Financial statement analysis

Financial Statement Analysis Mini-Project

The financial analysis project is designed to develop your ability to (1) understand and analyze

published financial reports and (2) make a recommendation to investors regarding the financial

condition of a public company.

This project can be completed entirely in Microsoft Excel. You should use Mergent Online to download

the appropriate financial statements, and can include those statements in the Excel file with cell

references in the formulas to guard against mathematical errors.

It is important to fully address the question being asked. When answering the questions, make sure

to double-check your calculations. Be sure to include your results as well as a detailed

explanation/interpretation of the information.

Any use of outside reference materials should be cited.

The bulk of your grade will be based on your ability to perform the requested analyses and provide an

accurate interpretation of the results. Financial analysis includes not just the ability to obtain the

correct results, but also the ability to describe and interpret what the results mean in terms of

increasing the understanding of the available data.

Primary: Starbucks (SBUX) (PICK A DIFFERENT COMPANY, THIS IS JUST AN EXAMPLE)

Competitor: Select a competitor from those identified by Mergent Online

1. Calculate the following ratios needed to assess liquidity and interpret the results. This should

include the last 3 years of ratios for the company and the last 3 years of ratios for the

competitor. What trends are there? (approx. 1/2 page single spaced 12 pt. in Word doc)

a. Current Ratio

b. Acid-Test (Quick) Ratio

c. Receivables Turnover

d. Inventory Turnover

e. Asset Turnover

2. Calculate the following ratios needed to assess long-term debt-paying ability and interpret the

results. This should include the last 3 years of ratios for the company and the last 3 years of

ratios for the competitor. What trends are there? (approx. 1/2 page single spaced 12 pt. in Word doc)

a. Times Interest Earned

b. Debt to Total Assets Ratio

c. Book Value per Share

3. Calculate the following ratios needed to assess profitability and interpret the results. This

should include the last 3 years of ratios for the company and the last 3 years of ratios for the

competitor. What trends are there? (approx. 1/2 page single spaced 12 pt. in Word doc)

a. Profit Margin on Sales

b. Rate of Return on Assets

c. Rate of Return on Common Stock Equity

d. Earnings per Share

e. Payout Ratio

4. Which company would you invest in? What are the reasons for your decisions? This should be

based on financial analysis and significant facts. (approx. 1 page single spaced 12 pt. in Word doc)