Group Written Assignment Fall 2017 CSUF

(Group size cannot exceed three students)

Submit a paper copy in class

Instructor: Sumantra Chakravarty

Due Date (ACCT 301A): Wednesday, November 15, 2017

Due Date (ACCT 301B): Tuesday, November 14, 2017

Insight concerning the performance and financial condition of a company often comes from evaluating its financial data in comparison with other firms in the same industry. Assume that you are a group of industry experts rendering investment recommendations to one of your major clients, Jackson Phillips. Prepare a typed memorandum giving your investment recommendation addressed to “Jackson Phillips”.

Required:

Obtain 2015 annual reports from three corporations in the same primary industry. Using knowledge you obtained from chapters 4 and 5 and any analysis you consider useful, respond to the following questions:

  1. How do earnings trends compare in terms of both the direction (increase/decrease) and stability of income (income from operations/income from non-recurring items)?
  2. Which of the three firms had the greatest earnings relative to resources available? (Hint: Use return on assets, ROA, income before discontinued operations and extraordinary items ÷ average total assets.)
  3. Which corporation has made most effective use of financial leverage during fiscal year 2015? (Hint: Follow the steps below to assess the relationship between risk and profitability.)
  4. Compare the debt-to-equity ratios (i.e., total liabilities ÷ total shareholders’ equity) of the three firms. Note that shareholders receive no return on their investments until after all creditor claims are paid. Therefore, the higher the debt to equity ratio, the higher the risk to shareholders.
  5. Compare the return on shareholders’ equity (ROE, income before discontinued operations and extraordinary items ÷ average shareholders’ equity) of the three firms. Note that by earning a return on borrowed funds that exceeds the cost of borrowing the funds (i.e., interest payment), a company can provide its shareholders with a total return higher than it could achieve by employing equity funds alone.
  6. Evaluate the tradeoffs between risk and profitability made by the three firms in 2015.
  7. Of the three firms, which seems riskiest in terms of its ability to pay short-term obligations (liquidity) and total liabilities (financial flexibility)? (Hint: Use “Current cash debt coverage ratio” and “Cash debt coverage ratio”)
  8. Which one(s) of the three firms would you recommend investing based on the above analysis?

Note: You can obtain electronic copies of annual reports from EDGAR (Electronic Data Gathering, Analysis, and Retrieval; http://www.sec.gov/edgar/searchedgar/companysearch.html). EDGAR performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the SEC. All publicly traded domestic companies use EDGAR to make the majority of their filings. Form 10-K, which includes the annual report, is required to be filed on EDGAR and the SEC makes this information available on the Internet. You can also obtain electronic copies of annual reports from company websites (usually under “Investor Relations”). Do not use quarterly reports (i.e., Form 10-Q).

Format and Length Guidelines:

The written assignment consists of a memo of no more than three typed pages (double spaced, with 12 point Times New Roman font and a minimum of 1” margin from all sides) conveying your recommendation for the case issues and an explanation/justification for the recommendation. You can attach as exhibits any computations or other analyses used to resolve case issues (but you must refer to these in your memo); exhibits will not count toward the three-page length. You should attach to your memo a copy of the specific pages from the three annual reports (10-Ks) on which your computations are based.

1. Memos must be written in proper memo format. This format is outlined as follows:

Introduction

·  Explain purpose of the report and provide set-up for remainder of paper, including brief overview of contents.

Discussion

·  Clearly identify problem/issue at hand.

·  Elaborate major points and provide analysis of various alternatives. This is the main part of the paper.

o  Good transitions between points are essential here if argument is to appear forceful.

o  Visual aids such as charts/tables/graphs may be referenced here, but should be included at the end of the paper as attachments.

Recommendations

·  Make specific recommendations based on the analysis provided in the discussion.

Conclusion

·  Briefly restate important points/findings here and reiterate why recommended course of action is best.

2. Each memo must begin with an introductory paragraph stating the purpose of the memo, and end with a brief concluding paragraph. Use the following headings for this assignment between the introductory and concluding paragraphs:

-- Earnings Trends;

-- Relationship between Risk and Profitability;

-- Liquidity and Financial Flexibility.

3. Memos must reference any attached exhibits. Exhibits should be typed (using MS Word or Excel) or neatly handwritten, and can include computations or any other analyses that are required in the assignment and/or that you believe are needed to support arguments advanced in your memo. Exhibits do not count toward the memo’s maximum page length.

4. The “FROM” line of each memo must include (this part of the memo can be single-spaced):

-- Names of the authors;

-- Hand-written initials by each author’s name;

-- Your class section.

These format requirements insure that everyone has the same amount of space in which to convey their ideas. If you do not follow one or more of these format requirements, two points will be deducted.

Additional Resource to Help Advance Your Written Assignment:

·  You are strongly encouraged to utilize the writing assistance resources on campus. The Department of English offers a writing center that is available to all CSUF students. More information is available online at http://english.fullerton.edu/writing_center/ and you can schedule appointments for writing assistance at https://fullerton.mywconline.com/.

·  Visit the “Tutoring Center” at the Mihaylo College of Business and Economics for writing suggestions on your work.

Location: SGMH 2404 West Pavilion Hours: Mon - Thurs: 10:00am - 7:00pm
Phone: (657) 278-2704 Email:

Webpage: http://business.fullerton.edu/StudentServices/Tutoring/default.htm

·  “Effective Writing: A Handbook for Accountants”, Claire B. May and Gordon S. May, 10th ed., Publisher: Pearson (ISBN: 0-13-357949-2).

Submission of the written assignment on the due date:

The deadline for submitting the written assignment is the beginning of your class section; you should also turn a “Peer Participation Evaluation” if you work as a group. Assign a letter grade (A/B/C) to yourself and your team members (two points).

The Written Assignment will not be accepted once the assignments have been collected in your section. In general, neither excused nor unexcused absences will change the deadlines for the written assignment. Assignments will NOT be accepted via e-mail.

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