1. Read -Understanding the Income Statement at: http://www.investopedia.com/articles/04/022504.asp
2. Read -Reading the Balance Sheet at: http://www.investopedia.com/articles/04/031004.asp
3. Compute- the following financial ratios for both companies and provide as an appendix to the required paper. If you need help understanding the meaning of the ratios or how to they are computed, go to: http://www.investopedia.com/university/ratios/
Liquidity measurement ratio: · Current ratio
Profitability indicator ratios:· Return on assets · Return on equity
Debt ratio: · Debt ratio
Operating performance ratio: · Fixed asset turnover ratio
Cash flow indicator ratio: · Dividend payout ratio
Investment valuation ratio: · Price / Earnings ratio
For each company and comparing the two, you are to write a eight to ten (8-10) page report that answers the following:
1. Provide a short background on each company, the industry and the market (growing, declining, etc?) in which they operate. (This should be no more than 1- 1.5 pages for both companies in total and can be a part of your introduction.)
2. Using the current ratio and debt ratios, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt). Support your conclusions. Which company is doing better, why or why not?
3. Using the profitability and operating performance ratios, discuss what conclusions you can make about each company’s profits over the past three years. Support your conclusions. Which company is doing better, why or why not?
4. Using the cash flow indicator and investment valuation ratios, discuss which company is more likely to have satisfied stockholders. Support your conclusions. Which company is doing better, why or why not?
5. As an investor, discuss which company you would choose to invest in and provide a rationale for your decision. Support your conclusions, why or why not?
6. After concluding your research about each company and reviewing their annual report, Discuss what non-financial criteria you would consider when choosing between these two investment options? Support your conclusions, why or why not?
