ACTG 212: Principles of Accounting II Financial Analysis Project
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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:
Current Ratio•
Acid-Test Ratio•
Receivables Turnover• & Days’ Sales Uncollected
Inventory Turnover• & Days’ sales in Inventory
Solvency
Debt Ratio•
Equity Ratio•
Debt to Equity Ratio•
Profitability
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...