- What is the date of the most recent fiscal year-end? (e.g. 12/31/2019. 60% of public firms have 12/31 as fiscal year-end. It should be the last date of a month. Sometime, it could be 1 or 2 days off due to weekends or holidays.)
- What is liabilities in dollar? Equity? Total assets? ( Most of the time, the unit is in Million. But some small firms use thousands or even 1 dollar as unit.)
- Why Total assets= Liabilities+ Equity?
- Calculate the return on assets (ROA) for the most recent year.
- Disaggregate ROA into the two-component parts as shown in Exhibit 1.7. Compare the
numbers/ratios for each company. (ROA=Profit Margin * Asset turnover) (average assets =(beginning year assets + ending year assets)/2)
- Find the companies’ audit reports in the 10-K. Who are the auditors? Are any concerns raised in the reports? (Audit Report is in 10-k. You can search the keyword” Public accounting firm” to locate it. It should be item 8 or 9, right after the financial statements.)
- Balance Sheet Analysis. Obtain the balance sheet in spreadsheet form from the SEC website at the “Interactive Data” link on the search results page. Look for major differences over time.
• What are the company’s largest assets? Largest liabilities? Please provide the account names and amount.
• What proportion of total assets is financed by owners? (Hint: Compare with total equity.)
• What proportion of total assets is financed by nonowners?
- Income Statement Analysis.
- What are the major expenses? Please provide the account names and amount.
- Statement of Cash Flows Analysis. Determine the size and direction (cash source or use) of cash flows from operations, investing, and financing. One goal is to understand the company’s pattern of cash flows and to form an opinion about the general strength of its cash flows. Some questions to consider:
• What were the cash flows from operations? Please provide the account names and amount.
• Were operating cash flows smaller or larger than net income?
• Did the company generate or use cash from investing activities?
• Did the company generate or use cash from financing activities?
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