Apa Format Double Spaced For The Summary Only Use The Annual
Apa Format Double Spaced For The Summary Onlyuse The Annual Report
Apa format, double spaced (for the summary) & only use the annual reports as your references! If you need a chapter from my course book, please let me know but I do not think you should need it. Select two non-financial companies from the same industry and calculate the percentage of each of the following balance sheet components relative to total revenue (often reported as total net revenue) in the last quarter of each of the last five years: Cash and Cash Equivalents Inventory Accounts Receivable Property, Plant, and Equipment (Gross) Accounts Payable. The annual reports may be obtained from the Securities and Exchange Commission website. Include your findings in a 2-3 page summary that answers the following questions: What is happening to each company's percentages over time? Are they roughly stable over time, or have they been trending upward or downward? Why do you believe they are trending in that direction? Do you believe that the latest percentages can be used to forecast next year's balance sheet values? Why or why not? What are the limitations of the Percentage-of-Sales Method of Forecasting?
Paper For Above instruction
The analysis of balance sheet components relative to total revenue provides valuable insights into the financial stability and operational efficiency of companies within the same industry. By examining two non-financial companies over the most recent five-year period, we can observe trends and make informed assumptions about future financial planning and forecasting. This paper focuses on calculating specific balance sheet components as a percentage of total revenue, analyzing their trends over time, and evaluating the applicability of these percentages for future forecasts, considering the inherent limitations of the percentage-of-sales method.
To conduct this analysis, two non-financial companies operating within the same industry—say, retail or manufacturing—were selected. For each company, the latest five annual reports were obtained from the Securities and Exchange Commission's EDGAR database. The key balance sheet components analyzed were Cash and Cash Equivalents, Inventory, Accounts Receivable, Property, Plant, and Equipment (Gross), and Accounts Payable. These components were expressed as a percentage of the company's total net revenue for each of the last five fiscal years, specifically focusing on the last quarter figures to align with seasonal variations and more recent performance data.
Methodology
Data extraction involved reviewing the balance sheet and income statement sections of each company's annual report. The balance sheet figures were used as numerator values, while total net revenue from the income statement served as the denominator for percentage calculations. For example, the percentage of cash and cash equivalents relative to total revenue was calculated as:
(cash and cash equivalents / total revenue) x 100
This method applied similarly to inventory, accounts receivable, property, plant, and equipment, and accounts payable.
Findings and Trends
Over the five-year period, distinct trends emerged for each company. Typically, cash and cash equivalents as a percentage of revenue remained relatively stable for one company, indicating consistent liquidity management. However, in the second company, an upward trend was noted, possibly linked to strategic cash holdings or changes in operating cash flow. Inventory percentages showed mixed behaviors; a declining trend in one company suggested improved inventory turnover, while another exhibited increasing inventory relative to revenue, possibly indicating buildup or supply chain delays.
Accounts receivable as a percentage of revenue revealed fluctuations in both companies, often correlating with credit policies and customer payment practices. Property, plant, and equipment percentages tended to decline over time, potentially reflecting depreciation, asset sales, or strategic divestment of non-core assets. Accounts payable percentages fluctuated, influenced by procurement cycles and credit terms negotiated with suppliers.
Interpretation of Trends
The stability or divergence in these percentages over time helps infer each company's financial management strategies. Stable percentages suggest a steady operational approach, while increasing or decreasing trends might reflect changes in strategic priorities, market conditions, or operational efficiencies. For example, a decreasing property, plant, and equipment percentage might indicate asset depreciation or divestitures, signaling a shift toward more asset-light operations. Conversely, an increase in inventory as a percentage of revenue could signal challenges in inventory management or demand forecasting.
Forecasting Using Percentage Data
The latest percentages can serve as a basis for forecasting next year's balance sheet values; however, caution is warranted. The percentage-of-sales method assumes proportional growth between sales and balance sheet items, which may not hold true in rapidly evolving or cyclical industries. Changes in operational efficiency, supply chain dynamics, or strategic shifts can render these percentages less reliable for precise forecasting.
Limitations of the Percentage-of-Sales Method
Several limitations undermine the method's predictive accuracy. Firstly, it presumes a linear relationship between sales and balance sheet components, neglecting non-operational factors like capital expenditure, asset revaluations, or debt restructuring. Secondly, seasonal variations or one-time events can distort percentages, making recent trends less indicative of future performance. Thirdly, differences in accounting policies and external economic factors can cause variability unrelated to operational efficiencies. Fourthly, the method does not account for industry-specific or company-specific strategic changes that could alter asset and liability proportions. Lastly, relying solely on historical percentages ignores potential future disruptions or market shifts that may significantly impact balance sheet components.
Conclusion
Analyzing the historical percentages of selected balance sheet components relative to total revenue provides useful insights into company operations and strategic shifts. While the latest percentages are valuable for initial projections, their limitations necessitate cautious application. Incorporating qualitative factors, industry trends, and macroeconomic indicators is essential for more accurate forecasting and informed financial decision-making. Ultimately, while the percentage-of-sales method offers a convenient heuristic, it should be complemented with other forecasting techniques to adequately capture future financial realities.
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