ww2.justanswer.comww2.justanswer.com/uploads/JA/JawaadAhmed/2014-02 … · Web view2/21/2014 ·...

Note to the user:

This Word document provides a structured form template for preparing your responses to the

questions in the annual report project. Simply complete the input required by the form. If you did not purchase the workbook you are not permitted

to use this form template.

INTRODUCTION TO THE CORPORATE ANNUAL REPORT:

A Business Application with IFRS Content

3rd edition

Copyright 2011 by Applied Accounting Analytics. All rights reserved. Reproduction or translation of this book beyond that permitted by the applicable copyright law without Applied Accounting Analytics’ permission is prohibited. Requests for permission to reprint or for further information should be directed to [email protected] or [email protected].

ISBN: 978-0-9841839-2-0

mailto:[email protected]

mailto:[email protected]

To be completed by the student and submitted with the completed annual report project according to your instructor’s requirements.

Complete the following form before you submit your assignment. This step is required to

validate your compliance with sections 107 or 108 of the 1976 United States Copyright

Act.

1. Remove the front cover of the workbook and identify:

Student Name:Jenisse Madera

Term:Winter

Selected Company:STAR BUCKS CORPORATION

Instructor:Harris

2. Print your completed electronic template.

3. Attach the following:

This page completed with all required information. Completed Word form template. Form template boxes expand as you input

responses.

CHAPTER 1 - INTRODUCTIONSelect a Company and Gather DocumentsChapter 1: Select a Company and Gather Documents – Question 1

Identify with an “X”the primary source of data for this project.

Click here to enter text.

Annual report to shareholders


Annual report to shareholders with a letter from Chief Executive Officer and SEC Form 10-K as part of the annual report to shareholders. The annual report may include additional general company information.


SEC Form 10-K and the company website.

Fill in the page numbers from the annual report where the following are located.

Required information for this workbook project.

Page No.

Required information for this workbook project.

Page No.

Financial Highlights Not absolutely necessary, but very

common in annual report to shareholders.

Not in SEC Form 10-K.May be posted on company website. If so put WEB in Page No. box.

If not available, put N/A in Page No. box.


Chief Executive Officer Letter May be labeled President’s, CEO’s or

other top official’s message or letter to the shareholders

Not in SEC Form 10-K. Likely posted on company website if SEC Form 10-K used to satisfy the annual report to shareholders reporting requirement. If so put WEB in Page No. box.


Management’s Discussion and Analysis (MD&A)

Click here to

enter text.

Notes to Financial Statements Put range of pages, for example, 47 to 58.


Income StatementMay be labeled Statement of Earnings

Click here to

enter text.

Report of Independent Accountants or Independent Auditors’ Report


Balance Sheet Click Five- or Ten-Year Summary of Click

1

May be labeled Statement of Financial Position here to

enter text.

Operating Results Item 6 in SEC Form 10-K

here to enter text.

Statement of Change in Stockholder’s Equity

Click here to

enter text.

Management’s Report (Responsibility) on Internal Control over Financial ReportingItem 9A. Control and Procedures in SEC 10-K


Statement of Cash Flows Click here to

enter text.

Investor and Company Information or Shareholder Information


Identify Why You Selected This CompanyChapter 1: Identify Why You Selected This Company – Question 1

A) What is/are your motivation(s) or interest(s) in selecting this company? [See above for examples.]

B) What question(s) are you seeking to answer? [For example, is the company profitable? Can the company change and develop new products and services to be competitive? Would I invest in this company? Will the company provide rewarding career opportunities? In chapter 5 you will have pulled together the financial and nonfinancial information to answer these question(s).]

A) Click here to enter text.

B)Click here to enter text.

Company and Annual Report EssentialsChapter 1: Company and Annual Report Essentials – Question 1

What is the company’s complete name?


Chapter 1: Company and Annual Report Essentials – Question 2

2

What is the address of your company’s corporate headquarters?



Identify the company’s website address.



Identify the telephone number and e-mail address of the company’s Investor Relations Department.

Telephone number:Click here to enter text.

E-mail address:Click here to enter text.


Which stock exchange lists your company?



What is your company’s stock exchange trading symbol?



What is your company’s Standard Industrial Classification (SIC) and sector? Run a search on “Standard Industrial Classification,” and the classification and code will be identified. Your company may list more than one SIC code number. The first listed is considered the primary SIC for the company.

For example, search – The Home Depot SIC – brings up a listing of sources. InvestorWords is one website location option - http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD. Move down the page and you will find:

SIC Code: 5211Sector: Basic Materials, Construction, Retail

3

http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD

http://www.investorwords.com/cgi-bin/stocksymbol.cgi?ticker=HD

Industry: Lumber and other building materials



Locate the board of directors listing. How many board members does your company have?



How many of the directors are company employees, labeled inside directors? And how many are non-company directors, labeled outside directors? Why does a company want and need outside directors?(Inside and outside directors are typically identified as such by their title and company.)



Leadership addresses the stockholders, typically, once a year at the annual stockholders meeting. Identify where and when this occurred, as reported in your annual report.


Company Strategy and Business EnvironmentChapter 1: Company Strategy and Business Environment – Question 1

Review the chairman’s message of your company’s annual report. Does it appear to be uplifting or somewhat apologetic? Identify phrases that support your position.


Chapter 1: Company Strategy and Business Environment – Question 2

Check below the one primary company strategy identified in the chairman’s message. Support your answer with phrases found in the chairman’s message that pointed you to the identified corporate strategy.

Growth: VerticalClick here to enter text.

4

HorizontalClick here to enter text.

