Graduation Project

Financial Statement Analysis

Overview
Instructions for your financial statement analysis project are provided in this document.
You are assuming the role of a financial analyst examining a firm’s performance. The depth
and scope of the analysis will determine your grade for the class. Your written report should
address all items discussed below.
Financial statement analysis usually involves a comparison of historical financial
information of the analyzed firm (henceforth MAIN) against a benchmark such as industry
averages or a competing/leading firm. Since appropriate industry averages are difficult to
obtain, you can use another firm, usually a direct competitor or industry leader, as your
benchmark (henceforth BENCHMARK) for MAIN.

First: Firm selection and data collection

1. MAIN must fulfill be a public company that is either headquartered or incorporated
in Egypt.
2. To the largest extent possible, the same selection criteria used for MAIN should be
used for BENCHMARCK. If possible, MAIN and BENCHMARK should have
comparable historical annual sales.
3. Obtain fiscal year-end annual financial statements for the most recent five fiscal
years, and accompanying note disclosures, for MAIN and BENCHMARK.
a. Financial statement information can also be obtained from a firm’s annual report
is posted in the “Investor Relations” section of the firm’s website.
b. Five fiscal year-end financial statements are necessary to perform financial
analysis.

Second: Financial analysis

A. Qualitative firm analysis (firm, industry, and market factor analysis)
Collect relevant qualitative information for MAIN and BENCHMARK. Finding,
analyzing, and discussing this information should be the first step in your report.
1. Market analysis (This is a comprehensive list; use as appropriate).
Describe each of the factors in the PESTEL Analysis.

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 Market conditions that impact the firm should be examined. This examination should
include the potential future sales growth, and relevant economic conditions (e.g.,
GDP, inflation level, discretionary income, and other relevant demographic factors).
For example, Sony would be keen on selling products in markets where discretionary
income is high. If the outlook for a firm’s markets is unfavorable, this factor, and the
impact of this factor on forecasted firm sales and profit should also be discussed.
Capital market conditions are also relevant. A firm’s cost of capital is impacted if the
firm is listed on a stock market or exchange. Resultant listing requirements and
capital market regulations provide improved financial transparency. This
transparency allows access to reasonably priced capital.

2. Industry characteristics (This is a comprehensive list; use as appropriate).

Describe each of the factors in the Porter’s Five Forces.
Firm strategy is not the only factor that should be discussed in your report. Industry
characteristics are important and should be discussed. These characteristics include
main players, entry/exit barriers, industry outlook/growth potential, and/or industry
degree of regulation. These factors may effect firm sales, income, liquidity, activity,
and leverage levels. Use appropriate industry analysis strategic tools like Porter’s
Five Forces Model. An analysis concerning markets served by firms in the industry
is also important.

3. Firm characteristics and historical financial performance (This is a comprehensive

list; use as appropriate)
Firm characteristics should include history, product/service offerings, ownership
characteristics (fragmented or concentrated), executives (including their
compensation arrangements), and competitors. Read the Chairman’s letter to the
Shareholders and the Management Discussion and Analysis section of the 10-K
Report for the most recent fiscal year. Glean management’s strategy and future plans.
Analyze specific sales and profit sources. If these sources are concentrated in certain
geographic territory(s), the firm is vulnerable to economic conditions within this
territory(s). This factor should be discussed in your report. Firm product and/or
service diversification should also be discussed in the report.
Firm strategy explains, in part, firm financial performance. Therefore, firm financial
performance must be sufficiently discussed considering firm strategy. For example,
a low-cost firm strategy focuses on cost control and higher efficiency. Therefore, the
gross profit ratio is usually relatively high. However, a quality manufacturing firm
would not be as concerned with cost efficiency and would have a lower gross profit
ratio (due to higher materials cost for instance). A discussion concerning the skill
level and background of key executives should be provided. This discussion should
relate these items to historical firm financial performance, forecasted sales growth,
and forecasted financial performance.

