Financial Analysis

 

 

Overview
You have just started an internship at Workshire Bathaway (or “WB”), a large and very successful conglomerate in New York. You cannot believe your good fortune at working and learning at such a prestigious firm, and in fact have the opportunity to work directly with its President and CEO Ms. Wren Baker.
In order to assess your understanding of financial reporting and financial analysis Ms. Baker has tasked you with identifying a company that WB may want to purchase. Given the almost unlimited resources of WB it does not matter how big the potential target is, what industry it is in, whether it is public or private, where it is located globally, etc.
Seeing the perplexed look on your face, Ms. Baker has provided some more specific instructions below. To make an investment recommendation Ms. Baker asks that you select two similar companies for analysis, use data from public sources, prepare an extensive financial analysis, then communicate the results of your analysis in a detailed written report, and highlight the results in a short presentation. The goal is to provide an investment recommendation to Ms. Baker. Ms. Baker notes that this project will build your critical thinking, software usage, and communication skills.

Part 1:
A written report that includes the following:
A. Company profile: An overview of the companies that includes a description of the business operations, the industry in which they operate, their products, their markets, and competitors. This is very important to provide Ms. Baker with an understanding of the potential business purchase.
B. Company news: summarize at least 1 major event that have affected each company or their industry over the past two years.
C. Financial statement analysis: prepare and analyze condensed, trend and common size financial statements for each company.
D. Ratio analysis: prepare a comprehensive analysis of financial ratios for the companies focused on its profitability, efficiency, liquidity, and solvency. Where applicable compare to industry or competitor information and norms.
E. Research summary: Answer the following question in written form: Which of these two companies do you recommend WB to purchase? Prepare a written summary of your analysis and supported investment recommendation.

Part 2:
Which of these two companies do you recommend WB to purchase? Prepare an audio presentation (5 minutes or less) highlighting information from your written report that supports your investment recommendation.You need to record your presentation (audio only)

Key deliverables and timelines
Step 1:
You must select a pair of two companies for this project. For example, you can choose Pair #2 which includes PRB and PTR. However, it is not allowed to mix and match, i.e. choosing BTI and SNE are not allowed. You are encouraged to research potential companies before identifying company or companies they would like to analyze for this project.

Pair Company A Company B
1 America Movil AMX Vodafone Group VOD
2 Petroleo Brasileiro S.A. PBR PetroChina Co. Limited PTR
3 Sony SNE Koninklijke Philips N.V. PHG
4 Toyota Motor Corp TM Tata Motors TTM
5 British American Tobacco BTI Altria Group, Inc. MO
6 Banco Santander, S.A. SAN PNC Financial Services Group PNC
7 BHP Group BHP Rio Tinto RIO
8 ABB Ltd ABB General Electric Company GE
9 Ball Corp BLL Amcor AMCR
10 Diageo Plc DEO Constellation Brands STZ
11 Union Pacific Corp UNP Canadian National Railway CNI
12 Johnson & Johnson JNJ Novartis AG NVS
13 Capri Holdings CPRI V.F. Corp VFC

Step 2:
You are strongly urged to use spreadsheet software for purposes of the financial statement and ratio analysis (the quantitative items described in C and D above).

Detailed instructions (with suggested length):
A. Company profile (2 pages):
a. Review the corporate website of each company, which often provides general and investor relations information. Recognize that this information may be biased in favour of the company.
b. Review the annual reports (financial statements and management discussion and analysis), interim filings, and prospectuses, material change reports, and information circulars (as available).
Summarize your research in a 1 – 3-page written report on your companies –industry, products, and markets. This should be a professionally written paper with introductory and concluding paragraphs. Appropriately cite all sources.

B. Company news (1 page):
a. For each of your company, identify and summarize at least 1 major event that have affected the company or its industry over the two years. Discuss how this event is expected to impact the company’s operations and financial performance and ratios. Consider factors such as commodity prices, exchange rates, regulatory changes, acquisitions, changes in competitive landscape, changes in government regulation or consumer trends, etc.
b. It is important to not rely entirely on the company to identify these news items. In fact, you are unlikely to find this in any of the company’s reporting.
c. Ensure the items are legitimate ‘news’ – dividend announcements, analysts’ share price expectations, management conference call, company outlook announcements, etc. – these items are not news. Appropriately cite all sources.

C. Financial statement analysis (3 pages of quantitative analysis and 2 pages of written discussion):
a. For each of your company, collect at least three most recent years of financial statements which will provide at least 4 years of financial information.
b. Prepare condensed statements of financial position, statements of income and comprehensive income, and statements of cash flow. Use of spreadsheet software is strongly recommended.
c. Prepare trend analysis and common sized financial statements from the condensed statements.
d. Review the condensed, trend and common sized statement of financial position. For each of your company, comment on trends in the growth of assets, liabilities, shareholders’ equity and overall financial risk. Where available, compare the two companies.
e. Review the condensed, trend and common sized statement of income. For each of your company, comment on trends in revenue, expenses, income, and overall profitability. Where available, compare the two companies.
f. Review the condensed, trend and common sized statement of cash flows. For each of your company, comment on trends in the operating, investing and financing cash flows, and overall cash position. Where available, compare the two companies.
g. Write a summary of the overall financial ‘story’ reflected in the financial statements based on your analysis.

