Purpose: Part of this course includes the understanding of basic financial info

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Purpose: Part of this course includes the understanding of basic financial information for lending and investment activities. This project allows you to show this knowledge.
Objective: Choose a publicly traded company to analyze. Write a recommendation memo for a nonprofit organization that is considering whether to include this company’s stock in its portfolio. Assume that this nonprofit prefers to invest in socially responsible companies.
Additional Information
• Your recommendation memo should consider both the value of the investment from a financial perspective and the ethics of the investment. • Please upload your project and any supporting documents to Moodle. • Please append the financial statements (Income Statement, Statement of Stockholder’s Equity, Balance Sheet, and Cash flow statement) for your company to the back of your report. • This project is worth 25% of the grade for the semester.
• Consider the following list of questions in your analysis (you are not required to answer every question; use your discretion to determine what information is the most relevant to support your recommendation). 1. Company website review a. What does the website say about the company’s commitment to corporate social responsibility initiatives? b. How many members are on the Board of Directors? Are they independent directors or are they associated with the company? How diverse is the Board?
c. Look up the company’s stock performance (you can use the stock ticker and look up the historical performance on Yahoo finance). Has the stock price been rising or falling? Why do you think this is?
d. What does the website say about the company’s ESG (Environmental, Social, and Governance) initiatives? What evidence do they provide about whether they are meeting their goals? 2. 10-k review: Item 1A – Risk Factors
Go to the Table of Contents for the company’s 10-K. Go to Item 1A – Risk Factors. Answer the following questions.
a. Describe three of the company’s risk factors?
b. Are the listed risks the only risks the company faces? Identify other risk factors that would concern you as a manager or investor. 3. Code of Conduct/ethics
Go to the Table of Contents for the company’s 10-K. Now go to Item 10 – Directors, Executive Officers and Corporate Governance. Answer the following questions.
a. Does the company have a written code of conduct? If so, to whom does it apply?
b. Where can the code of conduct be found?
c. What are the main components of the code?
d. How effective do you think this code is in providing guidance for corporate actions. Explain.
4. Item 7: Management Discussion and Analysis (MDA) – for your information management provide a detailed discussion about the company’s operations. It may help with discussion of risk factors for item 2 above. 5. Management Evaluation and Compensation Most companies incorporate information on executive compensation from their proxy statement into their annual report. To access the definitive proxy statement, go to the main filings page for the company. If you do not see a recent filing of DEF 14A, you can enter it in the Filing Type box and search for it. Make sure you leave a space between DEF and 14A. Also be sure you are selecting the documents for the DEF 14A and not DEFA14A. Click on the red link for the Definitive Proxy Statement. Now go to the Executive Compensation section. Since executive compensation information is only one component of the definitive proxy statement, you will probably have to look in the Table of Contents for the appropriate section. (Or, you can google proxy statement for your company and gain access through the company’s shareholder website.). Answer the following questions for the most recent year.
a. How much is the CEO’s annual base salary? How much is annual cash incentive/bonus award? They difference between these and total is (most likely) the value of stock options. What percentage of the person’s compensation is in cash?
b. How much is the CFO’s annual base salary? How much is annual cash incentive/bonus award? They difference between these and total is (most likely) the value of stock options. What percentage of the person’s compensation is in cash?
c. Beginning 2018, U.S. public companies are required to disclose the ratio of annual total compensation of the CEO to the annual total compensation of the median employee (excluding the CEO). Report the pay ratio for your company for the most recent year and the trend of years reported. Justified? Not justified? Explain. 6. Report of Independent Registered Public Accounting Firm (look at noninteractive statement to find the report): The PCAOB (Public Company Accounting Oversight Board) is the organization in charge of auditing standards (and other items) for publicly traded companies. For extra information: https://pcaobus.org/oversight/standards/auditing-standards/details/AS3101 a. Who is the auditor?
b. Did the auditors express an unqualified opinion? This is the desired opinion! If the opinion is qualified (and this is not good) language might include “except for,” “do not present fairly”, or “not express an opinion.” https://pcaobus.org/oversight/standards/auditing-standards/details/AS3105
c. The auditors also should have provided an opinion about the internal control over financial reporting. Some auditors include this opinion with the first one. Was the auditor’s opinion about controls unqualified? (Note – companies can have an unqualified opinion about the financial results but a qualified opinion about internal controls.)
d. There should be a section “Critical Audit Matters” as part of the opinion. What items did the auditors list as critical?
e. Notice how much after year end the report was issued. Does this make the opinion less useful? Explain.
f. At the end of the opinion, the auditors provide how long they have audited the company. What date is listed? If it has been an extended period, do you think this presents any problems with the independence of auditor from company? Explain.
