Central Washington University
Department of Accounting
MPA 530 – Winter 2004
Financial Statement Analysis Project
NAME
The purpose of this project is to allow you to examine the effects of various accounting practices
and reporting procedures first hand. You will select an annual report of a major corporation for a
fiscal period ending in 2002 or 2003 (most recent fiscal period). This report will be turned in
accompanied by the annual report no later than March 11, 2004.
Company Name
Date of Annual Report
2
Name ______________________
Company Name _________________________
Date of Annual Report ________________
Annual Report SECTION I - Financial Statements
Page Reference
A. General Information:
1. Describe the principal business activity(ies) of the firm.
2. Where is the corporate headquarters located?
3. Over what stock exchange is the firm's stock traded?
4. Complete the following table:
*Date
E.P.S.
Dividends
Per Share
Closing Market
Price/
Volume
Price of Earnings
of Shares
Common Stock
Ratio
Traded
12/31/01
12/31/02
12/31/03
*Adjust dates if company's fiscal year is not the calendar year.
5. The Auditor's Report
a) Audit firm ____________________________
b) Audit opinion
______ Unqualified
______ Unqualified - Modified
______ Qualifed
______ Adverse
______ Disclaimer
c) If the opinion is not unqualified, describe reason
for opinion given.
d) Was a change in auditors evident? Was reason for change
disclosed?.
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Name _______________________ Firm _______________________
Annual Report
Page Reference
B. Income Statement
1. Title used _________________________________
2. Report format (multiple step, single step, other )
C. Balance Sheet
1.Title used ___________________________________
2. Report format (report, account, other)
D. Retained Earnings
How was the change in Retained Earnings presented?
__________ Separate statement
__________ Part of Income Statement
__________ Other (please describe)
E. Statement of Cash Flows
1. What was the net change in cash during the year?
$ ________________________
2. What was the net change in working capital during the year?
$ ________________________
3. What approach (direct or indirect)
was used to compute cash from operations?
Cash from/used by:
Operations $ ________________________
Investing $ ________________________
Financing$ ________________________
4
Name ________________________ Firm ____________________
Annual Report
Page Reference
4. Identify the three largest sources of cash and
compute the following:
Source
Amount
% of Total Sources
5. Identify the three largest uses of cash and complete the following:
Use or
Application
Amount
% of Total Application
F.. Statement of Comprehensive Income
1. Does the company report any Comprehensive Income?
2. How does the company report comprehensive income on the
a. flows statements
b. balance sheet
F. Notes to the Financial Statement
List, in order presented in the annual report, the title used to describe each footnote
1.
2.
3.
4.
5.
6.
7.
8.
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Name ___________________ Firm________________________
Annual Report
Page Reference
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Section II. - Specific Accounting Issues
A. Accounts and Notes Receivable:
Prior
Current
Year
Year
1. Current accounts receivable.
____________
___________
2. Estimated uncollectible accounts.
____________
___________
3. Net current accounts receivable.
____________
___________
4. Net sales.
____________
___________
5. # of days' sales in receivables.
____________
___________
6
Name _______________________ Firm _______________________
Annual Report
Page Reference
6. Item 5 is a ratio often used by analyst's to evaluate
the quality of accounts receivable. Critique the ratio, highlighting strengths and weaknesses of
the usefulness of the item. Be sure to include in your discussion the impact that generally
accepted accounting principles might have on the quality or usefulness of the statistic.
7. Describe (summarize) the accounting principles used by the firm to account for receivables.
B. Inventory
1. Summarize the valuation method(s) used by the firm to account for
inventory.
2. Complete the following table:
Prior Year
Current Year
Amount
Amount
Beginning Inventory
_______________
_______________
Ending Inventory
_______________
_______________
Net Sales
_______________
_______________
Cost of Goods Sold
_______________
_______________
Inventory turnover
Replacement cost or
current value
_______________
_______________
_______________
_______________
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Name ________________________ Firm ______________________
Annual Report
Page Reference
3. Inventory turnover is a statistic used by analysts to evaluate the effectiveness of
inventory management. Critique the ratio, highlighting strengths and weaknesses of the
usefulness of the item. Be sure to include in your discussion the impact that generally
accepted accounting principles might have on the quality or usefulness of the ratio.
C. Investments
1. Summarize the accounting principles used by the firm to account for
marketable securities.