D. Ratio analysis (3 pages of quantitative analysis plus 2-page written report)
a. For each of your company, prepare an extensive multi-year ratio analysis based on the financial statement analysis. Use of spreadsheet software is strongly recommended. Do not use every possible ratio analysis. Rather, identify the ratios that are most important to the company.
b. For each calculated ratio, comment on whether the ratio is stronger or weaker, quicker or slower, more liquid or less liquid, more risks or less risky.
c. Where available, compare the financial ratios of the two companies.
d. Prepare written report discussing:
i. What the ratio analysis reveals about the companies – financial strength, profitability, risk, etc.
ii. The companies’ profitability, efficiency, liquidity, and solvency and noting whether these measures are improving or deteriorating, and the implications for a potential investor. What does this analysis suggest about future performance of the firms?
e. Discuss the impact of accounting rules on your financial ratios if applicable. You are not required to calculate the adjustment from one accounting rule to another. But, you need to discuss what kind of bias the differences in accounting rules may create for your financial ratios, if any.

Sample Solution

 

The 1950-53 Korean war finished in a cease-fire rather than a conventional harmony affirmation, or in fact the United Nations powers drove by the US are at war with the North. The ongoing impasse in the atomic arrangements with North Korea have additionally uncovered the dissatisfactions inside the US organization in managing the one-party state drove by a dynastic extremist tyranny of Kim Jong-un.

Since the finish of the Korean War in July 1953, encounters and incognito invasion endeavors between the two nations – generally along the accepted oceanic fringe known as the Northern Limit Line (NLL) – have not been remarkable. In any case, the two nations comprehend that a full-scale restoration of threats would be deplorable for the two Koreas – a hazard that the more created and well off ROK has endeavored to stop through its proceeded with common guard bargain with the United States and extensive military speculation of its own.

The sloping up of the DPRK’s atomic weapons program and synchronous advancement of a submarine propelled ballistic rocket capacity has just served to intensify pressures on the promontory. It likewise impacts the complex and frequently fragile snare of geopolitical and monetary relations that exist between the other principle provincial players, quite North Korea’s promoter, China; South Korea’s primary partner, the United States; and Japan.

Sinking of the South Korean corvette Cheonan the evening of 26 March 2010 by what South Korea guaranteed was an unexpected torpedo assault from a North Korean diminutive person submarine gave an obvious token of the delicate condition of harmony that exists between the two Koreas. The intensely mobilized Korean promontory – with the capricious and separated socialist governed Democratic People’s Republic of Korea (DPRK) in the north and the financially prosperous Republic of Korea (ROK) in the south – stays a functioning ‘hotspot’.

The North Korean Navy works an armada of more than 70 submarines of different sorts for the most part with out of date or old innovation (twenty Romeo-class submarines, forty Sang-O ‘Shark’) class waterfront submarines (SSCs) and ten smaller person submarines of the Yono class). Given the vintage and advances utilized, the unwavering quality of quite a bit of this huge armada is suspect. In any case, there are more up to date types incorporating a bunch outfitted with at least one ballistic rockets which are in effect quickly created which could be the genuine North Korean Submarine risk.

As every atomic power do, the North Koreans have consistently spread their atomic weapons store among various conveyance frameworks to keep the foe speculating. The present move in the concentration toward the advancement of a submarine-based framework is a change in outlook in the thinking about the North Korean initiative who may have understood that it is the best elective alternative thinking about that they are smarter to send strategically contrasted with land frameworks. North Korea is endeavoring to spread its stockpile between land-based intercontinental ballistic rockets and submarine-propelled ballistic rockets.

While superficially it might appear that the evident out of date innovation of the ordinary submarine arm, and restricted reach or strike ability of the North Koreans could be contained by the South Korean, US and Japanese resources, it is reasonable to investigate the North Korean capacities opposite the South Korean abilities. Considering just the submarine arm of the NKPA, the huge armada could be effectively used to occupy consideration or to cause the adversary to respond in a specific way, advocating an assault which is completed utilizing submarine/land based ballistic rockets. North Koreas history of outfitted incitements demonstrates that it is very able to do such strategies.

Under Kim Jong-Un, the Korean Peoples Navy (KPN) has started various modernisations of existing submarines since the mid 2000. Key modernization have been of the Romeo class (around 22 in Numbers) and development of the 34 m Sang-O class for unique activity (to in the long run supplant the Romeo class). Around 1999-2000 an extended surveillance submarine called the Sang-O II class (K-300-class SSC) were developed and by 2005 a few were in administration.