7. Income Statement – use the income statement from the SEC Form 10-K for the most recent fiscal year.
a. If their fiscal year end is not December 31st, why do you believe they chose to use the date they did?
b. Calculate the gross profit percentage ratio for each of the years reported (one of the ratios required in the Excel document). Briefly evaluate the trend of these results.
c. Explain whether operating income is increasing or decreasing for the years reported. Explain the difference between operating income and net income. (not in terms of dollars but in terms of meaning)
d. Describe the primary source of revenue for this company. What might that say about the ability of this company to do well in the future? Don’t just say, “sales”. Sales of what?
e. In the footnotes, what does the company say about its policy for revenue recognition? Use your words. Don’t cut and paste.
f. In the footnotes, what does the company say about depreciation expense? What method(s) of depreciation does the company use? What estimates does the company make to compute this expense? g. Convert the income statement to a common sized income statement (in other words, restate everything as a percentage of total revenues. You will need to export the income statement to Excel for this). Based upon the common size income statement, is there anything surprising to you? 8. Statement of stockholder’s equity
a. Identify what caused your company’s retained earnings to change during the years of the statement. Discuss the pattern over the period.
b. Describe any stock issuances this year. c. Does your company use par value? How do you know?
d. Does your company have more than one class of stock? Explain.
e. Has the company repurchased any stock? This year? In past years? How do you know?
9. Balance Sheet
a. What is the asset mix?
b. Compute the current ratio. What does this say about your company?
c. How does your company measure accounts receivable? How do they account for Bad Debt?
d. Compute AR turnover for the past two years. Analyze the turnover.
e. Read the footnotes related to inventories. What method does your company use to report inventories? If they were to use a different method, what impact do you think it would have on the balance sheet and income statement (greater, less, no impact). Explain.
f. Calculate the inventory turnover ratio for the past two years. Comment about the change – good news? Bad news? No news?!
g. Does the company report any inventory write down? (perhaps discussed in notes). h. What types of investments does your company own?
i. What types of capital assets (PPE) does your company recognize on the balance sheet?
j. Does your company have any intangible assets? What are they? How are they valued on the balance sheet? Are they amortized and if so over what period of time? If not, why not?
k. How many shares of common stock are authorized? Issued? Outstanding?
l. Prepare a common size balance sheet, i. What is the percentage of current assets to total assets for the most recent year? ii. What is the percentage of current liabilities to total assets for the current year? iii. What is the percentage of total liabilities to total assets for the most recent year? iv. What is the percentage of stockholders equity to total assets? m. How did capital expenditures compare with depreciation? Why is this an interesting comparison?
10. Cash flow statement
a. In your opinion, which is more important –income statement or cash flow statement?
b. Describe the three primary sections of this statement.
c. Where is the source of most of your company’s cash? What does this say about the company’s financial health?
d. What is the primary use of your company’s cash? What does this say about the company’s priorities?
11. Liquidity a. Calculate the following ratios for years presented in the financials.
i. Working capital
ii. Current ratio
iii. Quick ratio
iv. Accounts receivable turnover
v. Inventory turnover b. Based on your calculations above, assess the company’s overall liquidity position. Explain which ratios indicate particular strengths and / or weaknesses.
12. Solvency
a. Calculate the following ratios for years presented in the financials.
i. Debt to assets ratio
ii. Ratio of liabilities to Stockholder’s equity
iii. Times interest earned
b. Analysis: How is leverage used by the business? What is the effect on business risk? In your opinion, does the company have too much debt? 13. Profitability
a. Calculate the following ratios for years presented in the financials.
i. Gross profit percentage ratio
ii. Net profit margin ratio
iii. Return on assets
iv. Return on common stockholder’s equity
v. Return on stockholder’s equity
vi. Earnings per share
vii. Price earnings ratio
viii. Dividend yield Appendix – Financial Statement Ratios
I. The formulas for most ratios are listed in the summary table listed on page 382. Ratios also are covered earlier in the text but these ratios are summarized again in chapter 9. 1. Working capital (page 369)
2. Current ratio (page 369)
3. Quick ratio (page 370)
4. Gross profit (page 144)
5. Gross profit percentage (page 145)
6. Profit margin (page 145) 7. Return on investment (page 609)
8. Return on assets (page 377)
9. Return on common stockholder’s equity (page 378)
10. Return on equity (page 377)
11. Debt / assets (page 382)
12. Debt / stockholder’s equity (page 382)
13. Earnings per share (page 379)
14. Dividend yield (page 381)
15. Price / earnings (page 380)
16. Accounts receivable turnover (page 371)
17. Inventory turnover (page 372)
18. Times interest earned (page 375)
II. Prepare a common sized income statement and a common sized balance sheet. (page 367-368, and also covered in chapter 2).
this is the website to use: Use the company Apple please https://www.sec.gov/cgi-bin/viewer?action＝view&cik＝320193&accession_number＝0000320193-23-000106&xbrl_type＝v

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