ConcentricClick here to enter text.

ConglomerateClick here to enter text.

Stability Click here to enter text.

RetrenchmentClick here to enter text.

Phrases to support your above conclusion:



Briefly summarize the company’s discussion found in Item 1 of SEC Form 10-K.

Type of business:

Click here to enter text.Major business segments:


Primary customers:


Primary products and/or services:


Other:



Identify broad-based social, political, economic, and technological concerns that may affect your company. Put N/A if one of the categories does not apply.

Social:

Click here to enter text.Political:


Economic:


5

Technological:


Other:


Wrap-upChapter 1: Wrap-up – Question 1

After further review of additional information you should now be confident in identifying the one primary company strategy, beyond the insight provided by the chairman’s message?

Check below the one primary company strategy identified in the chairman’s message and all other supporting documents. Support your answer with phrases.

Growth: VerticalClick here to enter text.

Horizontal Click here to enter text.

ConcentricClick here to enter text.

ConglomerateClick here to enter text.

Stability Click here to enter text.

Retrenchment Click here to enter text.

Phrases to support your conclusion from information gathered from the chairman’s message, Item 1 of the SEC Form 10-K and other insight gained from completing Chapter 1.


6

CHAPTER 2 - ANNUAL REPORT STRUCTUREFinancial HighlightsChapter 2: Financial Highlights – Question 1

Review the financial highlights of your company’s annual report to the shareholders. Identify net sales or revenues, net income, basic earnings per share (BEPS), and total assets for the current and preceding years. These are the most common values included in financial highlights. If your company reports something different, simply cross out an item here and recap what is reported. SEC Form 10-K does not provide financial highlights. You may find this information on the company website. If not available put N/A in the first row of boxes.

Categories Current Year One Year Prior Two Years Prior

Net sales or revenues Click here to enter text.



Net income Click here to enter text.



Basic EPS Click here to enter text.



Total Assets Click here to enter text.



Based on your preliminary review, is your company performing better than, equal to, or less favorably than in the prior year? Briefly explain.


General Company and Marketing InformationChapter 2: General Company and Marketing Information – Question 1

Look for pictures of product and people that are colorful and send a positive company signal to the reader.

Category

Example: Volunteer Activities

Message

Ongoing and contributing to the success of the community

Click here to enter text. Click here to enter text.



7



What is the broader message from this information?


Management’s Discussion and AnalysisChapter 2: Management’s Discussion and Analysis – Question 1

Results of Operations:

Identify the primary drivers/issues that explain current and future results of operations discussed in the MD&A. For example, the gross profit percentage increased because of improved buyer/supplier relations resulting in greater overall operating performance. Or an increase in operating expenses because of increased fuel costs reduced profits. List the six major drivers/issues of performance you find in the MD&A section of the annual report.

1.Click here to enter text.






Liquidity:

Recap what you find about your company’s liquidity in the MD&A section of the annual report. Look for information about the ability of the company to satisfy short-term cash needs and the ability to generate operating cash flows, for example.


Capital Resources:

Recap what you find about your company’s capital resources in the MD&A section of the annual report. Look for information about cash reserves and credit availability. For example, your company’s MD&A section may have a disclosure about an established lined of credit to fund future growth.


8

Reports by ManagementChapter 2: Reports by Management – Question 1

Review the Management’s Report (Responsibility) on Internal Control over Financial Reporting in your company’s annual report. Answer the following questions.

Who is responsible for maintaining the internal controls designed to provide reasonable assurance that the books and records reflect the transactions of the company?


Record the statement that identifies management’s conclusion about internal controls.


Who audited management’s assessment of the effectiveness of your company’s internal control over financial reporting?


Independent Auditors’ ReportChapter 2: Independent Auditors’ Report – Question 1

Review the Independent Auditors’ Report of your company’s annual report and answer the following questions.

Who was the company’s auditor and where is it located?


What is the responsibility of the auditor?


Who is responsible for the preparation of and information within the company’s financial statement?


The audit was conducted in accordance with what?


What was the opinion of the auditor?


Five- or Ten-Year Summary of Operating ResultsChapter 2: Five- or Ten-Year Summary of Operating Results – Question 1

9

Identify the major components provided in the five- or ten-year summary. Summarize the insight provided by each. Look for stable, increasing, or decreasing trends. Consistent, slightly improving performance signals management has control of the business. Inconsistent performance signals management does not have control of the business.

Component

Example: The Home Depot Statement of Earnings Data

Summary of Insight

Sales and earnings have grown significantly over time.Operating expenses are growing at an increasing rate.







10

CHAPTER 3 - FINANCIAL STATEMENTSThe Balance SheetChapter 3: Balance Sheet – Question 1

Identify the date shown at the top of your selected company’s balance sheet.

Current Year Prior Year

9/29/2013 9/30/2012

Does the company’s fiscal year follow the calendar year? Enter Yes or No No

If no, why do you think it is different?

It is different because the calendar year starts from janurary and ends at December however the fiscal year of star buck corporation is strating from October 1st and ending at September 29th.

Chapter 3: Balance Sheet – Question 2

Review the current asset section of your selected company’s balance sheet. Explain why the order of individual items begins with cash. In your opinion, would it be more or less appropriate to order these items according to dollar magnitude? Explain.

The currents assets of the company defines those assets which are more liquid than those non currentassets.In order to list asset according to their liquidity companies shows the currents assets most liquid assets are the cash or cash equivalent that’s why they are reported first in the list.Dollar magnitude is not important because financial statements are not reported in materiality order as current assets usually doesnot comprise very significant portion of the balance sheet apart from inventory or recievable which some times can be the significant portion of any company’s total balance sheet footing.


