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Financial Statement Analysis
You are a financial analyst and your client has approached you for some independent financial assistance. He is considering investing funds in common shares of a corporation and has identified two alternatives. They are both in the same industry and either could be bought for book value. Your client is requesting your advice on which would be the better investment.
As a financial analyst you will prepare a prospectus. A prospectus is a short description of the analysis and must include the following sections:
Title page
Vertical Analysis
Ratio Analysis
Conclusions/Recommendations
Section 1: Vertical Analysis (Common Size Analysis)
Perform a vertical analysis in relation to revenue for the items on the income statement only for each of the two companies.
Section 2: Ratio Analysis
Compute the ratios for the following categories for each company:
Profitability
Liquidity
Solvency
market value
Present in chart form and show calculations used.
Discussion of ratios
For each ratio, students should comment on some of the following
What is the relative position of each of the corporations?
What is being measured?
What does it mean? Is this good news or bad
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