This assignment builds upon your work in Unit 1.

vThis assignment builds upon your work in Unit 1.

 

Public companies regularly disclose helpful financial information to the public, providing a plethora of quantitative data for analysis.

 

Financial statements provide a statistical road map to the inner workings of a company. Prepare a PowerPoint presentation of a financial analysis that includes the balance sheet, income statement, and statement of cash flows of your two firms. Your analysis should also accomplish the following:

 

Include the last three years of data, and evaluate the trends in the data.

Summarize the footnotes on each of the statements.

Compute the earnings per share for the three years.

Compare the two companies and determine the insights gathered from the trend analysis.

Read the following article for a guide on financial statement analysis:

 

The Beginners’ Guide to Reading and Understanding Financial Statements

 

Deliverable Requirements: Your financial analysis presentation should have at least 15 slides. Limit the text on each slide, and use visuals to help engage your audience. The Notes section of the presentation should provide your analysis of the data presented. APA references must be included within the presentation.

 

Submitting your assignment in APA format means, at a minimum, that you will need the following:

 

Title slide: Remember the running head. The title should be in all capitals.

Length: There should be at least 15 slides.

Body slides: This begins on the slide following the title slide and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-point Times New Roman or 12-point Courier in regular black type. Do not use color, bold type, or italics, except as required for APA-level headings and references. The deliverable length of the body of your presentation for this assignment is 15 slides. In-body academic citations to support your decisions and analysis are required. Using a variety of academic sources is encouraged.

Reference slide: References that align with your in-body academic sources should be listed on the final slide of your presentation. The references must be in APA format and use appropriate spacing, hanging indentation, italics, and uppercase and lowercase as appropriate for the type of resource that is used. Remember that the reference slide is not a bibliography but a further listing of the abbreviated in-body citations used in your presentation. Every referenced item must have a corresponding in-body citation.

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Grading Rubric: Maximum 140 Points

 

Grading Criteria Points

Deliverable requirements addressed; understanding of material and presenter’s message and intent are clear 60 points Followed assignment guidelines and criteria 30 pts Yes/Complete Mostly Not at all

Overall quality 30 pts Excellent Satisfactory Needs Improvement

Scholarly research that supports the presenter’s position is properly acknowledged and cited, and direct quotations do not exceed 10% of the word count of the body of the assignment deliverable 30 points Title slide, agenda, tables, exhibits, appendices or reference slides included 15 pts Yes Partially Not at all

Content is original with less than 35% match 15 pts Yes 36–50% 51% or over

Critical thinking: Position is well-justified; logical flow; examples 15 points Position is justified with examples 7.5 pts Excellent Satisfactory Needs Improvement

Presentation flows logically 7.5 pts Excellent Satisfactory Needs Improvement

Structure: Includes introduction and conclusion slides, proper slide formatting, and reads as a polished, academic or professional presentation, as appropriate for the required assignment deliverable 15 points Includes introduction and conclusion slides 5 pts Excellent Satisfactory Needs Improvement

Slides are formatted properly with 5 lines of text 5 pts Excellent Satisfactory Needs Improvement

Reads as polished academic or professional presentation 5 pts Excellent Satisfactory Needs Improvement

Mechanical: No spelling, grammatical, or punctuation errors 15 points Spelling and grammar are accurate 10 pts Yes Partially Not at all

Punctuation is accurate 5 pts Yes Partially Not at all

APA: Deliverable is cited properly according to the APA Publication Manual 5 points References are cited in accordance with APA formatting 2.5 pts Yes Partially Not at all

Reference slide is included 2.5 pts Yes Partially Not at all

Reference

 

Stobierski, T. (2020, June 10). The beginners’ guide to reading & understanding financial statements. Harvard Business School Online. https://online.hbs.edu/blog/post/how-to-read-financial-statements

 

Learning Chapters: Asset and Liability Valuation and Income Recognition

 

LEARNING OBJEC TIVES

 

Chapter 2

 

Describe the mixed attribute measurement model for assets and liabilities, and how it provides relevant and representationally faithful information to financial statement users.

 

Explain how changes in valuations of assets and liabilities on the balance sheet are recognized on the income statement and statement of comprehensive income.

 

Understand that financial reporting and tax reporting are two different systems, which are linked by timing differences and deferred tax assets and liabilities.

 

Utilize an analytical framework to map economic transactions and events to the balance sheet and income statement.

 

2 Chapter Overview T

 

o effectively analyze financial statements, you should understand how they are prepared and how they measure and report economic events and transactions. You might question whether it is necessary to understand individual transactions—like purchasing inventory

 

or incurring a specific current liability—if the primary concern is to learn how to analyze finan-cial statements. After all, firms engage in thousands of transactions during the year. Nevertheless, the reasons to understand how specific events and transactions affect the financial statements are twofold:

 

■ First, to understand a firm’s profitability and risk, you must know what the balance sheet and income statement tell you about various transactions and events.

