Assignment:
You are the assistant to the CEO of a major company. Your CEO keeps an eye on the competition, and asks you to do the following. Using ratio analysis, compare two major competitors in the same industry.
Instructions:
Pick any two U.S. public companies in the same industry.
One of your two companies can be the same company you used in Week 2.
Select the 10 most important financial ratios for your two companies and calculate each for the last 2 fiscal years using Excel. Explain why you selected these ratios.
Create a comparison chart for these 10 ratios for 2 years for each company. Explain how you calculated each ratio. Explain what each ratio should mean to management.
There is an example posted in the file attached in the Week 3 Conference for the Drugstore Chains example. The “Compare” worksheet shows comparison of ratios, however it does not include the required words about how the ratios were calculated nor does it include what the numbers mean for management.
The “W”, “C”, “Profiles” and “Z Score” worksheets are not required, and nor is the Dupont Analysis. You will note that the W and C worksheets are used to calculate average balance sheet numbers. These are useful when there are large year to year changes on the balance sheet. You may use year end numbers for balance sheet items to simplify calculations if you like. This example is more complex than you need and includes added information that is nice to know but not required.
If you obtain data from the SEC web site “Interactive Data, then you can copy and paste into Excel. If you use data from other web sites, it may not allow excel to calculate ratios.
Create a single Excel file for your entire assignment. Spend time to understand what you are trying to do and simplify your format, your calculations and approach. Think about which ratios are important and WHY?
You may obtain financial information and the companies’ latest annual reports on the web directly from MSN Money or Yahoo Finance or Morningstar. However, it may be necessary to enter the numbers by hand into excel to allow Excel to calculate ratios. For additional information, look for the SEC Form10-K link from one of the MSN Money, or Morningstar, or Yahoo Finance financial sites.
You should calculate, and comment upon, all 10 financial ratios for the last 2 fiscal years.
All calculations should be shown, and all answers should be thoroughly explained.
It is useful to compare financial ratios for a company with financial ratios of its industry. Industry financial ratios can be found on Morningstar.com, Yahoo Finance and MSN Money.
What can you tell from your analysis? What are the strengths and weaknesses of each company? Which is the stronger competitor? Give your reasons.
Your Excel file should be attached to the “Week 3 Individual Assignment” link in the Assignment folder.
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