Q MGT 7300 Business Finance Annual Report Team Project Purpose of the Project The purpose of the financial statement analysis project is to help students become familiar with the financial reports of publicly traded companies, to apply the concepts learned in class to a real-world situation, and to familiarize students with researching financial information. At the completion of the project the student should be able to use financial information to assess the profitability and solvency of publicly traded company. The project is in four parts. Due dates are listed in each section. Part I – Teams assigned and will select a company and obtain the Annual Report Due Week 1 from one member of the team Teams will be assigned with 3-4 people on each team. This will be done after class begins to ensure registrants are all assigned. Anyone adding after week 1 will be added to a team by the instructor and will need to coordinate with their team on what their responsibilities will be. Each team should select a U.S.(so the financials will be presented in US Dollars) publicly traded retail company (that means they sell a product-not provide a service) and submit their company choice and a link to the annual report in the link. Only one team member needs to submit for each team. The link should be posted in the team discussion so that everyone has access to the same annual report. You can obtain a downloadable version of the Annual Report from the company’s website by going to their investor relations section. Make sure it is the full annual report. This will be reviewed upon submission and approved. Do not begin until you receive approval on the company. This will be submitted by the end of week 1. **Please note that there is a Groups tab that will provide you access to work together as a team. There will be file sharing, discussions, etc. that will allow you to coordinate and will also allow your instructor to see the communication and how the teamwork is going. With an online course, please remember that requiring live meetings for students is not allowed as everyone schedule can vary. Part II - Develop / Submit a project completion plan Due Week 2 from one member for the team The team should develop a project plan for completing part III of the Annual Report project. Only one team member will need to submit your plan. You will use the Team Plan Assignment template to determine the sections each member is responsible for. You can use your group discussion to determine who is doing each part. This project plan should include planned completion dates for the various sub-sections of the report. It is advisable that one or two members of the group take responsibility for the final editing of the completed project. You should set deadlines for each other to allow time to review, edit and ensure formatting follows APA requirements. Teams should also consider including a statement about expectations for the team members regarding timely completion of assignments; how to notify each other about missed meetings or deadlines, etc. Please remember that for online classes, students should not have required meeting times for groups and the discussion/files area of the groups should be utilized instead. **Note – In Week 7, you will be asked to evaluate each members participation and effort in the project including comments on how well the project was and anything you would have done differently with respect to completing and coordinating the project. Part III – Use the Annual Report to answer the following questions. Due Week 6 from one member as one team final submission This section requires that students use their Annual Reports and knowledge from our class to answer several questions. Some of the questions might not apply to your company. If you are unsure, please ask your instructor for clarification. If we determine that it does not apply, you will note that it is not applicable. Answers should be in paper format following APA format (7th edition). Yes, or No is not an acceptable answer. Also, please be sure to carefully cite your sources using in text citations with page numbers. Most information should come from your annual report. It is not acceptable to cut and paste from the Annual report without attribution. Where it is necessary to quote brief citations, you should use quotation marks. You should always reference where you obtained the material, for example: General Motors, 2017 Annual Report, page 63. 1) Company Background Provide a brief summary of the company including a description of primary business operations. 2) Getting to know the Annual Report Scan the annual report to identify the major sections of the report. Prepare a list that notes the page numbers you will find each of the following on in the annual report : a. Letter to the Shareholders b. Management’s Discussion and Analysis of Financial Results c. Income Statement d. Balance Sheet e. Statement of Cash Flow f. Statement of Shareholders’ Equity g. Notes to the Financial Statements (just list page range) h. Report of the Independent Registered Public Accounting Firm 3) Read the Letter to the Shareholders. a. Who is the letter from? b. What are some of the company’s plans for the upcoming year? c. What is the tone of the letter (optimistic, cautious, non-committal)? d. Does it address any problems from the past year? 4) In order to begin to understand a company’s business, you should know the major sources of revenue for the company and the trends in revenue. For example, Disney generates revenue from Media Networks, Theme Parks, Studios, Consumer Products and Interactive. CVS generates revenue from Pharmacy and Retail segments. (You will find the information needed to answer this question from various sections of the annual report including the income statement, in the annual report narrative, and in sections or a footnote titled, “Segment Information” or Segment Reporting”. The company will usually identify revenue by product lines or in some cases by geographic markets. a. Refer to the income statement from the annual report. What is the trend in revenue over the three years reported? Are sales growing or declining versus prior years? Prepare a brief chart or table showing the revenue trends using the information on the income statement using Excel. b. What are the major sources of revenue (from the segment reporting) for the company; in other words, identify the revenue for each of the major products or segments. On a percentage basis, how much does each product or product line contribute to the total revenues of the company? Prepare a chart or table showing the percent of revenue from each segment reported using Excel. 5) Corporate Governance a. Who are the external auditors for your company? What type of audit opinion did the auditors issue? You can learn about them in the video for Week 2. b. How many members are on your company’s Board of Directors? **Financial Statement Analysis -- Note that this portion of the project is worth a significant portion of the overall project grade. Please make sure that your computations are complete and that your explanations of the trends are substantive. You will need to review the MD&A to get explanations for most of the changes in financial results. 6) Prepare a horizontal analysis ($ change, % change) on the income statement for the most recent year compared to the previous year. (See videos in week 2) Comment on the major changes from year to year. This should be done in Excel and pasted into your paper. 7) Compute the ratios from the ratio list below for TWO years. a. In an appendix to the APA paper, you will provide the formula, calculations and answer for each ratio. In the actual paper, a nice presentation of the ratio answers should be included in chart form (use excel). Please note that this is completed by more than one student so it will take coordination to bring it into one chart when completed by each student. 8) Comment on the trends noted from the ratios. Your comments should include whether or not each ratio improved from the prior year. In addition, you should summarize the financial performance of the company in each of the three ratio categories: Financial Condition and Net Worth, Profitability, and Financial leverage 9) Review the Management’s Discussion & Analysis. In your opinion, does management adequately explain all of the major changes in sales, profits, and financial position noted in your ratio and trend analysis? Provide details to substantiate your opinion. 10) Overall Conclusions (this section should have input from all members) a) In your opinion, does this company appear to be a strong company and a good investment? b) In your opinion, how could the company improve the clarity of its financial reporting? Part IV - Peer Evaluation Due Thursday of Week 7 from each member individually Each team member will submit an evaluation of the contribution of the members of the team. A peer evaluation form will be provided during week 7. Your peer evaluation grade will be based on the results of the team members’ evaluations. Note that you must submit a peer evaluation form to receive the assigned peer evaluation points. This form will be available in Canvas. Annual Report Project Ratios The ratios listed here should be calculated for two years of your company (most recent). M Measures of Financial Condition and Net Worth M Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets - Inventory Current Liabilities Days Sales Outstanding Accounts Receivable Average Revenue per day (Annual Revenue / 365 days) Inventory Turnover Annual Cost of Goods Sold (annual report so it provides annual cgs) Average Inventory (ok to use actual inventory for that year) Measures of Profitability Gross Profit Margin Gross Profit Gross Sales Net Profit Margin Net profit Gross Sales Costs per Sales Dollar (if info is available) Sales and marketing costs Gross Sales Measures of Financial Leverage Debt to Equity Ratio Total Liabilities Total Equity Debt Service Coverage EBITDA (Earnings before interest and taxes, depreciation and amortization) Ratio Debt Service (use total liabilities) Return on Net income (already in annual number in annual report) Equity Ratio Stockholders equity