Review your company’s balance sheet (or SEC Form 10-K) and compare accumulated depreciation to the historical cost of Plant and Equipment (PE) using the following ratio.

Compute the following:

Accumulated depreciation /

Percentage of Asset Life Remaining

High percentage means older assets

11

Plant and Equipment

(4581.6/7782.1)*100=58.87%

It means that asset is an older asset as more than half of its useful life is being utilized.

Low percentage means newer assets

Is the investment in fixed assets, on average, relatively recent? If not, can we assume that these assets will be replaced shortly?

Company has invested 1151 million in its property plan and equipment which is evident from its consolidated statement of cashflows.This shows that company has invested a mature amount in its propery plant and equitment and the useful life of proepery plant and equipment is still available it cannot be conclusively said that replacement will be made shortly however after some time management might decide to replace some olders assets.


Since property, plant, and equipment (PPE) and long-term investments in stock represent a company’s investment, why do we distinguish between them in the balance sheet?

Both of them are investments of different nature .PPE are those assets in which a company invest and then utilize them to generate returns and these are the investments made to smoothen the operations of the company.while investing in stocks of some other entity are not assets that are operationalyused.that is purely a form of lending some idle money to any other entity in the group or outside the group and generating a return without utilizing those assets.Investment in longterminvestmen is considered as equity investment however the investment in property plant and equipment that asset is not only owned but utilized by the entity and it dosenot comes under equity investment category.


Review the noncurrent asset section of your company’s balance sheet. Are any intangible assets listed? If so, identify the types of intangible assets and the percent of total assets that the intangible assets represent.

Intangible Asset 1:Goodwill

Intangible Asset 2:Other intangible assets

Intangible Asset 3:Click here to enter text.

Total Intangible Assets Total Assets = (862.9+274.8)/(11516.7)=10%

12

If this company were to be acquired by another company, would the intangible assets influence the purchase price? Explain your answer.

The purchase price will be effected by the value of intangible assets but it will depend on the nature of intangible assets .If the intangible assets suchs as patent or trademarks are recognized in the balance sheet the purchases will have to pay for them as they will benefit him in the future to earn return on his investment.


Now review your company’s total assets for the most recent year. What percentage of total assets is current? Noncurrent?

Current Noncurrent

=(5471.4/11516.7)*100=48% =(6045.3/11516.7)*100=52%

Should companies have a greater investment in current assets or noncurrent assets, or does it depend on the nature of their business? Explain your answer.

The portion of investment will usually be higher in longterm assets as they are more costly and provide higher return but over a longer period of time .however the investment in current assets would be provide lower returns but the investment will be highly liquid which means that the money can be withdrawn any time the investors want .The investment in current or non current assets will also vary with the nature of business for example in hotel industry the major expense will be the cost of land and building and furniture which will be a longterm investment however on the other side a company selling goods on credit with a huge sales volume would have good amount of investment in their current assets in the form of recievable .But it can be concluded that company’s do invest more in longterm assets as it is the requirement of their business.


Review your company’s balance sheet. Does it report a deferred tax asset? A deferred tax liability? If so, are the deferred tax assets and/or liabilities reported as current or noncurrent?

Deferred tax asset? Enter Yes or No

Yes

Enter Current or Non-current

Non-current

Deferred tax liability? Enter Yes or No NO

Enter Current or Non-current

Not applicable


13

Identify the information that relates to the stockholders’ equity section of your company’s balance sheet.

Par value per share of common stock? $0.001

Number of common shares authorized? 1200000000

Number of common shares issued? 764000000

Number of common shares outstanding? 753200000

Number of treasury shares held by the company? 10800000


Answer the following questions relative to the stockholders’ equity section of the balance sheet.

By what amount did retained earnings increase or decrease from the prior year?

Decreased by 915900000

Was the increase or decrease in retained earnings equal to the company’s current year net income or net loss?

* Enter Yes or No

No

* If No, then dividends were paid (or declared) by your selected company or certain events took place during the year where the accounting for the events directly affected the retained earnings account.


List (write-in) each financial statement element as shown in your company’s balance sheet.

Assets Liabilities Stockholders’ Equity

14

Current assets:

Cash and cash equivalents

Short-term investments

Accounts receivable, net Inventories

Prepaid expenses and other current assets

Deferred income taxes, net Total current assets

Current liabilities:Accounts payable Accrued litigation charge Accrued liabilities Insurance reserves Deferred revenue Total current liabilities

Shareholders’ equity:Common stock ($0.001 par value) — authorized, 1,200.0 shares; issued and outstanding, 753.2 shares and 749.3 shares (includes 3.4 common stock units), respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Total shareholders’ equity Noncontrolling interests Total equity

Long-term investments

Equity and cost investments Property, plant and equipment, net Deferred income taxes, net Other assets

Long-term debt Other long-term liabilities Total liabilities


15

Other intangible assets Goodwill


Click here to enter text. Click here to enter text. Click here to enter text.





Identify the combined carrying values (dollar amounts) of the following selected account groups taken from your company’s balance sheet:

Account Groups Current Year

Prior Year

Increase or Decrease(in dollars)

Current Assets 5471400000 4199600000 1271800000

Increase

Net Fixed Assets

4722300000 3332100000 1390200000Increase

Intangible and Other Noncurrent Assets

1323000000 687500000 635500000Increase

Current Liabilities

5377300000 2209800000 3167500000Increase

Long-term Liabilities

1657100000 894900000 762200000Increase

Common Stock

800000 700000 100000 Increase

16

Additional Paid in Capital*

282100000 39400000 242700000Decrease

Retained Earnings

4130300000 5046200000 915900000 Decrease

Other Equity Components

67000000 20842319.9 46157680Increase


Identify the three major balance sheet accounts, for example accounts receivable, accounts payable, inventory, etc. that changed the most from the prior year. What events might explain these changes? Working to explain why these changes occurred contributes to a greater understanding about a company.