2. Complete the following table: Marketable Securities
Prior Year
Cost
Current Year
______________
______________
Market value ______________
______________
Book value
______________
______________
3. Calculate the net rate of return on the investment in marketable securities. Show your work.
4. Summarize the accounting principles used by the firm to account for long term investments.
Be sure to distinguish between investments in marketable equity securities and investments
accounted for by the equity method.
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5. Complete the following table:
Prior Year
Current Year
Book value of long-term
investments
____________
____________
Book value of
investments
____________
____________
____________
____________
____________
____________
Market value of
investments
(use year-end quotes)
Income reported for
investments.
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Name _______________________ Firm _______________________
Annual Report
Page Reference
6. Calculate the net rate of return on the equity investments. Show your work.
D. Property, Plant and Equipment:
1. Summarize the accounting principles used by the firm to account for
property, plant and equipment.
2. Complete the following table:
Prior Year
Current Year
Depreciable fixed assets
_____________
_____________
Non-depreciable fixed assets
_____________
_____________
Depreciation expense
_____________
_____________
Total assets
_____________
_____________
Percent of total fixed assets
to total assets
_____________
_____________
E. Intangible Assets:
1. Does the annual report balance sheet indicate an amount assignable to
intangible assets or assets that you know to be intangible in nature?
If yes, complete the following items.
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Name ____________________________ Firm __________________________
Annual Report
Page Reference
2. Complete the following table. Break out the intangibles by type. Be sure to
provide totals.
Intangible
Item
Method of
Amortization
Prior Year
Dollar Amount
Additions/
Reductions
Current Year
Dollar Amount
3. What is the percentage of intangible assets to
total assets?
________________
4. In your opinion, does the firm comply with GAAP
in accounting and reporting for intangible assets?
Yes
Why or why not?
F. Long-Term Liabilities
1.Does the annual report balance sheet indicate that the firm has long-term
obligations?
If yes, complete the following items.
2. Complete the following table for the five largest long- term obligations.
Description of Is the Debt
Obligation
Secured
Identify
Collateral
Interest
Rate
--- Amount --Beg/Yr End/Yr
No
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Name ______________________ Firm ___________________________
Annual Report
Page Reference
F. Long-Term Liabilities (continued)
3. Did the firm report a gain or loss as a result of the early extinguishment of
debt?
YES NO
4. Nature of debt retired early. Income interest rate of item and other features
of the retirement.
5. Did the firm disclose the details of a troubled debt restructuring?
YES NO
If yes, give a summary of the transaction. Be sure to include in your
summary an indication of the effect of the transaction on net income, total
assets, liabilities, and so forth.
G. Income Taxes
1. What was the effective average tax rate, given the
reported tax expense, on corporate earnings:
For the current year?
___________
For the prior year?
___________
If the difference between last year and this year's effective average tax
rate was > 5 percentage points(say 50% to 45%), provide an explanation
of the difference.
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Name ______________________ Firm _________________________
Annual Report
Page Reference
2. What was the effective average tax rate, given taxes paid, on corporate
earnings
For the current year?
__________
For the last year?
__________
3. In comparing the taxes paid with tax expense for both last year and this
year, a difference would suggest that taxable income was not equal to
financial statement income. Report the following:
LastYear
This Year
Current taxes (per income statement)
__________
__________
Deferred taxes (per income statement)
__________
__________
Estimate the amount of tax actually paid
__________
__________
If deferred taxes were zero for both years, ignore the remaining items.
a. To what specific event(s) can you attribute the
deferred tax items for both years?
b.
The balance sheet account(s) related to deferred
taxes were:
Prior Year
Current
Year
Increase
(Decrease)
Deferred Tax Assets
____________
____________
____________
Deferred Tax Liabilities
____________
____________
____________
Explain what caused the increase or decrease.
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Name ______________________ Firm _________________________
Annual Report
Page Reference
H. Leases (lessee only)
1. Capital Leases:
a. What is the total capital lease debt?
b. What is the % of total capital lease debt
to total debt?
c. Complete the following for assets under capital leases.
$ Gross
Value
Accumulated
Amortization
Net
Book Value
(1)Land
__________ __________ __________
(2) Buildings
__________ __________ __________
(3) Machinery &
Equipment
__________ __________ __________
(4) Other
(specify)
__________ __________ __________
d. What is the % of capital lease assets to total
fixed assets?
2. Operating Leases:
a. What is the total commitment (minimum annual fixed rental
payments) under non-cancelable operating leases?
b. What is the % of operating lease rental payments to
total revenues?
