Acct2210 Zeigler:Group Financial Statement Analysis Project
Due Date: Thursday, 4/16- Start of Class
Project Overview:
Our Accounting 2210 group project will focus on an analysis of Lowes, Inc. We will apply what we are learning in class withquestions presented for your group analysis and investment recommendation. The overall goal of this project is to learn about GAAP-based financial accounting reportingand to assess overall company financial performance. Is the companyperforming well? Would you recommend thestock asaninvestment? Each group must research specific areas to answer questions and then prepare a professional memorandum toZeigler Investments, their paying client. The first step is to search the SEC “EDGAR” database to find the Lowes, Inc. Annual “10-K” Report (see our class website or pg 696 of our textbook).
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Instructions: Groups must include the headings and questions shown below in their memorandum. Electronically paste items “A” – “G” below into your memo and add spacing as needed. Reply to each specific question, citing the Form 10-K page number(s) where you obtained each answer. Groups mustformat the questions in normal text andthen providefull-sentence, writtenresponsesin italics.
A) Company Overview:Review 10-K “Table of Contents” and discuss in your own words:
- When was the company founded and what is their history? According to Item #1, what is their geographical coverage and how many stores exist? Does the company operate in foreign countries?
- What is the nature of the companies’ business? What products and services does the company provide?
- When does the most recent year-end take place? Why do you think the company chose this year-end?
- Per Item#1A, what “risk factors” exist for the company? In the group’s opinion, which oneof the many risk factorsdiscussed is most important to you? Discuss whythe group chose the one risk factor they did.
- Per page 15, who is the CEO? How long has this person held the position?
B) Management Discussion Analysis (MD&A) – See 10-K Table of Contents - Item #7.
Read and, in your own writing,summarize this lengthy section down to one full page. What explanation does management give for the “Results from Operations” in the most recent year? Is it generally positive or negative? What are management’s strategies for future growth? (see 2013 “progress” and 2014 “priorities”)
C) Auditor: See 10-K, Item#8. Who is the company’s external auditor? What two specific reports did the auditors provide? What opinion did the auditors give on these two reports? Discuss what these reports mean.
D) Income Statement: See 10-K,Item #8 (Three years coverage required):
1)What are total company sales and net income for each year? What is the company’s most significant revenue? Most significantexpense? Per pg 60, what are the top three “sales by product categories” listed? Has this “top three” changed over the past three years?
2)What is the three-year trend in sales, gross margin and net income? Higher? Lower? Discuss.
3)What is thethree-year Earnings per Share (EPS)trend? Positive? Negative? Discuss.
E) Balance Sheet: See 10-K, Item#8 (Two years coverage required):
1)What are total company assets for year-end? How does this compare to the prior year?
2)Is debt (Liabilities) or equity (Stock & R/E) the primary source of asset funding for the company?
3)What is the companies' most significant single asset category? Most significant liability?
4)Are long-term Property assets relatively new? Old? How can you tell? (see pg 49, Note #4)
5)Per pg 37, Lowes “repurchased” its common stock each year. In your opinion, why are they doing this?
F) Statement of Cash Flows: See 10-K, Item #8 (Three years coverage required):
1)Is the company’s cash generatedfrom Operating activitiespositive for each year?
2)What are the largest investing and financing cash inflows and outflowsfor each year?
3)Which of these three cash flow categories is most important in your opinion? Why? Discuss.
4)What three-year trends do you see from reviewing the Statement of Cash Flows? Discuss.
G) Footnotes: See 10-K, Item #8 (also known as“Notes to Consolidated Financial Statements”).
Examine the footnotes by addressing each of the specific items below:
1)Revenue Recognition: What isthe company “revenue recognition” policy? What distinct types of revenues does the company have and WHEN are these revenues generally recognized (earned)?
2)Accounts Receivable (Credit Programs): Arereceivables significant for the company? What are the companies' credit policies? Are bad debts (i.e. valuation reserve) significant?