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B. Financial statement analysis
1. Assess the quality of earnings for MAIN and BENCHMARK as follows:
a. Financial statement note disclosures (e.g., significant accounting policies) are
important in understanding a firm’s financial performance. Provide a brief
summary of primary note disclosures prior to the financial analysis in your
report. This summary is necessary to understand accounting principles used to
prepare financial statements and for comparing MAIN and BENCHMARK’s
financial statement information.
b. Identify MAIN and BENCHMARK’s external auditor. Examine the auditor’s
opinion (e.g., unqualified opinion) and assessment of the internal control
effectiveness. An unqualified audit report issued by a Big 4 public accounting
firm that indicates effective internal controls, with no material deficiencies,
indicate high quality earnings and resultant reliable financial statements.

2. Perform the historical financial analysis for MAIN and BENCHAMRK as follows:
a. The financial statement analysis should include comparative horizontal,
vertical, and the following list of financial ratios, as appropriate for your
industry, for MAIN and BENCHMARK.
• Activity ratios, e.g., accounts receivable turnover and average collection
period, inventory turnover and days in inventory, accounts payable turnover
and days payable outstanding, cash conversion cycle, and asset turnover
ratios.
• Liquidity and solvency ratios, e.g., current, quick, cash, working capital,
debt-to-equity, times interest earned ratios.
• Profitability ratios: gross margin, Operating margin, return on assets, return
on equity, return on invested capital, return on capital employed ratios.
• Feel free to use a financial statement analysis template spreadsheet, such as
Finsas. If you use a financial analysis template, create two separate Finsas
spreadsheets, one for MAIN and another for BENCHMARK. Understand
how Finsas calculates ratios and other financial metrics used.
3. Integration of qualitative and qualitative findings. Integrate the results of your
qualitative analysis and quantitative analysis. Develop an integrated theory
regarding firm historical financial performance drivers and probable future
annual sales growth in light of the qualitative characteristics of the firm,
industry and market. This is an important step that integrates your work in
sections A & B.

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Third: Report writing and presentation
1. Your report should be based on a review of MAIN’s qualitative information, news,
historical financial analysis, and business valuation. At the end of your report, attach
the MAIN’s financial statements and financial analysis spreadsheets.
2. The report document could be long. However, the body of the report (not counting
the title page, table of contents, executive summary, list of tables and figures,
references, and multiple appendices) should be 20-25 pages, double-spaced.
3. Please follow the writing style required in the Appendix to this document.
4. Your report and appendices should be consistent with the procedures discussed in the
proposed template below.

The suggested report structure is as follows:

1. Cover page
2. Table of contents
3. Executive summary (250 words limit)
4. Table of charts/figures (if applicable)
5. Introduction (nature of assignment and basis for firm selection)
6. Market and industry characteristics
7. Firm background information
8. Firm financial statements analysis.
9. Conclusion and recommendation
Appendices

5. The report with appendices should be given to me one week before your oral exam
date. I will review the report and provide relevant comments.
6. Provide report references as appropriate.
7. During the oral exam, you will present your report methodology, findings, and
conclusion. You can use PowerPoint slides or similar item(s). You should expect to
answer oral examination committee member questions for approximately fifteen to
thirty minutes.

Thank you for your diligence and hard work.

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 Appendix

A. This appendix provides report formatting requirements.

1. The appendix does not provide report content information.
B. Report formatting requirements are as follows.
1. Margins: Use one-inch margins on the top, right, and bottom and 1.5 inches
on the left margin.
2. Spacing: The report should be double-spaced throughout, with the exception
of the cover page. Click the box that says “Don’t add space between
paragraphs of the same style.”
3. Font: Use 12-point Times New Roman throughout the report.
4. Sectioning: Formatting will be much easier if you create different sections in
the Page Layout menu.
5. Page numbering: Page numbers should appear right-aligned at the top of the
page. Lower-case Roman numerals should be used before the main document
and then beginning again with page 1.
6. Cover page: The cover page should not have a page number. This page should
include your full name and provide degree information. See the example
report provided in the following pages.
7. Tables and figures: Place small tables and figures in the report. Place
summarized historical financial statements, and calculations in the
appendices. Center tables and figures and provide a caption for these items.
Use a period to separate the table name from the caption. End the caption with
a period (e.g., Table 1. Information about MAIN.) Format tables without
vertical lines. Use the same font for captions and within tables as used in the
rest of the report. Source all tables and figures.
8. Citations: Follow the APA Manual of Style.
9. Sentence spacing: Use one space between sentences.
10. Headings: See pages 8 through 13 in the example report template.

