Financial Statement Analysis

Be sure to document your statements with credible sources, in-text citations, and references using proper APA format.

Part I (400-600 words)

If a company grows too fast, it can find itself without access to the resources it needs to meet its obligations. If it grows too slowly, it may find itself missing strategic as well as tactical opportunities. Calculating and understanding a firm’s optimal or sustainable growth rate is critical to the goal of maximizing shareholders’ wealth and developing an optimal capital structure. Your senior analyst has asked you to do some research in this area and to share what you have learned with the other junior analysts on staff. She has asked you to research and address the following topics:

What is sustainable growth, and why is it important to calculate and understand this rate?

What is the sustainable growth equation, what are its components, and how is it calculated?

If a company grows too fast, what funding alternatives are generally available?

If a company grows too slow, what steps should it take to maintain its stock price?

Part II (800-1000 words)

You have been hired as a junior financial analyst by a major, international consulting firm. For your first assignment, you have been asked by a senior financial analyst to demonstrate your skills by assessing the performance of a publicly trading company; preferably one with inventories and receivables. The senior analyst expects you to evaluate at least two years’ worth of financial statements, but you know three years would be better in order to really understand the financial health of your subject company.

Use the attached spreadsheet for the information needed to complete this assignment.

Complete the following:

Using the company’s financial statements, calculate and evaluate the firm’s sustainable growth rate (SGR) for the last 3 years, and summarize your findings in your paper. Be sure to address the following:

  • What are the sustainable growth rates for your subject company over the period that you studied?
  • What are the consequences faced by firms that grow at a rate that is not consistent with their sustainable rate?
  • If the firm grew at a rate above or below the SGR, how might it finance its excessive growth or reward its stockholders for the underperformance?

Part III (5-7 pages)

At this point you have examined three years of financial statements for your firm. You have also determined their sustainable growth rate as well. You have also learned about various financial ratios.

Use the attached spreadsheet for the information needed to complete this assignment.

In a comprehensive summary of your firm, provide the following financial information for your firm for the last two years.

  • Revenue
  • Net Income
  • Profitability Ratios
    • Gross Profit Margin
    • Net Profit Margin
    • Return on Assets
  • Liquidity Ratios
    • Current Ratio
  • Market Ratios
    • Earnings per Share
    • Price to Earnings Ratio
  • Debt measures
    • Debt to Asset Ratio
  • Explain what each ratio and piece of financial data means and explain the trends in each; are they increasing or decreasing and is this trend positive or negative for the firm and why?
  • Using the information from Part I, summarize an explanation of the Sustainable Growth Rate for your firm and what it means for your company (do NOT copy and paste the information from Part II! This is not what the assignment requires)
  • Using the financial data, summarize and reflect on the future financial health of your firm.

Part IV (3-5 paragraphs)

Review and reflect on the knowledge you have gained from this course. Based on your review and reflection, write at least 3 paragraphs on 1 of the following topics:

What are some examples of major ethical breaches in the recent past that have led to increased scrutiny in the field of financial reporting and analysis? Why are they important to a firm’s stakeholders and the public at large?

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