3)Inventory: Is inventory significant? Does the company use the LIFO or FIFO inventory costing method? Has any inventory been “written down” (i.e. LCM rule or other) for any reason?
4)Property, Plant and Equipment: Is PP&E significant? What depreciation method is used? Are there any significant “intangible” assets? Were there any “writedowns” related to Goodwill?
H) Ratio Analysis (Use Excel Here): See pg 754-756 of the textbook for ratios and discussion.
Groups must include the following ratios, using the Ratio Template posted on the class website:
Each Ratio must be computed for the past 3 years using Excel.
Note: You made need to refer to prior year 10-K reports to obtain some third-yearinformation.
1)Net Income percentage (i.e. aka: Return on Salesor“ROS”).
2)Gross Margin Percentage.
3)Current Ratio.
4)Debt to Assets Ratio.
5)Return on Assets Ratio (ROA).
6)Return on Equity Ratio (ROE).
7)One ratio of your choice from pages 754-756 of our textbook. Clearly indicate why you chose the ratio, what you are measuring with your chosen ratio and how it affects your analysis.
The source for all ratio calculations must come from the financial statements (See 10-K, Item#8).
Ratios must be calculated for three years and compared/examined for significant trends. The ratio calculations must be contained in a separate exhibit using the Excel template posted on the class website. Excel Graphing (i.e. Charting) is highly encouraged, but optional, to best communicate your findings and trends. Clearly document your ratios and provide discussion of each. Discussion analysis of the ratios could (should?)also be included within yourmemorandumwhere you believe this to be appropriate. Regardless of your approach, make sure your client understands each ratio and how it relates to your discussion and your group recommendation(s).
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I) General Requirements and Recommendations:
The overall goal of this project is to assess the financial performance of Lowes, Inc. How is the company performing from a shareholder and/or investor point of view? Would thiscompanystock be a good investment? After discussion among all group members, clearly indicate your recommendation.
Each group's analysis component must be at least five (5) pages, plus ratio exhibits. Thiswritten analysis must be in memorandum format, computer-generated and double-spaced. Place your group number, firm name and member names in the “From” line of the memo and address your memo to “Zeigler Investments”.
Your memo must include a “Summary Conclusion” of your analysis and a recommendation of whether the company is a good investment, and why. Ratio calculations (using Excel) must be attached in a separate exhibit, after the memorandum, and do not count toward the minimum page requirement.
J) Additional Notes:
1) Groups should not “divide-up” components of the assignment among individual members. Instead, groups are expected to meet multiple times over the next few weeks to address components of the project together to maximize the learning value of this assignment.
2) Groups are encouraged to interview the client during office hours. Where possible, the entire group should attend the discussion. Advance appointments are highly recommended and shouldnot be scheduled the day before the due date as your client may not be available (but will be concerned).
3) A series of final examination questions will be generated from the general information within this project.
4) Confidential semester-end peer evaluations will be administered related to all group work this term.
5) The client expects to pay a significant fee for your efforts and demands a complete, professional analysis. This project will be evaluated based on thoroughness and depth of analysis, as well as the overall quality of the report. This includes, but is not limited to, grammar, spelling, logical organization and written clarity.
6) See our “Rules for Group Assignments” summary on our class website for further requirements.
K) * Required Deliverables on the due date – start of class (100 PointGroup Project) *
1)Group Cover Sheet with all applicable details. Graphic(s) are highly encouraged, but optional.
2)A professional memorandum of your analysis of the company (Items A-G; 5-7pages expected).
3)Separate Ratio Analysis exhibit(s) using the Excel template provided (See item “H” above).
4)Professional billing statement, with all proper details, and addressed to the client. What will you charge for your work and analysis? Consider aGooglesearch for“billingstatement examples”.
5)Any extra credit, if offered, will only be available if each of the above requirements is fully met.
* Prepare a professional cover sheet (no binders) and staple all of the above in the order listed.