Account Explanation

Example:

Account Receivable

Example:

An increase in accounts receivable should coincide with an increase in sales, i.e., a 10% increase in sales would explain a 10% increase in accounts receivable. If accounts receivable are increasing and sales decreasing, the signal is unfavorable.

Accounts Recievable Accounts recievable has been decrease by 22% as compared to previous

years which appears to be a positve impact over the working capital management of the company..However sales of the company has increased by 12 percent which means that inspite of increased sales company has able to reduce its reciavables which indiacted efficient credit management .

InventoriesThe inventories of the company have been decreased by 10 percent which has a similar impact over the cost of sales which is increased by 10%.Decrease in inventory is favorable variance because it will help company to manage its working capital requirement effieciently

Accounts PayableAccounts payable of the company have been increase the reason for this could be the increase in cost of sales as more goods would have been purchased on credit.

17


Prepare a common-sized balance sheet (expressed in percentages) using the following account groups shown in your selected company’s balance sheet.

Account Group Current Year

Prior Year

Increase or Decrease(current year percent minus

prior year percent)

Current Assets 48% 51% 3% DECREASE

Net Fixed Assets 41% 41 No change

Intangible and Other Noncurrent Assets 11% 8% 3% INCREASE

Total Assets 100% 100%

Current Liabilities 47% 27% 20% INCREASE

Long-term Liabilities 14% 11% 3% Increase

Common Stock 0.01% 0.01% No change

Additional Paid in Capital 2.45% 0.48 1.97% Increase

Retained Earnings 36% 61%

26%Decrease

Other Equity Components 0.58% 0.28% 0.31% Increase

Total Liabilities and Stockholders’ Equity

100% 100%

Example provided because of common student error in completing this report. All accounts groups divided by total assets, in dollars.

Account Group Current Year

Prior Year Increase or Decrease

Current Assets 40% 35% 5%

Net Fixed Assets 40% 45% -5%

Intangible and Other Noncurrent Assets 20% 20%

Total Assets 100% 100%

18

Current Liabilities 60% 50% 10%

Long-term Liabilities 10% 15% -5%

Common Stock 20% 20%

Additional Paid in Capital 5% 5%

Retained Earnings 5% 10% -5%

Other Equity Components

Total Liabilities and Stockholders’ Equity

100% 100%


Identify the three balance sheet groups from question 13 above that changed most significantly. Within each of these groups, identify the primary balance sheet element that drove this change. What events might explain these changes?

Group Name:

Current Assets

Explanation:

(Example – sales increased by 22%, thus accounts receivable increased by approximately 22%)

Current Liabilities The over total current liabilities have increased by 20 % the primary reason for this would justified by an increase in accounts payable by 24%

Retained Earnings The retained earnings of the company have been decreased by 26 % the major reason for this would be the reduction in net earnings by 99 % .The repurchase of common stock for 255 million and issuance of a huge cash dividend of 668 is all made from the opening retained earnings because the current year income has not contributed much in retained earnings of this year resulting in sudden decrease in retained earnings balance for this year.

Total Current Assets Total Current Assets of the company has been decreased by 3% inspite of the fact that the dollar value of current assets has increased.The reason for the percentage decrease as a portion of total asset is the increase in total assets due to which the portion of current assets on total assets have detoriated .


Did your company become more or less liquid when comparing this year to last year?

Current Year:

Current Assets minus Current Liabilities =

Prior Year:

Current Assets minus Current Liabilities =

19

94 million 1990 million

Explain why?

The liquidity postion of the company has detoriated significantly as compared to last year the major reason was this is the decrease in current assets by 3% as mentioned earlier and a sudden increase in current liabilities by 20%.This is an alarming position management should take corrective actions to improve their liquidity positions as cushion of total current assets covering the current liabilities has shrinked very poorly.


Did your company increase or decrease its financial leverage when comparing total debt to total stockholders’ equity from this year to last?

Current Year:

Total debt Total stockholders’ equity =

151 %

Prior Year:

Total debt Total stockholders’ equity =

60%

Explain why:

The company’s financial leverage has increased significantly .The total debt to equity ratio has increase by more than double as compared to last year indicating that financial leverage of the company is very high increasing the risk of insolvency as debt portion is 151 % of total equity percent.The reason for this is a significant increase in total debt and decease in total equity.

20

The Income Statement or Statement of EarningsChapter 3: Income Statement – Question 1

Review the heading of your company’s income statement. Does the company’s income statement provide two or three years of comparative information? (Insert number to the right.)

3 yrs.

Why do you think the SEC requires that balance sheets provide two years of comparative financial information and income statements provide three years of comparative financial information?

Balance sheet represent the business activity on as at basis that is the positon of company’s assets and liabilities at the current date however on the other side income statement provides data for the year only.Income statement also provides the information about how a company is running its operations to generate returns from its assets .Comparitive figure over three years would provide more insight to readers of financial statement about the company’s performance over a period of 3 years.

Chapter 3: Income Statement – Question 2

Review the middle section of your company’s income statement. Did operating income (loss) increase or decrease from the prior year and by how much? You may have to compute operating income (loss).