North Korea propelled its first SSBA at the Sinpo South Shipyard in July 2014. The ‘Sinpo’ or ‘Gorae’ (“Whale”) class (dislodging 1500 tons and 67 m length and 6.7 m width) Diesel Electric ballistic-rocket submarine (SSB) program has mixed the dispatch innovation from Golf class ballistic rocket submarines in the submarines sail zone and can dispatch the Pukkusong-1 ballistic rockets. The following in class or the SINPO-C, a diesel electric submarine with a dislodging of 2000 ton and a pillar width of 36 feet would convey a couple of ballistic rockets. This new innovation is intentionally intended to improve the compass of the atomic weapons dispatch stage nearer to their objectives in S Korea while preventing them safe from being assaulted. While the evident absence of complex innovation with North Korea implies that it is dependent upon simple recognition by the US and its united enemy of submarine powers, the submarine would anyway have a genuinely decent possibility of having the option to arrive at its dispatch position submerged to complete a hit with the two phase Pukguksong-1 rocket having an expected scope of over 700 nms to focus on any area in South Korea or Japan.

North Korea might be attempting to create atomic headed airborne rockets yet its present arrangement of modernizing and outfitting the conveyance stage for example its submarine armada needs genuine thought. In 2015, evidently huge numbers of these couldn’t be represented in this manner setting off cautions . The ownership of a capacity to dispatch rockets from a submarine as opposed to a static site enlarges the hazard appraisal for its adversaries.

So what are the ROKN capacities against the PRK N SLBM risk ?

The way in to this inquiry lies in the announcement in 2017 by Vice Adm. Lee, Ki-Sik, Commander of the Republic of Korea Fleet “Our ROK-US collusion will counter the North Korean atomic improvement and SLBM dangers sincerely.” But this partnership is additionally loaded with holes .

The ROKN propelled a free submarine order 01 Feb 2015 , featuring its accentuation on undersea activities. The Command, the 6th of its sort on the planet, brings tasks, coordinations, preparing and support under one rooftop, as per Navy authorities. The direction’s primary strategic to all the more likely shield the nation from North Korean maritime incitements. The order, situated in the southern port city of Jinhae, works thirteen diesel-electric submarines (nine 1,200-ton type 209 or Chang Bogo class ( group II spear rocket competent) KSS-I, and eight 1,800-ton type 214 HDW Son Wonil-class with AIP (KSS-II) with one all the more being authorized by 2019.

In different plans, the Navy additionally will send nine 3,000-ton overwhelming assault submarines, code named KSS-III, outfitted with various vertical dispatch cylinders to fire 1,500-kilometer journey rockets that could hit key focuses in North Korea. The improvement of the KSS-III lead deliver began last November at the dockyard of Daewoo Shipbuilding and Marine Engineering.

To augment hostile to submarine tasks, the Navy intends to get 12 additional helicopters; in 2013, the administration purchased eight AW-159 Lynx Wildcat helicopters for about $540 million.

Frigate obtaining plans additionally are on track. Under the FFX bunch I program, five 2,300-ton Incheon-class frigates have been authorized, with one more structure wanted to be set above water this year. The warship will assume responsibility for tasks, for example, seaside watch and against submarine fighting. The ship has a structure mounted sonar and six torpedo tubes conveying indigenously created “Blue Shar” 324mm torpedoes. Under the subsequent group program, up to 12 additional frigates are anticipated to enter administration by 2020. These boats are relied upon to be marginally bigger and include a vertical dispatch framework for privately structured medium-go air resistance rockets instead of the clump I’s short-run RAM.

In the mean time, South Korea has likewise consented to enable the United States Army to convey a Terminal High Altitude Area Defense (THAAD) ballistic missile destroying rocket unit to the Korean landmass. While the organization would counter any North Korean rocket assault, the situation of such weapons on the Korean landmass has brought worries up in Beijing and Moscow — the two of which contradict such an arrangement.

US Navy is pitching its Arleigh Burke class USS Spruance alongside ROKN AEGIS destroyers, Submarines, and AS helicopters just as US and ROKN MPAs in a joint Anti Submarine fighting activity to show the bound together guarded maritime power abilities of the ROKN and its partners from surface, sub surface and ballistic rocket danger.

Post 2010 assaults South Korean changed its maritime weaknesses and marked a joint counter incitement emergency course of action with US to improve partnered guards and prevention abilities. South Korea accepted more noteworthy accountability after move of its wartime operational command(OPCON) in 2015. In any case, South Korea Navy ends up being pulled outwards for (more noteworthy local and worldwide duty) and internal (safeguarding the nation). For this South Korea must have a far reaching maritime methodology and power organizing.

Since initiation the south Korean Naval powers have been under underlined in contrast with its territory/ground powers depending more on US maritime powers. Thus, the ROKN armada stayed littler than required for completely tending to the North Korean risk. What’s more, more prominent worldwide obligations without comparable increment in stages and faculty will in the end lead to fatigue of operational rhythm stressing the administration. There are recognitions that US ROK intel, following, order and control issues are lacking to accommodate a two-sided coordinated maritime activity to counter the N Korean danger.

 

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