Financial statement analysis and EPS forecasting

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Reference no: EM131844831

Assignment on Financial Statement Analysis and EPS Forecasting

First, gather historic data from either SEC filings or Yahoo Finance on key financial statements of the firm by inputting its ticker symbol or name:
• Balance Sheet
• Income Statement
• Cash Flow Statement

Then prepare a report to answer the following questions:

Questions:

1. Compute the following ratios for the firm that you are analyzing, for the most recent period:

I. Short-term solvency, or liquidity, ratios

Current ratio = Current assets/Current liabilities

Quick ratio = (Current assets - Inventory)/ Current liabilities

Cash ratio = Cash/ Current liabilities

II. Long-term solvency, or financial leverage, ratios

Total debt ratio = (Total assets - Total equity)/Total assets

Debt-equity ratio = Total debt/Total equity

Equity multiplier = Total assets/Total equity

Times interest earned ratio = EBIT/Interest

Cash coverage ratio = (EBIT + Depreciation)/Interest

III. Asset utilization, or turnover, ratios

Inventory turnover = Cost of goods sold/Inventory

Days sales in inventory = 365 days/Inventory turnover

Receivables turnover = Sales/Accounts receivable

Days sales in receivables = 365 days/Receivables turnover

Total asset turnover = Sales/Total assets

Capital intensity = Total assets/Sales

IV. Profitability ratios

Profit margin = Net income/Sales

Return on assets (ROA) = Net income/Total assets

Return on equity (ROE) = Net income/Total equity

ROE = Net income/Sales x Sales/Assets x Assets/Equity

V. Market value ratios

Price-earnings ratio = Price per share/Earnings per share

Market-to-book ratio = Market value per share/Book value per share

2. Comment on the financial condition of the firm in each of the above V categories in 1 or 2 sentences each.

3. Decompose the ROE using the extended Du-Pont Analysis.

ROE = EBIT Margin x Interest Burden x Tax burden x Asset turnover x Leverage

4. Compare these components of ROE for the firm's current period its past periods to understand the time trends.

5. Compare these components of ROE for the firm's with its major competitor(s).

6. EPS forecasting: Now use these trends and your forecast of the economic conditions to forecast the firm's Earnings per share and cash flow per share. Start with the most recent income statement and common size it. For the forecast period, adjust the numbers for future growth and decline in sales.

Reference no: EM131844831

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