Increased by $Click here to enter text. Decreased by $ 2332 ( operating income of 1997 million was in last year which is not turned into a loss of 325 million in the current year


Does the middle section of your company’s income statement show a nonoperating income (loss) increase or decrease from the prior year and by how much? You may have to compute nonoperating income (loss).

Increased by $ Click here to enter text. Decreased by $ Click here to enter text.


In reference to why you are studying this company, is it important to know the different sources of income—operating or nonoperating?

21

The company starbucksdoesnot have sufficient aount of non operating income such as interest or other income which is not generated from normal course of business hence non operating income analysis doesnot appears to be much significant


If any of the irregular events are shown on your company’s income statement, describe the nature and the amount. Select the most current year affected by the event if multiple years are affected.

Irregular Event Amount Nature of the Change

Restructuring charge? N/A N/A

Discontinued operation? N/A N/A

Extraordinary event? 2784 million

Litigation charges which comprises of 18 percent of total operating cost and litigation charges are not only material because of their monetary value but they are also important because of their nature itself.This shows that company has beared severe litigation charges which might involve some legal noncompliance which can be considered as a significan event


Review the lower section of your selected company’s income statement. Did net income (loss) increase or decrease from the prior year and by how much?

Increased by $ Click here to enter text. Decreased by $ 1375 million


Prepare a common-sized income statement for the categories below.

Account/Category Current Year


(current year percent minus prior year percent)

Net Sales (revenues) 100% 100%

Cost of Goods/Services (if applicable) 43 % 44% 1% decrease in COGS

22

Gross Profit 57% 56 % 1 % increase in GP

Operating Expenses 104% 87% 17 % increase in

operating expenses

Operating Income (Loss) -2% 15% Income has changed into

losses .

Nonoperating Income (Loss) 0 0 No non operating

income available

Income Tax Expense 2% 5% 3% decrease in income tax

expenses

Net Income 0.06% 10.41% 10.35 % decrease in net income

Example provided because of common student error in completing this report. All account categories divided by net sales (revenue), in dollar.

Account/Category Current Year


Net Sales (revenues) 100% 100%

Cost of Goods/Services (if applicable) (35%) (36%) (1%)

cost of goods sold decrease

Gross Profit 65% 64% 1%

gross profit increase

Operating Expenses (25%) (23%) 2%

expenses increased

Operating Income (Loss) 40% 41% (1%)

operating incomedecre

ased

23

Nonoperating Income (Loss) 5% 5%

Income Tax Expense (20 %) (17%) 3%

taxes increased

Net Income 25% 29% (4%)


Identify the three income statement accounts/categories that changed the most in Question 7. What events might explain these changes?

Account or Category:

Explanation:

(Hint – the MD&A section will provide good information to answer this question.)

Net revenues Net revenues of the company has been increased by 12 % as compared to the previous year the reason for this is the increase in global stores sales by 7%

Operating income Operating losses of (0.3) billion have occurred as compared to the operating income of last year which was around 2 billion.the main reason for this was the litigation charges of 2.8 billion as a result of arbitration conclusion with kraft foods.

Earning Per share EPs for 2013 have been decreased to S0.01 per share as compared to EPs of 2012 which was $ 1.79 the reason for this was due to litigation charges as mentioned above.


Identify your company’s Basic and Diluted EPS amounts. Place a N/A in Diluted EPS if not reported.

Basic EPS Diluted EPS

Current year $0.01 $0.01

Preceding year 1 $1.83 $1.79

Preceding year 2 $1.66 $1.62

Why is diluted EPS always equal to or less than basic EPS?

Diluted EPs is always equals to or lesser than basic eps because the weighted average

24

number of shares in Diluted eps will always be equals to or greater than basic eps

Statement of Cash Flows (SCF)Chapter 3: SCF – Question 1

Is the SCF dated in the title for a period of time similar to the income statement or for a point in time similar to the balance sheet? Why?

It is dated in the title for period of time similar to income statement.It is similar to income statement because it defines the cashflows movements over the period of one year similar to income statement.

Chapter 3: SCF – Question 2

Identify the following sections of the SCF and record the amounts. Check the math by summing to the cash balance at end of year. Verify that the ending cash balance reported on the SCF is the same as reported on the balance sheet.

Section Current Year

Prior Year Second Prior Year

Net operating cash flows

2908300000 1750300000 1612400000

Net investing cash flows

-1411200000 -974000000 -1019500000

Net financing cash flows

-108200000 -745500000 -608000000

Net increase (decrease) in cash flows1387100000 40500000 -15900000

Cash balance at beginning of year1188600000 1148100000 1164000000

Cash balance at end of year2575700000 1188600000 1148100000

Does the total match balance sheet cash? Enter Yes or No Yes

Enter Yes or No Yes

25


Record net sales, net income and net operating cash flows below. All three should be trending in approximately the same direction. If so, this is a sign of a well-run business. If one or more are going in a different direction, or random, then you must keep an eye open for an explanation why.

Item Current Year Prior Year Second Prior Year

Net Sales 14,892,200,000 13,299,500,000 11,700,400,000

Net Income8,800,000 1,384,700,000 1,248,000,000

Net Operating Cash Flows

2,908,300,000

1,750,300,000 1,612,400,000

Explain why net sales, net income and net operating cash flows are trending together or differently. (Hint: Look at depreciation expense and substantial changes in inventory, accounts receivable and accounts payable balances. Explaining why is a key learning point.)

All three are directing in the same direction except for the net income in 2013 which has fallen signicianlty due to litigation charges which were not incurred in any of the previous years. Other than that all trends are directing in the same direction because if net sales wil increase that will increase the net income and if net income is increased then it will increase the cashflow from operating activities .


