Annual report analysis and comparison

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Initial Observation:

There is a difference in the dates when both the companies file their 10-k. Need a summary of how this can affect the ratios, impact on shareholder mindset. Next, provide an overall comparison of the sector i.e. Technology as a whole - select an index (your choice) and summarize.

 

Assignment:

 

The following are specific course learning outcomes associated with this assignment:

  • Analyze financial statements using financial ratios.
  • Analyze and evaluate cash flows over time.
  • Use technology and information resources to research issues in financial management.
  • Write clearly and concisely about financial management using proper writing mechanics.

 

What needs to be answered?

  1. Compare and contrast the approach to reporting to shareholders taken by each company. Examine topics such as use of graphics, presentation format, tone, detail, length, and required versus additional content.
  2. Analyze the financial statements using financial ratios (i.e., calculate and discuss similarities and differences in trends, benchmarks). (Use the ratios provided in the Excel spreadsheet (auto calculated) and also provide extra that are significant.)
  3. Analyze the cash-flow statements (i.e., calculate and discuss similarities and differences in trends). Discuss how these patterns reflect on the stated strategies of the organizations. Your analysis should answer such questions as:
    1. Where is the cash coming from?
    2. How is it being used?
    3. What are the long-term implications?
    4. Discuss the most significant accounting policies adopted by the two organizations e.g., revenue recognition; inventory valuation. (Note: you should select the same two policies for both organizations.) Explain the choices made by both companies and comment on any differences that you see.

Steps:

  1. Carefully review the annual reports for both organizations. Comment on what approach each company has taken in reporting to its shareholders. (This requirement is purposely broad to give you the freedom to talk about anything under the title of “reporting to shareholders”).
  2. Using the provided Excel spreadsheet, prepare a ratio analysis for both companies including a trend analysis for three years. Comment on the significance of the ratios for each company (do they indicate that things are all right, do they suggest that problems exist, or is it likely that problems will occur in the future?). Comment specifically on the similarities and differences among the ratios calculated for both companies and comparison to any benchmark.
  3. Prepare an analysis of the cash-flow statements for both companies.
  4. List and discuss the importance of the two most significant accounting policies adopted by the two organizations (you should select the same two policies for both organizations). Explain the options selected by both companies and comment on any differences that you see. Explain what other policies the organizations could have selected and state why you think they selected one policy over another
  5. Refer to the URLs for each company’s Annual Report in the following page.
  6. Use Times New Roman font size 12 or similar, double-space, and leave ample white space (i.e., 1-inch margins) per page. Body of the paper should be about 8-12 pages in length.  In addition to the body of the paper, it should also have (a) Title Page, (b) Abstract (or Executive Summary) page, and (c) Reference pages.

 

Review the reports below and go back from 2012 till 2009 and create the Income Statement and Balance Sheet – use the attached excel as guideline

 

Topics:

Basic Financial Accounting & Ratio Analysis

Revenue Recognition & The Income Statement

Current and Fixed Assets on the Balance Sheet

Current and Long-term Liabilities on the Balance Sheet

Shareholders’ Equity, The Statement of Cash Flows, and Financial Analysis

 

Sector - Technology,

Companies - Microsoft and IBM

 

Microsoft-

Annual Report: 2013 and 10-K:

http://www.shareholder.com/visitors/activeedgardoc.cfm?f=rtf&companyid=MSFT&id=9422625

IBM -

Annual Report: 2012

http://www.ibm.com/annualreport/2012/bin/assets/2012_ibm_annual.pdf

10K: 2013:

http://www.ibm.com/investor/att/pdf/2013_10-k.pdf

 

Excel Spreadsheet guidelines:

Step 1 - print out the first tab's two pages & make notes on what the ratio analyses mean to you. You can type directly into the 'notes' cells, but all other cells are password protected.

 

Step 2 - key four years worth of selected financial data for each company into the data tab.  Type each company's name in the cells provided at the top.  If you are not using 2009-2012 financial data, replace those years with the ones you are using.  Only the shaded cells are available; all other cells are password protected.

Step 3 - Print out tab #3....which contains selected financial ratios from pages 380-381.  These selected analyses are the minimum you should review and discuss.  You can include any other ratios/analyses in your paper that you believe are important.

NOTE 1:  If you are not familiar with how to copy the results tab into your Word document, then just be sure to upload your Excel file along with your paper.  Do not waste valuable time stressing over the copy/paste process.  Instead, create grids/tables at the end of your Word file and type selected ratio/analysis results into the table. Then, refer to your table in your discussions.  EX:  Appendix 3 displays the Working Capital trends for both companies. From these figures, it is apparent that Company 1 is in a far better position than Company 2. 

NOTE 2:  Remember to keep the tone of your paper professional, objective, and factual.  Do Not use first person (I, me, we, you, your, etc).  Provide APA formatted citations for your facts and resources. 

Instead of...   As you can see in Appendix 1, Company A has a better Earnings Per Share. This tells us that...

Reword as...    Appendix 1 contains the Earnings Per Share data. Based on the discussion of this financial ratio (citation), it is apparent that Company A's trend has..... while Company B's trend has....   One potential result of these trends is that the investors of Company.....

 

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