 

■ Second, given the complexity of many transactions, effective financial statement analysis requires you to understand how they impact each of the financial statements, especially if your analysis leads you to restate financial statements to exclude the effects of some event or to apply an alternative accounting treatment.

 

In this chapter, we review basic financial accounting concepts at a high level, focusing primar-ily on the mixed attribute measurement model. We focus on how and why balance sheets and income statements recognize various transactions and events. Because it is difficult to discuss a line item on one financial statement without referencing another line item or another financial statement, in this chapter we emphasize how the balance sheet and income statement articulate.1

 

1After a discussion of asset and liability valuation, the chapter will turn to income recognition. Keep in mind the discus-sion from Chapter 1 regarding the important difference between net income.

 

Chapter 3:

 

Understanding the Statement of Cash Flow

 

Identify the purpose and importance of the statement of cash flows. Describe the structure and interpretation of operating, investing, and financing cash flow activities.

 

Use the statement of cash flows to determine where the firm is in its life cycle.

 

Understand the relations among the statement of cash flows, the income statement, and the balance sheet. Prepare a statement of cash flows from balance sheet and income statement data. Examine how the statement of cash flows provides information for accounting and risk analysis.

 

3 Chapter Overview T

 

his chapter’s focus is on the statement of cash flows. In addition to a balance sheet and an income statement, discussed in the previous chapter, U.S. GAAP and IFRS require firms to provide a statement of cash flows. First, we describe the purpose of the statement of

 

cash flows and the importance of information in that statement for analysts and other users of financial statements. Second, we explore the partitioning of cash flows into operating, investing, and financing activities; we then examine how various patterns of cash flows reflect various stages of firm life cycles. Third, the chapter illustrates how the balance sheet, income statement, and statement of cash flows are linked. Fourth, the chapter walks you through the nuts and bolts of preparing the statement of cash flows using information from the balance sheet and income statement. If you understand how to prepare a cash flow statement, you will have a much greater ability to interpret the information in the statement. Finally, the last part of the chapter provides a prelude to how you can use your understanding of the relation between net income and cash flows to draw inferences about earnings quality, liquidity, and credit risk, and calculate free cash flows that you can use in valuations.1

 

Purpose of the Statement of Cash Flows

 

The objective of the statement of cash flows is to assist financial statement users in understand-ing the cash inflows and outflows that arise from a firm’s primary activities. Just as the income statement gives you an understanding of how a firm performed during the period, the statement of cash flows gives you an understanding of how the firm generated and used cash. The vast majority of firms use (and all firms must disclose) the indirect method of preparing

 

the statement of cash flows, which reconciles net income with the net change in cash during the period. Thus, the statement of cash flows links net income on the income statement to the

 

1We discuss the analysis of liquidity and credit risk more fully in Chapter 5; analysis of earnings quality in Chapter 6; and cash-flows–based valuation in Chapter 12.

 

Chapter 6:

 

Accounting Quality

 

Describe the concept of quality of accounting information, including the attributes of economic content and earnings persistence. Describe the characteristics of balance sheet quality and earnings quality. Define earnings management and describe the conditions under which managers might be likely to engage in it.

 

Identify the different types of liabilities, how judgment can affect liability recognition and measurement, and how off-balance-sheet financing can affect accounting quality. Identify how asset recognition and measurement rules and judgments can affect accounting quality. Evaluate the effects of material but infrequent transactions and events on profitability and earnings persistence. Assess accounting quality by partitioning earnings into its accrual and cash flow components. Compute the Beneish Manipulation Index to assess the likelihood of earnings manipulation. Explain the effects of two sets of accounting rules (IFRS and U.S. GAAP) on worldwide financial statement comparability.

 

6 Chapter Overview C

 

hapters 4 and 5 provide tools for analyzing the profitability and risk of a firm using financial statement information. We presume that reported financial state­ ment information accurately portrays a firm’s financial performance during the current

 

period, appropriately characterizes the firm’s financial position at the end of the period, and is informative about the firm’s likely future profitability, growth and risk. But that presumption is not always correct. So an important step in the six­step analysis and

 

valuation process is to critically evaluate a firm’s accounting quality, and if we find that it is low quality, to make adjustments to reported financial statements so that we can derive better insights about profitability, growth and risk. This chapter discusses the critical role of accounting quality as it relates to analyzing a firm’s profitability, growth, and risk and forecasting its future financial statements. To accomplish this objective, we

 

■ describe earnings management both within and outside the limits of U.S. GAAP or IFRS and managers’ incentives to engage in it.

 

■ discuss the effects of a number of accounting issues on balance sheet and earnings quality, including judgment in the recognition and measurement of liabilities and assets and the impact of various types of nonrecurring events on reported earnings.

 

■ demonstrate two useful tools for assessing potential earnings management and manipulation.

 

■ consider how two sets of accounting standards, U.S. GAAP and IFRS, impact financial statement analysis.