Identify the primary cash outflows and inflows from investing activities.

Description of Activity Amount

Cash outflow: additions to property plant and equipment 1151200000

Cash inflow:sales maturies and calls of investment 1040200000

26

Consider three key issues at this point. Is the company adding assets? This is a sign of growth. Is the company replacing assets? This is a sign of growth and stability. Is the company only selling assets? This is a sign of retrenchment.

Company is adding assets as cashflows from investing activities have resulted in overall cash outflow of 1411200000 millions .Company is making investments in PPE other equity investments and acquitsions appears to be a sign of healthy growth.


Identify the primary cash inflow and outflow from financing activities.

Description of Activity Amount

Cash inflow: 749700000

Cash outflow: (Note: cash dividends paid are reported here.) 628900000

Consider two key issues at this point. How is the company being financed, through debt or equity? Can you determine which is growing faster and why? A sound corporate strategy is to finance a company with debt during stable times, because this demands regular payment of principal and interest, and to finance a company with equity during unstable times, because leadership can elect to pay or not pay dividends.

Company is raising finance from both debt and equity but more finance is being obtained through debt finance as these are the stable times and management is willing to obtain debt finance as they think they would be able to pay interest cost easiliy in the upcoming years by increasing sales revenues which in turn will increase the net income in future.

The Statement of Stockholders’ Equity (SSE)Chapter 3: SSE – Question 1

Identify the elements that comprise the statement of stockholders’ equity section of your company. Hint: These items are generally illustrated across the top of the page using a columnar format. (Example. Common stock – shares and dollar amount.)

Common Stock Additional Paid in Capital Retained Earnings Accumulate other comprehensive income/ (Loss)Shareholder’s equity

27

Non-controlling Interest

Chapter 3: SSE – Question 2

Identify the cash dividends per share. $ 0.89

Determine the dividend payout percentage. A company’s dividend payout percentage is computed by dividing dividend per common share by net income or earnings per common share. (Hint: If your company reported a net loss for the year, the answer lacks meaning.)

The company has reported Net Loss

for this year so this is not applicable

Compute dividend yield. A company’s dividend yield is computed by dividing dividend per common share by market price per common share. (Hint: Use the current per share price for your selected company.)

1.22 %

Is your company’s dividend yield a reasonable return given current market conditions?

The current dividend yield of 1.4% is quite low as compared to industrial average.

Notes to the Financial StatementsChapter 3: Notes to the Financial Statements – Question 1

How does your company define “cash and cash equivalents”?

The company defines all the highly liquid instruements with a maturity of three or less than three months as cash or cash equivalents.

Chapter 3: Notes to the Financial Statements – Question 2

How does your company value its “inventories”? Explain the meaning of the inventory valuation method. Are domestic and international inventories valued thesame?Service companies will typically not have inventory.

Our company values inventory at lower of cost or market value which is recommended by the IAS.It means that inventory will be reported at the lower of the cost which is the moving average and the market value that is the net realizable value of the inventory which ever is lower will be reported as inventory figures in financial statements.


Does your company report any investments in marketable securities? Identify the

28

respective amount(s) invested.

Category Current Year Amount

Trading Securities 66600000

Available-for-Sale Securities 591500000

Held-to-Maturity Debt Securities 0


Note 1 and a separate note on income taxes should provide the information to answer this question.

What was your company’s income tax expense for the current year?

238700000

How much cash was paid for income taxes in the current year? (Hint: Review the SCF. The difference generally relates to the accrual basis of accounting.)

1045900000

Identify the three major elements, such as depreciation or other post employment benefits, that gave rise to deferred tax assets or deferred tax liabilities:

Deferred Tax Assets Deferred Tax Liabilities

Litigation charges Propery plan and equipment

Stock based compensation Intangible assets and goodwill

Net operating losses others

What is this year’s effective tax rate for your company? What is the current year statutory rate?

Effective Tax Rate: %103.8

Statutory Tax Rate: %35


Reviewing note #1, any related supporting notes, and/or the 10-K, identify the fixed asset group(s), depreciation methods used, and the estimated useful lives of these fixed assets.

Fixed Asset Group Depreciation Method Estimated Lives (range)

Propery Plant and equipment Straight line 2 to 15 years

Buildings Straight line 30 to 40 years

Lease hold improvements Straight line 10 years


29



Review the balance sheet, note #1, and any related notes and identify the amount of goodwill reported in the current year.

Amount reported in current year. $ 862900000

Identify the amount of any significant write-down of goodwill that occurred during the current year.

$ 0

How does management describe how it accounts for goodwill as disclosed in the note(s) to the financial statements?

Management test impairment for their goodwill on an anuual basis in every thirdy quarter of their fiscal year or early if any such circumstance arise that might lead to the fact that carry value of the stores might exceeds their fair value .


Given present executive compensation packages, why would the user of financial information prefer a company follow SFAS #123(R) instead of APBO #25? Explain.

SFAS provides strick rules forreporting the executive compensation packages while the APBO is a principle based approach provides flexible disclosure requirement to management which can be misued by management to hide lucrative and unethical executive compensation.


Review your company’s lease note (and related balance sheet information), then identify the following amounts:

Minimum lease payments under operating leases 4585900000

Minimum lease payments under capital leases Not mentioned separalety included in other obligations

Ratio of operating lease payments to capital lease payments

N/A

As a user of reported financial information, would you be concerned about a significant amount of operating leases that are not reported in the balance sheet? Explain.

