FNCE2211 Cash Management 1

Ratio Analysis Case

Financial Analysis Case

A wide range of people review financial statements. You may be in one of these categories in the future.
You may be a(n)
• Existing equity investor who wants to monitor his/her investments and to evaluate the performance of
management,
• Prospective equity investor and want to decide whether or not to invest,
• Investment analyst, money manager, or stockbroker who makes buy/sell/hold recommendations to clients,
• Competitor or potential competitor who wants to benchmark its own financial results.

You will be choosing two publicly traded companies for analysis. These two companies must be in the
same industry, and hence in most respects direct competitors with one another. You may work in
groups of 3 people. There is a group sign up excel spreadsheet under the first topic in Moodle. Please
assign your groups and desired companies to analyze on this spreadsheet. Each group MUST choose
unique corporations to analyze. In other words once Coca-Cola is taken, nobody else can use them.
This to ensure different companies are analyzed. You should either pick two Canadian companies
(both should be Canadian) or two American companies (both are American) in order to simplify the
stock exchange section.

In this group case you will

1. Download the annual income statements, cash flow statement and balance sheets for the last three years from
an internet source of your choice (i.e. Marketwatch, Investing businessweek, google finance, etc.). If you choose
certain sites like Marketwatch you should be able to directly import these three statements into Excel. (Google
can show you how to do this. Basically you import DATA from a website in Excel). If not you can easily “copy and
paste” most website charts too as long as you “paste special” and choose “text”.

2. Ultimately prepare and present an Excel spreadsheet of the income statement, cash flow statement, and
balance sheet information for the three years in the format similar to your text examples (Global Corporation) and
how it is presented online. Make this part of your appendix (so basically download the financial statements into
Excel and make it part of your appendix).

3. For each of the three years of statements, compute and present the ratios we discuss from chapters 2 and 3
from the Foundations of Financial Management textbook and chapters 1-5 from the Interpreting and Analyzing
workbook. Valuation, Profitability, and Financial Strength should be considerations. It is very import you don’t
miss any important ratios.

4. What is the overall market/economic trend over these three years? Are any of these companies
outperforming the market? To do this use an index like the S&P/TSX for Canada (if you are doing Canadian
companies) or S&P 500 if you are comparing American companies. Calculate the average rate of return for the
index for EACH year over this three year period, and compare the two companys’ stock price gain/loss to
determine how well they performed compared to the overall stock market. All we are doing is seeing by what
 FNCE2211 Cash Management 2
Ratio Analysis Case

percentage does the company’s stock price change during each year, and does that price change match, meet, or
beat the general stock market index gain or loss.

5. Analyze the performance of each firm on the basis of the trend in ratios, common size statements and trend
analysis. Make sure your analysis includes trends and ratios for the Income Statement, the Balance Sheet, and the
Cash Flow Statement.

6. Compare and contrast (in financial terms only) the two firms. Look at hard numbers, ratio trends, etc.

7. Conclusion: What did you learn about the financial strength of each company? Which company seems to be
better managed? Assume you have $100,000 (or more!!) of your hard earned savings and you need to invest for
your retirement. As such your analysis and investment advice determines if you are ever able to retire, or if you
will have to work until you are dead. Which company would you invest in, and most importantly WHY? If both
companies are terrible in your opinion state neither and explain WHY. Use the hard numbers, the ratios, the
trends, and any other information you feel is important in this life decision. The report needs to be written so that
if you switch your role, and you assume that you know nothing about these two companies, and I handed you
YOUR own report, would you read your report and feel confident that you know exactly what to do with your hard
earned $100,000. That is ultimately the test for this assignment and the strong conclusion.

General Presentation Guidelines

Title Page
Introduction [10] – Give a brief introduction and history of the companies and their primary
sources of revenue. Please source your information.
Report Body [60] – Present and analyze the ratios and trends.
Conclusions [20]
Appendices (includes imported Income Statement, Balance Sheet, Cash Flow Statement, and all
ratio calculations) [10]

Realize this is a paper worth 15% of your grade. Most of the grade will be on your analysis of
the two companies; however, proper grammar, writing style, introduction, body, and
conclusion will also be part of the grade.

There is no page limit/restriction. Just realize if the paper is too short, it may be missing too
much information and analysis. Based on the past a well laid out and written analysis should be
done in about 10 pages or so, not including the appendix. Of course formatting (like how many
tables you have) and other factors can greatly change the number of pages that will constitute
a solid report so it’s only a small bit of guideline.
The appendix includes any charts and ratios used in the report for you to analyze.