FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
Financial Analysis Overview
Guidance: This section should provide an overview of the balance sheet, the major items present, the company’s capital structure, and any changes over time in these items. A common-size analysis (which is built in to your workbook) will help with this. Ask yourself questions such as, “Has the company taken on additional debt? If so, why?”, or “Does the company have a lot of Intangible Assets? If so, are they at risk for impairment?”
Balance Sheet
Liquidity and Debt-to-Equity Ratios
Normalization adjustments
Balance sheet horizontal analysis
Guidance: Discuss any normalization adjustments you’ve made. Remember, normalization adjustments are changes to the balance sheet (or income statement) that smooth out or “normalize” any anomalies that the company may have experienced. An example would be expenses related to a corporate merger or restructuring. This helps you in your prospective analysis by not including any unusual expenses or income.
Balance sheet competitor comparison
Income Statement
Guidance: Similar to the balance sheet write-up, discuss major line items and drivers of those line items. For example, are there increases in Cost of Goods Sold? If so, what are the drivers of those costs?
Income statement vertical analysis
Profitability
Normalization Adjustments
Guidance: Discuss any normalization adjustments you’ve made. Remember, normalization adjustments are changes to the incomes statement (or balance sheet) that smooth out or “normalize” any anomalies that the company may have experienced. An example would be expenses related to a corporate merger or restructuring. This helps you in your prospective analysis by not including any unusual expenses or income.
Free cash flow
Dividend paying capacity
ECONOMIC OUTLOOK
General Economic Analysis
Guidance: Research the primary economy in which your company operates. Use the U.S. as the default if it’s a global firm, but try to incorporate any important global factors if a majority of its operations is abroad. Address the following factors from the rubric below:
Output (GDP) and economic consumption
Monetary and trade policy
Policies and regulations
Industry Analysis
Guidance: Research your industry by reviewing a select group of your company’s peers. By reviewing the annual report of 2-3 competitors you will get an understanding of these items below. You may also search the web for scholarly articles on your chosen industry or recent industry reports. Focus on the items from the rubric below:
Supply and demand
Market share and competitive analysis
Regulation
Employment issues
Industry outlook
