Financial Statement Analysis

MBA 5th Semester Fall 2013

BM-732
Instructor: Muhammad Fayyaz Sheikh

PROJECT OF FINANCIAL STATEMENT ANALYSIS

LEARNING OBJECTIVES:
The primary objective of the project is to facilitate you to learn how to, understand,
analyze and interpret the information contained in the companies financial statement and
annual reports. The project will help you develop expertise in analyzing financial
statements for business, investment, credit and management decisions.
GOAL:
The goal of the project is to answer specific questions. For example, is it worthwhile to
invest in the company? Which company is the best available option to invest? What are
risks involved? Whether the company would be able to meet its obligations in short-run
or long-run? For purposes of this project, you may or may not choose to make any
investment or other recommendations. However, at a minimum, your analysis should
contribute to highlight the financial insight of the company.
PROJECT DETAILS:
Student teams consisting of 3 or 4 members are required to collect the annual reports of 3
or 4 companies from the same industry for period 2010 to 2012 (3 years).
Phase 1 Analysis of assigned company
In the first phase each team member has to perform analysis of his/her own assigned
company. The member is required to perform comparisons within the firm over time
using following techniques::
1. Ratio Analysis
a. Liquidity analysis to examine the ability of the firm to meet the current
obligation
b. Leverage analysis to investigate the borrowing capacity and measure the
protection of suppliers of long term funds.
c. Profitability analysis to evaluate earning ability of a firm.
d. Investor related ratios such as price to earnings, dividend payout etc.
e. Cash flow ratios related to liquidity, borrowing capacity and profitability
2. Common Size Analysis
a. Vertical Analysis
b. Horizontal Analysis
3. Year to Year Change Analysis
Members have to prepare Forecasted Financial Statements.
Phase 2 Comparative analysis of the firms assigned to a team
In this phase, based on analysis of the phase-1, team members have to perform combined
analysis and compare the firms for which they would have done individual analysis.

They will also have to compare these firms with the industry in which they are
incorporated.
Note: Your text books will be of great help to you for analysis. Therefore you need to
study with great interest.
Project Presentation:
At the end of Phase 2 every team has to give a presentation of the complete project.
Prior to presentation you are required to email your presentation slides to me and all other
teams.
An Advice: It is an advice that you develop an understanding of the business
environment in which the company is incorporated from the annual report. Many of the
following questions will be relevant to your analysis. You do not have to include all of
them in your analysis and presentation just include what you think is relevant.
Information regarding environment is normally contained within the annual reports.
Questions related to the firm and its strategies:

What is the nature of the companys operations? In what lines of business does
the firm operate? What is the companys industry?
Is the firm diversified with respect to:
a. Products
b. Geographic segments. Where does the firm do business?
c. Customer base
What are the firms major products and services?
Are its products mature or new? What percentage of the firms sales are from new
products?
Does the company have new products in the pipeline?
What share of the market does the company have?
What strategy is being employed to generate profits? Is it restructuring,
downsizing, diversifying, in a growth phase, etc?
Who are the major players? Competition? How is global competition affecting the
firm?
How does R&D fit into the firms strategy?

Questions related to the industry:

Does the industry consist of many firms? A few firms?
Who are some of the companys major competitors in the industry? How is global
competition affecting the industry?
How does the firm fit into the industry? Is it a giant? A niche player?
What is the level of competitiveness within in the industry?
What is the industry growth profile? Is the industry in decline? In a growth
phase?
What is the regulatory environment?
What is the importance of technological change and innovation?

Predicting future earnings and/or cash flow

What do analysts predict for earnings?

Does your financial statement analysis provide insights that would cause you to
agree or disagree?
Note: The above questions are for guidance. You do not have to answer all of them in
your presentation. Focus on key issues.
Write up guidelines:
Project Phase -1
Introduction including industry background, company products and others - not more
than 3 pages
Analysis, comparisons and others - not more than 10 pages
Conclusions not more than one page
Total Pages not more than 14 pages
Text font: 11 or 12
Heading font 13 or 14 (Bold)
Project Phase - 2
Introduction including industry background, company products and others - not more
than 3 pages
Analysis, comparisons and others - not more than 10 pages
Conclusions not more than one page
Total Pages not more than 14 pages
Text font: 11 or 12
Heading font 13 or 14 (Bold)
Deadlines:
Submission of Project Phase-1
December 30, 2013. 11:59:59PM
Submission of Project Phase-2
January 06, 2014. 11:59:59PM
Presentations (Not more than 20 min for each team) From January 13, 2013 onward
You are required to submit only soft copies through www.turnitin.com. Hard copy will
not be accepted. Go to the website and register yourself with Class ID: 7122088 and
Password: 1234. Make sure that there is an acceptable amount of plagiarism
(similarity index) in your project i.e. up to 25% before you submit.
Assessment:
The project will be assessed on the following grounds:
1. How much effort you put to perform all the analysis.
2. Quality of analysis
a. Calculations
b. Understandings and interpretations
3. Quality of presentation
a. Write up
b. Group presentation
Good Luck.!