Summative Project

Grade 12 Accounting ISP
Financial Analysis of a Company
Choose a company that is of interest to you and analyze their financial position and their investment
worthiness. The company must be a publicly traded Canadian company. Write the report as if you have
been hired by a client to determine whether or not they should invest in the company. This is a formal report
so avoid the use of ‘I’.
Final Report Contents
1) Title Page
2) Table of Contents
3) Executive Summary: This contains a brief summary of your analysis as well as your recommendations.
Use headings. One page maximum.
4) Company Information
5) Ratio and Trend Analysis
6) Conclusion and Recommendation
7) Works Cited (to be handed in with each section)
8) Financial Statements (must be submitted with the Ratio and Trend Analysis)
Part One: Company Information
Use headings to separate the sections of your report. You may use tables where appropriate to summarize
financial information. Otherwise, complete sentences and proper spelling and grammar are required.
Company Background
 Name of the company.
 A brief description of the company that includes:
o the products or services it sells (some companies will have several very different products
and/or services, be sure to make that clear),
o location(s),
o number of employees,
o a short history including recent business acquisitions or sales of other companies.
o The fiscal year end of the company
Company Activities and Current Events
 Describe three recent activities of the company. Focus on new products/services, new store openings,
new company-wide initiatives, mergers, acquisitions, restructuring, layoffs, lawsuits etc.
 If the most recent annual report is more than 9 months old, include a brief summary (revenue, income)
of the company’s performance from the most recent quarterly report.
 For this section you will need to consult outside sources.
Annual Report Commentary
 Briefly summarize the CEO’s letter to shareholders. Note the areas of concern that the CEO mentions,
challenges and opportunities in the future
 Briefly summarize any plans provided for improvement.
Risk Management and Analysis
 Read through the risk management portion of the annual report. Summarize the three most important
risks facing the company. Make sure you are not summarizing the credit risks.
 The name of the accounting firm that audited the books. Describe the duties of the auditor.
IFRS Implementation
 Briefly summarize the impacts of IFRS implementation of the company’s accounting practices
Financial Statement Components
 Look at the level of detail provided in the balance sheet and income statement. Are there many items
listed on the statements or are they grouped together in few, large categories? Comment on the level of
detail and overall ease of interpretation of the statements.
 Using the data provided in the financial statements, list the following:
o major sources of revenues (many corporations have multiple sources of revenue),
o the top two operating expenses
o net income
o total current assets (which is the largest, what does this tell you about the company)
o total fixed assets (which is the largest, what does this tell you about the company)
o total current liabilities (which is the largest, what does this tell you about the company)
o total long-term liabilities (which is the largest, what does this tell you about the company)
 A description of the shares. Types, number outstanding, current market price and dividends issued.
Also include the 5 year trend in share prices – best shown as a graph.
 From the notes to the financial statements describe the method(s) of:
o Depreciation/amortization
o Goodwill
o Inventory costing and valuation
o Any changes in accounting
o Bad debt expense
Part Two: Ratio and Trend Analysis
For a minimum of three years, compute and analyze the company’s performance in four areas:
o Liquidity and Efficiency
o Solvency
o Activity
o Profitability
Provide a commentary on each ratio. The commentary should describe the overall favourability of the
ratio as well as a comment on the trend of the ratio (increasing, decreasing, good or bad for the
The use of graphs and charts is required.
Part Three: Conclusion
Determine whether or not your company is a good investment for your client based on company information
and ratio and trend analysis. You do not lose marks if your company is a poor investment and you advise
your client not to invest.
You must include a copy of the relevant portions of your company’s financial statements and any other
supporting documentation and/or graphs.
You must include a works cited list with each section of the report. You can consolidate it into one list for
the final report.
You must hand in a bound hard copy with a table of contents, title page and works cited list.
Due Dates
Company Information
Tuesday, December 6th
Ratio and Trend Analysis
Final Report with Conclusion and all required sections
Company Suggestions
Air Canada
Andrew Peller
Boston Pizza (Income Fund)
Barrick Gold
Canadian Tire
Cineplex Galaxy Income Fund (Income Trust)
CN Railways
Corus Entertainment
Empire Company
EnCana Corporation
Imperial Oil
Indigo Books and Music
Le Chateau
Magna International
Maple Leaf Foods
Research in Motion
Second Cup (Income Trust)
Shaw Communications
Shoppers Drug Mart
Suncor Energy
Tim Hortons
TorStar Corp
West Jet
You can choose to do a bank or an insurance company but they are more difficult due to the composition of
their assets and liabilities. For a bank, because they don’t have receivables or inventory in the traditional
sense, it is necessary to look at additional ratios such as the Tier one capital ratio.
A Note on Sourcing
If at any point you are copying a phrase directly from the annual report, you must footnote or endnote it or
use an in text citation. For instance, for the method of accounting for goodwill, you may find it difficult to put
the statement in your own words. If you copy it directly, you must source it properly by putting a footnote1
and including the annual statement information at the bottom of the page or by putting an in text citation.
(Company name, year).
This also applies to any ratio descriptions used from the web.
1 WestJet Airlines. (2008). Annual report to shareholders. Calgary, AB: Author. Retrieved from
Ratio Guide
Current Assets - Current Liabilities
Positive, Healthy
Current Assets
Current Liabilities
Current Assets above Inventory
Current Liabilities
Current Assets – Current Liabilities
Lower better
Liquidity Ratios:
Working Capital ($)
Current Ratio
Quick Ratio
Inventory to Net Working Capital
Activity Ratios:
Inventory Turnover
Cost of Good Sold
Average Inventory
Higher Better
Inventory Turnover
Period (days)
Inventory Turnover
Lower better
Net Sales on Credit (or closest approximate)
Average A/R
Higher Better
Accounts Receivable
Turnover Period (days)
A/R Turnover
Lower Better
Operating Cycle (days)
Inv. Turnover Period + A/R Turnover Period
Lower Better
Accounts Receivable
Borrowing Capacity/Solvency Ratios:
Times Interest Earned
Equity Ratio (%)
Operating Income
Interest Expense
Total Equity
Total Assets
Higher Better
x 100%
> 50%
Debt Ratio (%)
Total Liabilities
x 100%
Total Assets
< 50%
Debt to Equity
Total Liabilities
Total Equity
Gross Profit Margin (%)
(Sales – COGS)
Higher Better
Return on Net Sales (%)
Net Income
Net Sales
Higher Better
Return on Equity (%)
Net Income
Average Equity
Higher Better
Return on Assets (%)
Operating Income
Average Assets
Higher Better
(Profits After Taxes – Preferred
Shares Dividends)/Number of
common shares outstanding
Higher Better
Profitability Ratios:
Earnings per Share (normally you
can find this on your financial
statements – you won’t have to
calculate it.)