Significant amount of operating lease will become future rental expense and will reduce

30

the over all profits for the shareholders which will become my concern as a shareholder because expenses from my money will not be in my knowledge if not reported.


Review your company’s long-term debt note and identify the following (consider the three most significant liabilities only):

Instrument Maturity Date Rate Amount Due

Senior Note October 2013 3.85% 749.8

Senior note August 2017 6.25 549.7

N/A Click here to enter text.



How much interest expense was recognized in the current year?

28.1

How much cash was paid for interest in the current year? (Hint: Look in the SCF.*)

Not mentioned

*The difference between interest expense and cash paid for interest is due to the accrual basis of accounting (and in some cases, the capitalization of interest).


Review your company’s pension and OPEB note (if applicable) and answer the following questions.

Pensions OPEB

How much is the Projected Benefit Obligation (PBO) and Accumulated Postretirement Benefit Obligation (APBO) for your company at the end of the current year?

NA Click here to enter text.

What was the amount of pension or OPEB benefits paid to plan participants during the current year?

$54.7 million Click here to enter text.

What amount of cash did the company contribute to the respective funds during the current year? This is known as “employer contributions.”

$54.7 million Click here to enter text.

31

What is the value of the plan assets at the end of the current year?


Based on your review of the plan assets and the projected benefit obligation (or accumulated postretirement benefit obligation), has your company sufficiently funded its employee benefit plans (this is known as funded status)?

There is no Plan Assets and APBO, but the company has $54.70 million to employees defined contribution plan

An expected average return on invested plan assets is used to reduce the volatility in the reporting of pension or OPEB expense. Higher expected average returns reduce pension or OPEB expense, and lower expected returns increase pension expense. What rate of return on plan assets does your company use to compute pension or OPEB expense? Does this appear reasonable, given present market conditions?

Rate employed?NA Response:NA


Based on your review of the contingencies note, briefly identify specific events that have led to the accrual of contingent liabilities in your selected company’s the balance sheet.

There is a dispute between Starbucks and Kraft food group for breach of agreement and damages for discontinuation of agreement, the company has made provision for this liability amounted to $2.8 billion. The company has also legal proceedings related to normal business operation and employees related matters. The management is expected that outcome of this legal proceedings might have negative impact on the cash flows of the company.


Based on your review of the segment-reporting note to the financials, identify the reported operating segments, their related revenues, and operating income. Identify the largest three if more than three are disclosed.

Reportable Operating Segments

Net Sales Revenue Net Operating Income

Beverages $8.6 billion NA

Foods $2.4 billion NA

32

Packaged and Single Served Coffee

$2.2 billion$ NA


Based on your review of the segment-reporting note to the financials, identify the geographical segments and their related revenues. Identify the largest three if more than three are disclosed.

Country Net Sales Revenue

America $11 billionEMEA $1.2 billinChina / Pacific Asia $0.9 billion

Chapter 3: Notes to the Financial Statements—Question 14

Based on your review of the notes to the financials or the statement of stockholders’ equity, identify the components (no more than four) that comprise Other Comprehensive Income for your company.

Component Amount

Net unrealized gain or los on available for sale securities -$0.5 million

Net unrealized gain or loss on hedging instrument $13.9 million

Translation Adjustment $53.6 million


33

CHAPTER 4 - FINANCIAL ANALYSISSummary Financial Analysis Report

Note: S&P 500 data is no longer available from the website: investing.money.msn.com. You will see this column in the workbook but not in the Word template form. You are not responsible for S&P 500 data input.

Profit Margin %

Answers how well the business performed.

Company Two Years Prior

Company One Year Prior Company Industry

Gross Margin Gross Profit /

Total Revenue 58%56% 57% 2%

Pre-Tax Margin Operating Income

/ Total Revenue15% 15% -1.5% NA

Net Profit Margin Net Income /

Total Revenue

11%* 10%* .06% 1%

Sales Financial Statement

$11.7 billion $13.3 billion $14.9 billion Not required

Operating Income Financial

Statement-$1.7 billion $2 billion $325 million Not required

Operating Cash Flows

Financial Statement

$2.9 billion $1.8 billion $1.6 billion Not required

Evaluate Profitability (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find increasing performance, above or below industry average. For a company with a stability strategic focus you will likely find stable performance, above or below industry average. For a company in a retrenchment strategic focus you will likely find poor performance, below industry average with efforts to improve and approach industry average. Note: Sales, operating income and operating cash flows should trend in approximately the same direction. This signals a stable operating business environment. If the three measures are not trending together, this signals lack of control by management.)

The average gross profit of the industry is around 2%, while the gross profit of the company is hovering around 56% to 58% during last three years. The pre tax margin of the company was around 15% in 2011 and 2012, but it went dowsn to negative 1.5% in 2013. The net profit margin for 2011 and 2012 are 11% and 10%, but it went down to .06% in 2013 against 1% of industrial average. The sales increased from around $12 billlion to $ 15 billion in three years, but the operating income declined from around $1.7 billion to $325 million in the same period. It may be due to some of the expenses which company might have incurred supposed to be non recurring. Due to lower earnings the cash flow also declined from $2.9 billino to $1.6 billion

34

from operating activites. Overall performance of the company seems to be satisfactory if it is compared with the industrial average except for 2013. However, the growth in sales suggests that in future company might earned better net income by controlling its some of the non recurring expenses in fturue.

35

Financial Condition Signals ability to take on additional debt and liquidity.



