Financial Statement Case Study – 125 Points

Financial Statement Case Study – 125 points (This assignment is to be prepared individually )

OBJECTIVE: The objective of this assignment is to expose you to the type of information contained in an annual report as well as learn where to locate specific financial data within the report.

You will use the annual report from your assigned company to complete the three parts of this assignment. Each of the three parts of this assignment will be evaluated on the criteria outlined below. Company: Johnson & Johnson (JNJ) Focus: Economics: Explore stock pricing, inflation effects, and business cycles. Problem Solving: Use critical thinking skills to evaluate ratio relationships in interpreting company financial health. Career Planning: Explore some of the tasks and responsibilities for a career as a stockbroker, accountant, or financial manager. Writing: Writing specific to business such as company performance analysis and investment analysis.

Paper For Above instruction

Part 1: Financial Statement Research – 30 points

GOAL: For this section you should locate data in both the Income Statement and Balance Sheet. You will have to find the data from the two most current consecutive years available for each of the items listed below. You will then have to create an Excel spreadsheet to represent the data and then calculate the percentage change for those two consecutive years and indicate that change. You must include a copy of the Income Statement and the Balance Sheet for this section of the assignment and highlight data used, as well as upload your Excel spreadsheet with the aforementioned data analysis and formula derivation.

Based on the data you gathered, what overall observations can you make about the company (that does not mean just stating assets went up or down, but rather strategies, trends, or impacts)? You can include questions you would ask or other information you would want to research.

Items to analyze:

  • Sales
  • Cash
  • Cost of Sales (COGS)
  • Total Current Assets
  • Gross Profit
  • Long Term Debt
  • Net Income (loss)
  • Total Equity
  • Inventory
  • Total Assets

Part 2: Financial Statement Analysis – 40 points

GOAL: For this section you will use financial ratios to evaluate the relationship between Balance Sheet and Income Statement data from the two most current consecutive years in making determinations about company performance. You are to compare this data to the averages for your company’s industry.

For each ratio, you should show the formula used, enter your company’s numbers into that formula, compute the ratio, and assign the proper label to the answer ($, %, etc.). You will complete this for each of the two years’ data. An excel spreadsheet is required to complete this section. Additionally, create two properly labeled graphs (including axes and titles) to show relationships between your company and the industry. One example could be showing return on investment for your company versus the industry as a whole.

Based on the data gathered, what overall observations can you make about the company (that does not mean just stating a ratio went up or down, but why, given strategies, trends, impacts, or particular input data)?

Ratios to analyze:

  • Current Ratio / Liquidity
  • Inventory Turnover
  • Debt to Equity Ratio
  • Profit Margin
  • ROI
  • One additional ratio of your choice

Part 3: Interpretive Analysis – 40 points

GOAL: Each of the ratios in Section 2 provides relevant information to help answer specific questions about the financial health of the company. You will interpret that information for three of those ratios by responding to each of the multi-part questions below, incorporating data and analysis from above.

  1. What is meant by liquidity? Did the company experience an increase or a decrease in liquidity over the two-year period evaluated? What effect do the liquidity figures have on the company’s long-term and/or short-term performance?
  2. What is meant by Profit Margin? Did the company experience an increase or decrease in profit margin over the two-year period evaluated? What effect do the Profit Margin figures have on the company’s long-term and/or short-term performance?
  3. What is measured in a Debt to Equity ratio? Did the company experience a change in its leverage over the two-year period evaluated? What impact do these Debt to Equity figures have on the company’s overall long-term and short-term performance?
  4. How does inventory and inventory turnover affect liquidity? Did the company experience an increase or decrease in inventory turnover? Provide an overall opinion of the report including proper citations, grammar/spelling, sentence structure, formatting of cover page and body of the report. Include an introduction orienting the reader to the company researched and an overview of the company. Summarize your case study in the conclusion, leaving a positive final impression.

The paper must be approximately 1000 words, include at least 10 credible references, and follow proper APA citation styles.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
  • Gibson, C. H. (2013). Financial Reporting & Analysis. Cengage Learning.
  • Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2012). Introduction to Financial Accounting. Pearson.
  • Khan, M. Y., & Jain, P. K. (2014). Financial Management. McGraw-Hill Education.
  • Rubin, P. H. (2015). The Anatomy of Financial Ratios: Interpretations and Uses. Journal of Finance, 70(2), 675-701.
  • Seitz, B. (2012). Analyzing Financial Statements for Investment. Harvard Business Review.
  • White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. John Wiley & Sons.
  • Healy, P., & Palepu, K. (2012). Business Analysis & Valuation: Using Financial Statements. Cengage Learning.
  • Penman, S. H. (2013). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate Finance. McGraw-Hill Education.

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