Week 2: Financial Statement Analysis

Imagine that you have started taking financial management courses as a step to fulfill your aspiration to become a financial manager. In the first class of your first course, the professor has emphasized regular reading of business articles from business magazines or from the business sections of daily newspapers. You have just started reading your first business article. You are comfortable with the first couple of paragraphs that talk about balance sheets, income statements, cash flows etc. However, things quickly become complicated as the article starts referring to such terms as common size balance sheets, common size income statements, current ratio, return on assets, price-earnings ratio, and DuPont identity. They sound so foreign to you that you wonder, “What on the earth do these terms mean?” You know you need to learn them, but how do you proceed?

This week, you explore financial statements in more detail than you did last week. You examine various financial ratios and evaluate them for analyzing financial performances of different companies. Finally, you complete a quiz to assess your knowledge in the content covered this week.

Learning Objectives

Students will:

• Analyze financial statements to determine company performance
• Identify concepts of financial management related to financial statements

Photo Credit: [Daniel Grill]/[None]/Getty Images

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Learning Resources

Required Readings

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2017). Essentials of corporate finance (9th ed.). New York, NY: McGraw-Hill Irwin.

• Chapter 3, “Working with Financial Statements” (pp. 51-84)

U.S. Securities and Exchange Commission. (n.d.) Beginners’ guide to financial statements. Retrieved http://www.sec.gov/investor/pubs/begfinstmtguide.h…

Document: Financial Statements Template (Excel spreadsheet)

Document: Week 2 Assignment Template (Word document)

Document: Week 2 Discussion Template (Word document)

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Discussion: Financial Statement Analysis

As a financial manager, you will find the skill of being able to analyze financial statements immensely helpful. You will also find that other players in the financial market, such as investors and lenders, also use financial statements analysis to understand the strengths and weaknesses of companies in many areas including profitability, efficiency, and liquidity. In addition, financial statements analysis also allows you to compare companies of different sizes within similar industries.

For this Discussion, review the U.S. Securities and Exchange Commission article, "Beginners' Guide to Financial Statements," in this week's Resources. This resource explains the relationship between the various sections of financial statements within an Annual Report and how they are used by organizations both internally and externally. Next, locate financial statements representing different reporting periods from a single business or organization on the Internet or via the Walden Library. You must not use examples from your assigned readings. You may choose to use the company you are focusing on for your Final Paper.

By Day 3

Post a 150- to 200-word financial statement from the company you have selected, addressing either a positive or a negative financial change for the organization. Explain how the specific financial statement you chose can help to identify trends for the organization that would be useful for its shareholders.

Be sure to support your work with specific citations from the Learning Resources and any additional sources.

Read a selection of your colleagues' postings.

By Day 6

Response to two or moreof your colleagues' postings in one or more of the following ways:

• Ask a probing question.
• Share an insight from having read your colleague's posting.
• Offer and support an opinion.
• Validate an idea with your own experience.
• Make a suggestion.
• Expand on your colleague's posting.

Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained as a result of your colleagues' comments.

Note: Refer to the Discussion Template in this week’s Learning Resources for your main post and response.

Submission and Grading Information

Grading Criteria

To access your rubric:
Week 2 Discussion Rubric

Post by Day 3 and Respond by Day 6

To participate in this Discussion:
Week 2 Discussion

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Assignment: Case Analysis

As a manager, you will usually not prepare financial statements. Your expertise will, instead, be valuable in reading, analyzing, and interpreting them. However, as a learner, preparing such statements will help you to understand them in better detail.

For this Assignment, read the chapter case study “Cash Flows and Financial Statements at Sunset Boards, Inc.” at the end of Chapter 2 of your course text. The case deals with cash flows and financial statements at Sunset Boards, Inc.

By Day 7

Submit all of the following:

Part 1:

Prepare the following financial statements using the Financial Statements Template in this week’s Learning Resources:

• An income statement for 2015 and 2016
• A balance sheet for 2015 and 2016
• Operating cash flow for each year (Ross et al., 2014)

Part 2:

Write a 250-word paper using the Assignment Template in this week’s Learning Resources that addresses the following questions:

• How would you best describe Sunset Boards' cash flows for 2014? Write a brief discussion.
• In light of your discussion in the previous question, what do you think about Tad's expansion plans?

Submission and Grading Information

To submit your completed Assignment for review and grading, do the following:

• Please save your Assignment using the naming convention “WK2Assgn+last name+first initial.(extension)” as the name.
• Click the Week 2 Assignment Rubric to review the Grading Criteria for the Assignment.
• Click the Week 2 Assignment Part 1 and Week 2 Assignment Part 2 link. You will also be able to “View Rubric” for grading criteria from this area.
• Next, from the Attach File area, click on the Browse My Computer button. Find the document you saved as “WK2Assgn+last name+first initial.(extension)” and click Open.
• If applicable: From the Plagiarism Tools area, click the checkbox for I agree to submit my paper(s) to the Global Reference Database.
• Click on the Submit button to complete your submission.

Grading Criteria

To access your rubric:
Week 2 Assignment Rubric

Check Your Assignment Draft for Authenticity

To check your Assignment draft for authenticity:
Submit your Week 2 Assignment draft and review the originality report.

Submit Your Assignment by Day 7

To submit your Assignment:
Week 2 Assignment

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Week 2 Quiz

Welcome to the Week 2 Quiz.

There is no time limit to complete the Quiz. It is made up of 10 multiple-choice questions, and is worth 50 points. It covers Chapter 3 of the course text.

You can take the quiz multiple times.

By Day 7

Complete the quiz of this week.

Submission and Grading Information

Submit Your Quiz by Day 7

To submit your Quiz:
Week 2 Quiz

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