FIN4060 Week 1 Project

Financial Statements

Businesses can be divided into the following organizational categories:

Proprietorships

Partnerships

Corporations

Irrespective of the organizational categories, �nancial statement analysis proves to be an effective

tool that supports decision-making.

You might wonder how �nancial statement analysis is so useful for decision-making. The answer lies in

being able to discern and con�rm the truth about a company's �nances compared to what might be

represented in its �nancial reporting.

The ability to conduct a meaningful �nancial statement analysis has many personal implications as well. Some of these include the issues of career planning, employment, protecting �nancial interests,

investments, and retirement planning. You will observe that these issues relate to concerns that are

both internal as well as external to the involved company.

Financial statement analysis involves using information provided in the balance sheet, income

statement, and statement of cash �ows to judge the performance and risks at a speci�c time or over a

de�ned period. Such an analysis is highly effective in evaluating speci�c operations of the company

such as asset usage and ef�ciency, debt management, and pro�tability.

While conducting �nancial statement analysis, you'll realize that there is continuity in �nancial

information as it �ows from one statement to another.

What is continuity in the �ow of information? It means that a change in a company’s �nancial position

impacts all of its �nancial statements. Each �nancial statement – balance sheet, income statement, and

statement of cash �ows – is interrelated to the others. We need to look at all four statements to see

the complete picture of a company’s �nancial health.

Ratio Analysis

The �rst step for performing an in-depth �nancial statement analysis is ratio analysis. You can use ratio

analysis to ascertain whether the business: is pro�table, has enough money to pay its bills, can pay its

employees higher wages, is paying its share of tax, and is using its assets ef�ciently.

Ratio analysis isn't just about comparing different numbers from the balance sheet, income statement, and cash �ow statement. It is about comparing these numbers against previous years, other

companies, the industry, or even the economy in general. Ratios look at the relationships between

individual values and relate them to how a company has performed in the past and might perform in

the future.

The categories of ratio analysis include liquidity, ef�ciency, debt, and pro�tability ratios.

Liquidity ratios deal with the company's position related to cash—and needed for working capital management. Examples include current ratio, also known as working capital ratio and acid test ratio,

also known as the liquid ratio or quick ratio.

Ef�ciency ratios deal with the company's management effectiveness in using resources. Examples

include accounts receivable turnover, �xed asset turnover, sales to inventory, and accounts payable to

sales

Leverage ratios deal with the company's �nancial position vis-à-vis obligations. Examples include

typically relate to debt, equity, assets, and interest expenses. The commonly used one is the debt-to- equity ratio.

Pro�tability ratios deal with the company's attractiveness to investors and its ability to fund its growth

needs.

The background of a �nancial statement analysis is the �nancial market. A �nancial statement analysis

forms the foundation for sound decision-making throughout the �nancial market. The quality of the

decision-making process depends on the degree to which the related �nancial information is accurate.

The �nancial market may be de�ned as the setting where those who supply funds may interact with

those who need funds. There are four categories of �nancial markets:

Money and capital

Primary and secondary

Foreign exchange and foreign capital

Depository and non-depository

Money Markets

One way that the �nancial market is represented is by the money market and the capital market. The

money market deals with securities with maturities of up to one year, which are referred to as being

short-term. Typically, activity in the money market represents the availability of excess funds, which

are used to pursue a modest return instead of being idle. Money market activity is represented by the purchase and/or sale of short-term marketable securities.

Examples of these short-term securities include:

Negotiable certi�cates of deposit

U.S. Treasury Bills

Commercial paper (unsecured promissory note with �xed maturity)

The opportunity of short-term securities to be traded is provided by large banks and through government securities dealers. The Federal Reserve provides funds to support loans between member

banks. This is a special case of marketable securities in banking, and these funds are called federal

funds, or fed funds.

The capital market deals with long-term securities with maturities of more than a year. With regards to

accessing excess funds, the activity in the capital market is similar to that of the money market.

However, investors in the capital market may also invest in the money market in order to meet liquidity

needs.

The primary forum for capital market activity is through securities exchanges. The securities involved

are stocks and bonds. Derivatives of stocks and bonds may also be the target of investments.

The capital markets in the U.S. are considered the largest. However, there are other robust capital

markets, such as the Eurobond and foreign bond markets, and the international equity market. Market

securities are issued and purchased by entities in need and those with excess funds, respectively.

These entities may be based anywhere in the world.

Financial markets can also be categorized as primary markets and secondary markets.

Primary markets are those where securities are introduced for the �rst time. In this regard, the

issuer of the securities actually receives the net proceeds of the sale of the securities. This is a

unique distinction of the primary markets.

Secondary markets are those where securities are traded after an initial introduction. In this

case, the issuer of the securities in not involved in receiving proceeds. It is in secondary markets that company valuation becomes signi�cant by way of the volatility of the price of a company's

security or a share.