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 Company ABC

A Financial Analysis Report

A Project Presented to
the Graduate Faculty of
Commerce, Cairo University

by

John Allen Doe

The title page should be single-
spaced in order to replicate this
layout. Use section breaks to
allow for different spacing and
page numbering throughout the
report.

In Partial Fulfillment of the

Requirements for the Degree of Bachelor of
Commerce (Accounting major)

April 2024

Giza, Egypt

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................... iii

LIST OF TABLES ................................................................................................. iv

LIST OF FIGURES ............................................................................................... vi

INTRODUCTION ...................................................................................................3

FIRM CHARACTERISTICS ..................................................................................4

HISTORY ....................................................................................................6

MERGERS
Table of content headings ...................................................................................................8
must
match the headings in-text
exactly. MARKET CHARACTERISTICS .........................................................................12
INDUSTRY CHARACTERISTICS ......................................................................15

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .............................17

GOODWILL ..............................................................................................18

INVENTORIES .........................................................................................19

QUALITY OF EARNINGS ..................................................................................21

HISTORICAL FINANCIAL STATEMENT ANALYSIS ....................................22

RELEVANT RATIOS AND INTERPRETATIONs .................................26

CASH CONVERSION CYCLE................................................................28

INCOME STATEMENT AND BALANCE SHEET CONCLUSIONS ...31

CASH MANAGEMENT CONCLUSION ................................................19

Use lower case Roman numerals
prior to the first page. Begin the
table of contents with page ii.
Use section breaks to change
page numbering.

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APPENDIX A: SUMMARIZED HISTORICAL FINANCIAL STATEMENTS.40

REFERENCES ......................................................................................................48

Create tabs using the

Paragraph/Tabs menu so that
page numbers are RIGHT-
aligned with leading periods. Set
the distance at 5.5” Do NOT
hand type periods or use the
space bar to align anything
within the paper.

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 EXECUTIVE SUMMARY

The executive summary is a one-page report overview. The first paragraph of this summary

usually introduces the firm and discusses significant facts about the firm. Other paragraphs

may be used to discuss major events and/or key findings. Finally, the last paragraph should

provide your opinion of common stock value and resultant stock buy/hold/sell

recommendation.

An acknowledgements page
may be added after the executive
summary and before the lists of
tables and figures.

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 LIST OF TABLES

Table 1. Merger history of Company ABC .............................................................7

Use a list of tables and a list of

figures if necessary. Follow the
same formatting as in the table of
contents with regard to leading
periods and right-alignment of
page numbers.

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 INTRODUCTION
Paragraph text paragraph text paragraph text paragraph text paragraph text

paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

First Level Subheading

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All text should be double-spaced
paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text
with no extra space added
between paragraphs of the same
paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text
style.
Table 1. This is the title of my table.

Year Number
2017 3,450
2018 3,690 All tables must use the same font
and should not have vertical
2019 2,873
lines. Table alignment and
This table provides some information.
layout ensure information is
clear to the reader.
Paragraph text paragraph text paragraph text paragraph text paragraph text

paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

Second Level Subheading

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Follow
text heading styles
text on this page.
paragraph text paragraph text paragraph text paragraph paragraph paragraph text

paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

Third Level Subheading

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paragraph text paragraph text paragraph text paragraph text paragraph text paragraph text

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Landscape view may be used in order to accommodate a large table such as a balance sheet. This sample page has been turned to landscape view by

inserting, on the previous page, a Next Page (found in the Layout and Break tools). Next, in the Layout tool, use the Orientation tool.

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