Annual Report Analysis on Company XYZ

Annual Report Analysis on Company XYZ

Week 6 Project

Intermediate Accounting

By: DEVRY STUDENT

Table of Contents:

Page 1: Title Page

Page 2: Table of Contents

Page 3: Introduction to the Company XYZ

Auditors

Errors and Irregularities

Page 4: Trend in assets and liabilities

Largest Assets

Page 5: Three largest liabilities

Stock

Multi-Step

Discontinued or Extraordinary Items

Page 6: Net income

Comprehensive income

Indirect method

Trend in cash

Page 7: Investing activities

Conclusion

Page 8: References

Introduction

The company I chose to perform my annual report analysis on was The Company XYZ. I chose this company because they are a well-established company that would give me a good idea of what a large company’s annual report might look like. The Company XYZ is a soup to nuts store, which includes everything from soup to nuts. They also have an online service which offers about 300,000 products. “At the end of fiscal 20XX, the Company was operating X,XXX The Company XYZ stores, which included X,XXX stores in the United States and some stores outside of the United States. United States SEC report on The Company XYZ.

1. Who are the firm’s auditors? Do they provide a clean opinion on the financial statements?

Company XYZ was audited by Auditor Name, LLP. The report states that they conducted an audit in accordance with the standards of the Public Company Accounting Oversight Board. Their conclusion, dated March xx, 20XX expressed an unqualified opinion on the financial statements.

1. Have there been any subsequent events, errors and irregularities, illegal acts, or related-party transactions that have a material effect on the financial statements?

The annual report for Company XYZ does not show any extraordinary items or accounting changes that would lead me to think that there is any errors or irregularities in their financial statements. I did,however, find within the risk factors section that Company XYZ is “currently involved in a number of legal proceedings, and while we cannot predict the outcomes of those proceedings and other contingencies with certainty, some of these outcomes may adversely affect our operations or increase our costs” United States SEC report on Company XYZ. The report also goes on to say that while battling these legal matters, it could have an effect on expenses and become quite costly.

1. Describe the trend in total assets and total liabilities for the years presented.

The balance sheet for Company XYZ includes 2 years which are 20XX and 20XX. According to the consolidated balance sheet, both total assets and total liabilities increased from January 30, 20XX to January 29, 20XX. At first glance of their balance sheet, Company XYZ appears to be doing well. Their total assets are large enough to cover their total liabilities which is what people would be looking at, but when I took a closer look, the total assets only increased by $XXX where the total liabilities increased by $X,XXX. (Reported in millions)This means that they made a bigger profit since last year but they also acquired a large amount of debt. This is also interesting because the current installments of long-term debt decreased by X,XXand the cash and cash equivalents increased by X,XXX. How did Company XYZ come up with this much cash to pay down that much debt and also have so much cash left over? Paying down a billion dollars in debt would also make your cash decrease. I looked to the cash flows statements to see where this money came from. I found a couple of large changes since the previous year. Company XYZ received about $XXX dollars in proceeds from long-term borrowings and the net earnings increased by about $XXX.

1. What are the company’s three largest assets for the most recent year presented?

The three largest assets for Company XYZ is buildings, furniture, fixtures, and equipment, and merchandise inventories.

1. What are the company’s three largest liabilities for the most recent year presented?

The three largest liabilities for the most recent year presented are long-term debt, accounts payable, and other accrued expenses.

1. What types of stock does the company have? How many shares are there outstanding for each type of stock for the most recent year presented?

Common Stock is the only stock option that is shown on Company XYZ’s annual report. As of January 29, 20XX there are X,XXX outstanding stocks.

1. Does the company use the single-step or the multi-step income statement or a variation?

Company XYZ uses the multi-step income statement. According to the Intermediate Accounting book, the multi-step is used more frequently by large public companies because it makes it easier to view and analyze the trends within the company. For example the net sales and cost of goods sold is broken down to view the relationship between the two. Company XYZ’s net sales and cost of goods increased from 20XX to 20XX but net sales increased by X,XXX and cost of sales only increased by 1,440. If cost of sales was increasing by more than the net sales, Company XYZ may start losing money. This is an important area for the company to watch.

1. Does the income statement contain any separately reported items in any year presented, included discontinued operations or extraordinary items? If it does, describe the event that caused the item.

There are no extraordinary items or discontinued operations included on the income statement for Company XYZ.

1. Describe the trend in net income over the years presented.

For the three years presented on statements of earnings, there has been an increase in the net income. From 2010 to 20XX there was an increase of $XXX and from 20XX to 20XX there was an increase of XXX. The last year was not as much of an increase, but from the years presented in the annual report, Company XYZ appears to be consistent with their net earnings. If I were going to invest in their company, I would look back a few more years to see if their net earnings and declining over time.

1. Does the company have other comprehensive income? If yes, what is the nature of the transactions?

Listed on the consolidated balance sheet for Company XYZ is accumulated other comprehensive income. It states that this comprehensive income consists mainly of foreign currency translation adjustments.

1. Does the company use the indirect or direct method of the cash flow statement?

The statement of cash flows uses the indirect method. The cash flow statement starts with net earnings and depreciation expense is not subtracted from the cash flow statement but is subtracted from the statements of earnings.

1. What is the trend in cash from operations for the years presented?

Company XYZ’s cash and cash equivalents had a large increase from January 30, 20XX to January 29, 20XX. The cash and cash equivalents increased by $X,XXX. As per the notes section, “the company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s cash equivalents are carried at fair market value and consist primarily of money market funds.” It does not state where they acquired this many money market funds in a one year period.

1. What are the two largest items included in cash from investing activities?

The only two items that made Company XYZ money from investing activities are Proceeds from ______and proceeds from sales of ______.

In conclusion, The Company XYZ seems fairly solid because they have been around for so many years. I didn’t find anything too unusual in their annual report that would be alarming or raise any red flags. However, before I would invest in The Company XYZ, I would do a bit more research on a few areas within the annual report. The first being, how did they pay off so much debt and still acquire so much cash and cash equivalents? If the Company sold off some of their stock to get money, do they have enough put away for future events? They also are involved in some legal matters and issues with the state of California that clearly states in the notes that the legal issues could cause some impact on their financial position. Is this what all the cash and cash equivalents are for, or what are they planning on doing with all that cash on hand? Before I put any money into this company, I would confirm these things and also take a look at their competition to see if they compare.

References

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3THIRD REFERENCE

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