FIN4060 Week 1 Project Rubric Course: FIN4060-Financial Statement Analysis SU01

Criteria No Submission 0 points

Emerging (F through D Range) (12-14) 14 points

Satisfactory (C Range) (14-16) 16 points

Proficient (B Range) (16-18) 18 points

Exemplary (A Range) (18-20) 20 points

Criterion Score

Analyzed the

key

characteristics

of the

companies

selected, such

as the industry

in which they

operate, the

products they

provide, their

rankings in the

industry, etc.

/ 20Did not identify the key characteristics

of the companies

selected, such as

the industry in

which they operate,

the products they

provide, their

rankings in the

industry, etc.

Unsupported with

research.

Identified the key

characteristics of

the companies

selected, such as

the industry in

which they operate,

the products they

provide, their

rankings in the

industry, etc.

Lacked credible

research support.

Described the key

characteristics of

the companies

selected, such as

the industry in

which they operate,

the products they

provide, their

rankings in the

industry, etc.

Weakly supported

with research.

Analyzed the key

characteristics of

the companies

selected, such as

the industry in

which they operate,

the products they

provide, their

rankings in the

industry, etc.

Sufficiently

supported with

research.

Analysis of the key

characteristics of

the companies

selected, such as

the industry in

which they operate,

the products they

provide, their

rankings in the

industry, etc was

compelling and

showed well-

developed logical

progression.

Well supported by

research.

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Evaluated the

company's

commitment to

corporate

governance and

identify the key

features of its

commitment.

/ 10Did not identify

the company's

commitment to

corporate

governance and

identify the key

features of its

commitment.

Unsupported

with research.

Identified the

company's

commitment to

corporate

governance and

identify the key

features of its

commitment.

Lacked credible

research

support.

Described the

company's

commitment to

corporate

governance and

identify the key

features of its

commitment.

Weakly supported

with research.

Evaluated the

company's

commitment to

corporate

governance and

identify the key

features of its

commitment.

Sufficiently

supported with

research.

Evaluation of the

company's

commitment to

corporate

governance and

identify the key

features of its

commitment was

compelling and

showed well-

developed logical

progression.

Well supported by

research.

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Analyzed the

main

competitors for

each selected

company.

/ 10Did not identify the main competitors

for each selected

company.

Unsupported with

research.

Identified the main

competitors for

each selected

company.

Lacked credible

research support.

Described the main

competitors for

each selected

company.

Weakly supported

with research.

Analyzed the main

competitors for

each selected

company.

Sufficiently

supported with

research.

Analysis of the

main competitors

for each selected

company was

compelling and

actionable.

Well supported by

research.

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Total / 50

Criteria No Submission 0 points

Emerging (F through D Range) (6-7) 7 points

Satisfactory (C Range) (7-8) 8 points

Proficient (B Range) (8-9) 9 points

Exemplary (A Range) (9-10) 10 points

Criterion Score

Wrote in a clear,

concise, and

organized

manner;

demonstrated

ethical

scholarship in

accurate

representation

and attribution

of sources (i.e.,

APA); and

displayed

accurate

spelling,

grammar, and

punctuation.

/ 10Submission contains no

discernible overall

intent in author’s

selection of ideas.

Errors in basic

writing conventions

are sufficiently

numerous to

prevent reader

comprehension.

No attempt at

Academic/APA

formatting in

presentation

Submission

contains random

presentation of

ideas, which

prevents

understanding

the majority of

author’s overall

intent.

Errors in basic

writing conventions

are sufficiently

numerous to

prevent reader

comprehension of

majority of the

work.

Academic/APA

format is

attempted, but

errors are

significant.

Ideas are presented

in a way that forces

the reader to make

repeated inferences

in order to identify

and follow the

author’s overall

intent.

Errors in basic

writing conventions

interfere with, but

do not prevent,

reader

comprehension.

Academic/APA

format is attempted

but errors are

distracting.

The reader can

follow the author’s

overall intent as

stated.

The reader

noticed a few

errors in basic

writing conventions

but these few

errors do not

interfere with

reader

comprehension.

Using

Academic/APA

format, accurately.

Errors are

noticeable but

minor.

The writer’s overall

argument and

language are clear

and tightly focused,

leaving the reader

with no room

for confusion about

author’s intent.

Text is basically

error free, so that a

reader would have

to purposely search

to find any errors

that may be

present.

Using

Academic/APA

format proficiently.

Text is basically

error free.

Overall Score

No Submission 0 points minimum

Emerging (F through D Range) 35 points minimum

Satisfactory (C Range) 40 points minimum

Proficient (B Range) 45 points minimum

Exemplary (A Range) 50 points minimum