This Portfolio Project
has two parts: calculations and a 4- to 6-page essay. While the calculation
requirements of this assignment are important, equally important are your
discussion and analysis of the quantitative results. You will submit two documents:
1) a spreadsheet containing your horizontal and vertical analysis (and perhaps
your ratios) and 2) a word document containing your essay.
Choose a publicly traded company and perform an expanded analysis on the
financial statements. Please use the most current 10K statements available
on www.sec.govhttp://www.sec.gov or annual statements in
finance.yahoo.comhttp://finance.yahoo.com.You will submit both parts separately.
Part
1: Please complete
the following for your chosen firm in an Excel spreadsheet:
1.
Horizontal and
vertical analysis of the Income Statements for the past three years (all yearly
balances set as a percentage of total revenues for that year).
2.
Horizontal and
vertical analysis of the Balance Sheets for the past three years (all yearly
balances set as a percentage of total assets for that year).
3.
Ratio analysis (eight
ratios of your choosing) for the past three years PLUS a measurement for the
creditworthiness of your firm as measured by Altman’s Z-score. Note that
if you used your chosen firm for our ratio-related discussion posts, then you
MUST also present industry-average ratios or current year competitor ratios for
your ratio analysis. Comparing your firm’s ratios to a close competitor or an
industry-average ratio makes your analysis much more meaningful.
Part
2: The Paper:
·
4-6 pages in length.
·
Include a proper
introduction and conclusion.
·
Include a reference
page.
·
Your paper should
provide your reader with an overall understanding of the financial health of
your chosen firm including the following:
·
o Discussion of the ratio analysis results,
including rationale for the ratios chosen.
o Discussion of all horizontal and vertical
analysis from above.
o Discussion of four items from the management
discussion of the firm that support the conclusion formed in your
discussion of the financial results.
Much of this course has
concentrated on learning the financial statements, primarily because there was
not an accounting prerequisite. Because of this concentration, you may find
this assignment challenging. However, if you understand the financial
statements, then the horizontal and vertical analysis should (hopefully) be
rather intuitive. For example, if you see sales rise by 20%, then shouldn’t you
also see net income rise by 20% or more if the managers are effective at
controlling costs? If you see sales rise by 20% and assets rise by 40%,
we have to ask why this is happening. It would appear that assets have risen
too far given the sales that are generated from those assets—why did this
occur? You may have to research that type of question and discuss it in
your analysis.
The link below
demonstrates the completion of vertical and horizontal analysis on Nike using
Excel. Dr. Jill Bale, the course writer, demonstrates the use of Excel
equations and discusses some of the issues you may face when working on the
spreadsheet for your portfolio project. If you would like some additional
guidance on the spreadsheet requirement of the portfolio project, please watch
the video. Note that the video does not discuss adding the 8 required
ratios to your spreadsheet; however, you are required to submit your company
ratios on this spreadsheet as well as the vertical/horizontal analysis.
As always, your instructor is available for follow-up questions.
Bale, J. (2013, August
19). Demonstration of Vertical/Horizontal Analysis using Excel [Video file].
Retrieved fromhttp://camrelay1.unl.edu/inbox/jbale2/Nike_Horizontal_and_Vertical_analysis_-_MP4_with_Smart_Player_(Large)_-_20130819_10.10.04AM.html
You’ve had some
experience with financial ratios through Discussion Board. I’d suggest
that you start your ratio analysis with the four ratios found in the DuPont
equation. If you discover a weakness in one component of the DuPont ratios,
then it would make sense to look at ratios that are closely related to the
troublesome ratio. For example, if you discover that the asset turnover is
declining over time, then take a look at some related ratios such as the
inventory turnover rate or the average collection period. If you discover that
the equity multiplier is increasing (indicating greater reliance on debt), then
look at some related ratios such as the debt ratio or Times Interest Earned.
These ratios are discussed in our textbook, even though you may not have been
assigned to thoroughly read the chapters.
Finally, please read
through the rubric that will be used to grade your assignment—you will get a
feeling of expectations by doing so. Your instructor is here to help you
through this project. If you have questions, please let your instructor know.
He or she may be willing to take a quick look at your horizontal and vertical
analysis to give you feedback in advance since you will not have had much
experience on that calculation prior to the project. Always communicate right
away with your instructor when you need assistance!