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Name ______________________ Firm _________________________
Annual Report
Page Reference
c. What is the present value (use a 12% rate) of the commitments under
non-cancelable operating leases for the next five years?
d. What is the percentage of (c) above to total assets.
I. Pensions
1. Does the firm offer a pension plan? YES NO
Defined benefit plan
Other (describe)
If yes, identify the type of plan:
_____ Defined contribution plan _____
_____
2. Identify the actuarial cost method used.
___________
3. a. What is the accumulated benefit obligation?
_______________
b. What is the projected benefitobligation?
_______________
c. What are the plans' net assets available for benefits?
_______________
d. What is the accrued pension expense liability or prepayment
reflected in the balance sheet?
_______________
e. What is the percentage of:
(1) projected benefit obligation to total assets of the firm?
_______________
(2) accrued pension expense liability to total assets of the firm?
______________
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Name ______________________ Firm _________________________
Annual Report
Page Reference
3. Pension expense for the period to total revenue?
_____________
4. Did the company record an intangible asset or contra-owners
equity account related to its pension?
____________
J. Stockholders Equity
1. Complete the following table:
Shares
Outstanding
Total Paid
In Capitals
Stock Class
Shares
Authorized
Beg. of Yr
End of Yr
2. Were there additional shares issued this year?
Describe the circumstances surrounding the issuance of these shares.
3. Did the firm acquire treasury shares during the year?
YES NO
If yes:
a. Describe the circumstances surrounding the acquisition of
these shares.
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Name ______________________ Firm _________________________
Annual Report
Page Reference
J. Stockholders Equity (continued)
b. What method does the company use to account for treasury
stock?
________ Cost
________ Par
________ Other (describe)
4. Summarize the EPS statistics as follows:
a. Basic
Prior Year
Current Year
Earnings before extraordinary items
Extraordinary items, net of tax
Effect of accounting change,
net of tax
Net earnings
b. Diluted
Net earnings
5. Estimate the weighted average number of shares outstanding used to
compute:
Prior Year
Basic EPS
Diluted EPS
Current Year
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Name ______________________ Firm _________________________
Annual Report
Page Reference
K. Segment Reporting
1. Does the company report segment information
a . By reportable industry segments?
YES NO
b .By geographic location?
YES NO
c. By major customer?
YES NO
2. The segment information is disclosed
________ a.within the body of the financial statements (with
appropriate note disclosure).
________ b. entirely in notes to the financial Statements.
________ c. in a separate schedule.
3. Were there disclosures related to the disposal by the companyof a segment
of its business?
YES NO
If yes, briefly describe the event and complete the related questions:
a. Brief description.
b. For the disposed segment:
1) % of segment revenues to total revenues for
previous year
__________
2) % of segment operating profit/loss to total
operating profit/loss for previous year __________
3) % of total segment identifiable assets to total
identifiable assets for previous year __________
4) total gain/loss on disposal of segment __________
5) % of gain/loss to total net income/loss __________
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Name ______________________ Firm _________________________
Annual Report
Page Reference
L. Interim Reporting
1. Are quarterly results of operations reported in the annual
report?
YES NO
If yes, complete the following:
lst Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
Sales
_________
_________
________
________
Operating income
_________
_________
________
________
Net Income
_________
_________
________
________
Earnings
Per Share
_________
_________
________
________
M. Accounting Changes
1. Did the company report a change in accounting
principle for either of the years?
YES NO
If yes, complete the following:
2. Briefly describe the nature of the accounting change.
3. The company used the
_______ a. current approach.
_______ b. retroactive approach to record the effects of the accounting change.
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Name ______________________ Firm _________________________
Annual Report
Page Reference
4. The effect on current year net income was
a. in dollars? Net income before $ __________
Net income after $ _____________
b. in percentage of effect to net income _________
Section III - Evaluation
A. Critique of Asset Accounting and Reporting
Prepare a critique of the accounting and reporting practices of the firm for assets. Be sure to
include specific examples of deficiencies (if any) and explain how the firm should have handled
the item.
B. Overall Evaluation of Annual Report
Prepare a critique of the overall annual report. Be sure and include your opinion as to whether
management statements were consistent with the financial information. You may also
commenton appearance, readability, etc.
C. Analysis of company from an investor's point of view.
Note: Attach printout of financial ratios.
Assume that you are considering investing in the firm. Use ratio-analysis and other information
from the annual report to explain why you think the company would be a good or bad
investment. You may discuss market price of stock but I want an additional "fundamental
analysis." (For maximum credit, it will be necessary to prepare a quantitative analysis over time.)