ACTG 212: Principles of Accounting II Financial Analysis Project
Michael Masterson has brought you a set of financial statements of a company that he is considering investing in as a long-term investment. He is asking for your help in determining if the company would be a good investment for him.
Using the attached financial statements, you need to create a vertical analysis as percentage of Total Assets for the Balance Sheet and as a percentage of Sales for the Income Statement, as well as a horizontal analysis of the Balance Sheet and Income Statement. Complete this for both years. In addition to the vertical and horizontal analysis, you need to calculate the following ratios:
Liquidity & Efficiency:
Receivables Turnover• & Days’ Sales Uncollected
Inventory Turnover• & Days’ sales in Inventory
Debt to Equity Ratio•
Profit Margin Ratio•
Gross Margin Ratio•
Return on Total Assets (ROA)•
Return on Equity (ROE)•
This information then needs to be incorporated into a written memo to Michael Masterson. Be sure to include the following information in your memo.
Introductory Paragraph – This paragraph will be an introduction to your analysis. In this paragraph, explain the importance of analyzing financial statements before investing in a company. Be sure to answer the following questions in your introduction:
1. What is the purpose of creating a vertical analysis and why is it useful in analyzing a potential investment?
2. What is the purpose of creating a horizontal analysis and why is it useful in analyzing a potential investment?
3. Overall, what do each of the three sections of ratios (Profitability, Liquidity & Solvency) tell a person about a company?
Financial Analysis Section – In this section, you will share the results of your calculations and then...