Required Reading:2016 R June Financial Statement

Required Reading:
2016 R June Financial Statement Analysis Power Point with notes
2016 July DMBA R Sample Week 3 Answer
*"Research Starters: Financial Ratios" posted in this week's Content Module
Required Multimedia:
The Cash Flow Statement­eietCf5nNI&feature=related
Cash Flow Ratios
Market Ratios

Recommended Support Materials:
For a "how to" explanation of Financial Statement Analysis: see the attached Power Point file 2016 R
June Financial Statement Analysis and the Word file, "Diagram of Financial Ratios."

Assignment Financial Statement Analysis:
Your team has been assigned to the CEO of a major company. The CEO keeps an eye on the
competition, and asks your team to do the following: Following the 2016 R DMBA Sample Week 3
Answer, use ratio analysis to compare two major competitors in the same industry and compare them
to the industry ratios. The sample compares Southwest Airlines Company with Jet Blue Airline

Pick any two U.S. public companies in the same industry.
One of the two companies can be the same company someone on the team used in Week 2.
Select the 10 most important financial ratios for the two companies and calculate each for the
last 2 fiscal years using Excel.
Follow the format of the example 2016 July DMBA R Sample Week 3 Answer for 2 airlines. This
is also separately posted in this week's content module. Use the "Compare" worksheet. Note: It
is not necessary to complete all ratios
Explain how each ratio was calculated in your own words
Explain the significance of the answers found.
1. Create a single Excel file for your entire assignment.
2. The team may obtain financial information and the companies' latest annual reports on the web
directly from the Securities and Exchange Commission for the company website. MSN Money
or Yahoo Finance also have information but in some situations it may be incomplete. Current
stock price information is not available from the SEC web site.
3. The team should calculate, and comment upon, at least 10 financial ratios for the last 2 fiscal

6/1/2017 W3 Group Assignment instructions for Financial Statement Analysis ­ DMBA 620 9044 Effective Financial and Operational Decision Making (2175) 2/2
4. All calculations should be shown, and all answers should be thoroughly explained.
5. It is useful to compare financial ratios for a company with financial ratios of its industry. Industry
financial ratios can be found on, Yahoo Finance and MSN Money and
6. Whenever the team uses balance sheet items to calculate ratios, it is more accurate to average
the beginning­of­year and end­of­year amounts to get the average for that year. Dec 31, 2014
and Dec 31, 2015 would be beginning and end of year for 2015. Note: Averaging is NOT
required. For some students taking averages leads to calculation mistakes. The example
answer does not use averaging and includes most if not all possible ratios.
7. What can the team tell from the analysis? What are the strengths and weaknesses of each
company? Which is the stronger competitor? Give reasons.
8. Show that you have read and understood the required readings, links and attached files ­ cite
and reference them where appropriate.
9. The final Excel file should be submitted by one team member into the Group Assignment folder.
The 2016 R DMBA Week 3 sample answer file contains a comprehensive analysis of the financial
statements of two large airline companies. It illustrates and explains how different companies
succeed by focusing on different key ratios like Net Income/Sales, or Sales/Total Assets (asset
turnover) or Total Assets/Common Equity (leverage). Also, it further explains how these different
strategies are revealed through DuPont Analysis (a powerful technique that many companies use
to devise, implement, and monitor their business strategies. It shows the source for every number
on every Excel worksheet: just click on any number in any Excel worksheet and you will see where
it comes from. Showing the source for every number on every Excel worksheet is very important
and helpful to readers, and you should do this on all of your Excel spreadsheets.
All of the data in the example comes from SEC interactive data. Under the company name in
interactive data is a small red link that says view excel document. All numbers in this document
are easy to use in calculations. Data copied from some other sources may not calculate correctly
in Excel.

These assignments are designed to help you to develop your analytical ability and your ability to
explain your analysis in words. There are many uses for financial statement ratio analysis, especially
in business strategy ­ for an example, see the "Strategic Control Map" developed by McKinsey &
Company, the well­known international strategy consulting firm by clicking here:­functions/strategy­and­corporate­finance/our­insights/enduring­ideas­the­strategic­control­map

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14-06-22 | 22:33:14

Comparative Comparison of Google and Microsoft
Both companies work in technology space that seems to become on the most lucrative plane of
businesses at the moment. The companies have emerged as one of the most profitable entities in
corporate finance in recent times with share price rising rapidly and having a market
capitalization on each of above half a trillion.
The comparison of performance and valuation is based on a myriad of
Profitability and Solvency
Net income. Microsoft has a higher average over the years however Google can maintain a stable
profile not as volatile as Microsoft with Return on Equity in Google kept to an average of 13%
while Microsoft tumbled from 24.6% in 2014 t15.2% in the next year.
Evaluation Profitability about equity
DuPont Analysis
This is a mode of performance measurement that encompasses three aspects of the business. The
aspects are operation efficiency using profit margin, asset utilization using asset turnover and
financial leverage measured by the equity multiplier.
In this case, we have that Google has a higher

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