?
§ Debt: Accurately present and explain the significance of debt, debt-equity, and interest
coverage ratios for this company. In other words, what are the ratio values for the
company, and what do they suggest for informing decisions to buy or sell company
shares or change management procedures?
§ Operating performance: Accurately present and explain the significance of the fixedasset turnover ratio for this company. In other words, what is the ratio value for this
company, and what does it suggest for informing decisions to buy or sell company
shares or change management procedures?
§ Investment valuation: Accurately present and explain the significance of the price/book value,
price/earnings, price/sales, and dividend yield ratios for this company. In other words, what are
the ratio values for this company, and what do they suggest for informing decisions to buy or
sell company shares or change management procedures?
d) Vertical Analysis. Perform a vertical analysis of the income statement and the balance sheet from
the most recent three years in order to answer the following questions. Be sure to include
supporting calculations and a vertical analysis spreadsheet in an appendix.
1. Do any items in your vertical analysis stand out? Why or why not? Be sure to provide specific
examples and explain what elements you considered in arriving at your answer.
2. What does your vertical analysis suggest for managing the company’s financial health? Be sure
to justify your response. For example, are there things the company might want to look at more
closely? Why or why not?
3. What does your vertical analysis suggest with respect to how potential investors would view the
company? Justify your response. For example, are there items that might make potential
investors less likely to buy the company’s stock? Are there items that might make potential
creditors wary about lending to the company? Why or why not?
e) Horizontal Analysis. Perform a horizontal analysis of the same key performance measures covered
by your vertical analysis to examine trends for the company over the most recent three-year time
period. Use your analysis to answer the following questions and include supporting calculations and
horizontal analysis spreadsheet in an appendix.
1. Do any items in your horizontal analysis stand out? Why or why not? Be sure to explain what
elements you considered in arriving at your answer.
2. What does your horizontal analysis suggest for managing the company’s financial health? Be
sure to justify your response. For example, are there things the company might want to look at
more closely? Why or why not?
3. What does your horizontal analysis suggest with respect to how potential investors would view
the company? Justify your response. For example, are there any items that might make
potential investors less likely to buy the company’s stock? Are there items that might make
potential creditors wary about lending to the company? Why or why not?
f) Benchmarks. Analyze the company’s performance relative to the industry average. The average
should refer to the same period as the financial statements being analyzed (or as close as possible).
Specifically, you should answer:
1. Why is benchmarking important in analyzing financial statements and evaluating a company’s
overall performance? In other words, does analyzing a specific company’s financial statements
in isolation provide you with sufficient information for analyzing its overall performance? Why
or why not?
2. What do benchmarking comparisons tell you about how the selected company is performing
relative to industry peers? Support your answer with specific examples from your analysis and
industry research.
3. How do your company’s financial statements compare to industry standards in terms of legally
and ethically communicating necessary information to stakeholders? Justify your response using
specific examples and referencing relevant legal and ethical guidelines.
III. Conclusions. Based on your analysis, what overall conclusions would you draw regarding the
following questions:
a) Would outside investors find the company attractive as a potential investment? Why or why
not? Use examples from your analysis to support your answer.
b) What legal and ethical considerations does the organization need to consider in implementing
these recommendations? How would these affect stakeholders’ decision making? Support your
response referencing relevant legal and ethical guidelines.