The Annual Report Project

The Annual Report Project –

Financial Statement Analysis

Part 2

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Employee Retirement Plans & Stock-Based Compensation

1. Does the company offer a pension plan? If so, what type? (Defined Benefit / Defined Contribution)

2. Use the format below to analyze the plan.

(Defined Benefit Plan)

Compare pension expense with operating revenue.

Current year

Last year

Two years ago

A. Pension Expense

B. Operating Revenues

A / B

Compare pension expense with income before income taxes.

Current year

Last year

Two years ago

A. Pension Expense

B. Income before income taxes

A / B

Compare benefit obligation with value of plan assets.

Current year

Last year

Benefit obligation

FV plan assets

Overfunded ( underfunded)

Analyze rates:

Discount Rate

Current year

Last year

Two years ago

Combined weighted-Average Rate

Rate of Compensation increase

Current year

Last year

Two years ago

U.S. Plans

Expected Return on Plan Assets

Current year

Last year

Two years ago

U.S. Plans

(Defined Contribution Plan)

Compare pension expense with operating revenue.

Current year

Last year

Two years ago

A. Pension Expense

B. Operating Revenues

A / B

Compare pension expense with income before income taxes.

Current year

Last year

Two years ago

A. Pension Expense

B. Income before income taxes

A / B

3. Comment on any changes over the past few years in these pension plans.

4. Briefly discuss any stock-based compensation that your company offers.

a. Describe what they offer

b. List outstanding values at fiscal year-end

Income Statement

1. What is the period covered by the income statements?

2. Does the format of the statement most closely follow a single step or multiple step income statement? How can you tell?

3. Give the amounts and ratios for the following income statement items over the past three years?

Current Year

Prior Year

Two Years Ago

CGS to Net Sales Ratio (%)

Gross Profit Rate (%)

Profit Margin (%)

Return on Assets

Total Asset turnover

Return on Total Equity

Return on Common Equity

Return on Investments

Sales To Fixed Assets Ratio

EPS – Basic

EPS – Diluted

Times Interest Earned

Debt ratio

Debt / Equity ratio

Price Earnings Ratio

Dividend Payout

Dividend Yield

Book Value

4. Using elements listed on your company’s income statement, prepare a common size income statement using the following format. (Vertical Analysis Chapter 5)

Account

Current Year

%

Prior Year

%

Two Years Ago

%

5. Using elements listed on your company’s income statement calculate the increase or decrease in dollars and percent between the years using the following format. (Year to Year Change Analysis Chapter 5)

Account

Current Year

Prior Year

+/- $

%

Two Years Ago

+/- $

%

6. Using elements listed on your company’s income statement calculate the ratios and amounts using two years prior as the base year (100%) using the following format. Your answers should all be in percentages. (Horizontal Analysis Chapter 5)

Account

Current Year/Base

Prior Year/Base

Two years ago/ Base

7. In thoughtful, well-organized paragraphs, comment on changes you see in the income statement over the three-year period.

Use a separate sheet of paper and label it “Income Statement Analysis.” Answer in complete sentences. Use a separate paragraph to discuss each item. Label your paragraph according to the letters below. This analysis should be at least one full page in length.

Among the items to consider:

a. What is the trend in total revenues over the three years?

b. What is the trend in gross profit over the three years?

c. What is the trend in net income over the three years?

d. What is the trend in profit margin over the three years?

e. Comment on any significant changes in revenues or expenses, negative and positive changes.

f. Comment on any significant changes in the discontinued operations, extraordinary items, or changes in accounting policy.

Statement of Cash Flows

1. What is the period covered by the Statement of Cash Flows?

2. Does the company use the direct or indirect method for operating activities? How can you tell?

3. Indicate the amount for each of the following categories for the past three years.

Current Year

Prior Year

Two Years Ago

Net cash from operations

Net cash from investing

Net cash from financing

Net increase (decrease) in Cash Flows

Cash Beginning of Year

Cash End of Year

4. Accrual versus cash.

Current Year

Prior Year

Two Years Ago

Net Income

Net cash from operations

Net sales

a. Are Net Income, Net cash from operations and Net Sales moving in a similar manner? Discuss the meaning of the trends.

5. Discuss the major items accounting for the difference in net income and net cash from operations. Use complete sentences.

6. Calculate the following ratios:

Current Year

Prior Year

Two Years Ago

Operating Cash Flows Ratio (OCF/Average Current Liabilities)

Operating Cash to Total Debt

Operating CF to Cash Dividends

7. In thoughtful, well-organized paragraphs comment on changes you see in the cash flow statement. Label this section “Cash Flow Analysis”. Consider the following:

a. What are the major operating activities?

b. What are the major investing activities?

c. What are the major financing activities?

d. Comment on any significant changes in these activities over the past three years.

Segmented Reporting

Does your company report segmented information? Briefly discuss how they segment their information.

List the segments that your company has identified.

Non-geographic

1. Horizontal Common-Size analysis for net sales (Use Two years ago as base year)

Current year

Previous year

Two years ago

Net Sales:

Total

2. Horizontal Common-size analysis for operating income. (Use Two years ago as base year)

Current year

Previous year

Two years ago

Operating income:

Total

Horizontal Common-size analysis for capital expenditures. (Use Two years ago as base year)

Current year

Previous year

Two years ago

Capital expenditures:

Total

Vertical Common-size analysis for net sales (Use net sales as a base)

Current year

Previous year

Two years ago

Net Sales

Total

b. Geographic Segments

Horizontal common-size analysis for net sales. (Use Two years ago as base)

Current year

Previous year

Two years ago

Net Sales

Total

2. Vertical common-size analysis for net sales. (Use net sales as a base)

Current year

Previous year

Two years ago

Net Sales

Total

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