Debt/ Equity Ratio

(Total Liabilities – Current Liabilities)

/ Total equity

0.68* 0.61* 1.57 0.72

Current Ratio Current assets /

Current liabilities1.83 1.9 1.02 NA

Quick Ratio

(Cash and Short Term Investments

+ Short Term

Investments + Total Receivables,

Net) / Current Liabilities

1.29 1.25 0.76 NA

Interest Coverage Data not readily

available

55* 64* -7 NA

Evaluate Financial Condition (often labeled liquidity and solvency analysis) (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find stable or slightly decreasing liquidity, above or below industry average. Debt to equity often is increasing in a growing company. For a company with a stability strategic focus you will likely find stable liquidity, above or below industry average. Debt to equity often is stable as well. For a company with a retrenchment strategic focus you will likely find poor liquidity, below industry average with efforts to improve and approach industry liquidity. Debt to equity often is decreasing in a company during retrenchment.)

The financial leverage of the company has increased in three years of time period and has in excess of industrial average of around 72%, the debt to equity was around 68% and 61% in 2011 and 2012, but increased to 157% in 2013, it suggests that company has increased its reliance over debt financing thus increasing the financial risk. The interest coverge has alos gone into negative zone in 2013, while it was quite healthy in 2011 and 2012, it shows that company debt financing does not resulted in positive results in 2013, but it may improve if some of the non recurring expenses are controlled, as the sales are increasing. The liquidity position of the company has weakend in three years period as the current ratio declined from 1.83 to 1.03 and quick ratio from 1.29 to 0.76 in three years time period.

36

Investment Return %

Signals performance for managers and owners.



Return On Equity Net Income /

Total Equity

28%* 27%* 0.19% 5.1%

Return On Assets Net Income /

Total Assets

17%* 17%* .07% 3%

Return On Equity

(5-Year Avg.)

Not required Not required 22% 5.1%

Return On Assets

(5-Year Avg.)

Not required Not required 14% 3%

Evaluate Investment Return (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find increasing returns. For a company with a stability strategic focus you will likely find stable investment returns. For a company in a retrenchment strategic focus you will likely find poor and stable investment solvency, below industry average.)

The return on equity for two years was around 28% and 27% against 0.19% of 2013. The results of 2011 and 2012 are better than industrial average of 5.1%, but in 2013 it was quite low due to lower net income. The return on assets was around 17% for 2011 and 2012, while it declined to .07% in 2013, against industrial average of 3%. However the 5 years average of 22% and 14% for ROE and ROA is better than industrial average of 5.1% and 3% of respective ratios.

37

Management EfficiencySignals how well the company was run by management.



Income/Employee

Not required Not required $45 $33625

Revenue/Employee

Not required Not required $81825 $336250

Receivable Turnover

Total Revenue /Average Accounts Receivable - Trade, Net

19 18 18 NA

Average is defined: (beginning of the year + end of the year) / 2

Inventory Turnover

Cost of Revenue, Total / Average Total

Inventory

5 5 6 NA

Asset Turnover

Total Revenue / Average Total

Assets

1.6 1.6 1.3 NA

Evaluate Management Efficiency (Think about the corporate strategy in providing a response. Following are general guidelines, yet each company situation is unique. For a company with a growth strategic focus you will likely find improving efficiency, above or below industry average. For a company with a stability strategic focus you will likely find stable efficiency, above or below industry average. For a company in a retrenchment strategic focus you will likely find poor efficiency, below industry average with efforts to improve and approach industry average.)

The company utilization of aasets shows stability in the usage of total assets, account receivable and inventory, as there is no significant change in three years time period. The account receivable turnover was around 18 times in all three years, while inventory turnover was around 5 in first two years and increased to 6 in 2013, however total assets turnover was around 16 times in 2011 and 2012 and declined to 13 in 2013. The company revenues and income per employee is quite below the industrial average. It was around $45 against $33625 average income per employee of the industry, due to lower profit margin. The revenues per employee for the company is around $81825 against industrial average of $336250.

38

CHAPTER 5 - DECISION-MAKING PROCESSChapter 5: Decision-making Process – Question 1

Based upon your review, do the numbers support the company’s explicit strategic focus: a growth, stability or retrenchment focus? Why or why not?

The company is trying to expand and grow its business, and it is evident from the fact that the sales has increased drastically, but it could not be converted into net income due to non recurring expense against clain of around $2.2 billion of Kraft Group. But in the coming year, if the company could maintain the same pace of growth, it can be converted into better results and better earnings. Therefore the company is quite sucssessful in adopting its strategy of growth except for non recurring expense, which is hopefully, will not affect the future results.

Chapter 5: Decision-making Process – Question 2

Return to the first question in this project. Chapter 1: Identify Why You Selected This Company—Question 1

A) What is/are your motivation(s) or interest(s) in selecting this company?

B) What question(s) are you seeking to answer?

You were asked to explain why you were investigating this company’s annual report. You have likely uncovered numerous pieces of information, some with conflicting insight. This may involve both financial and nonfinancial information. In addition, you may have found certain information to be incomplete for decision-making purposes. This is real world analysis. Most business decisions are made with as much reliable information as possible, yet common to the decision-maker is a desire for more information.

Prepare a thorough, yet concise answer to your original questions A and B above. For example, would you work for this company, why or why not? Support your response with the information gathered throughout your annual report study.

The main reason for the selection of the company is it relationship to food industry and growth in sales. The above anlaysis will help in finding out the financial position of the company and will be helpful in deciding whther the investment should be made or not. The increasing growth in sales suggests that the company has good reputation in the market and if this pace is continued the future results might be better than 2013, due to non recurring expense. The company has been utilizing its all resources efficiently but could not be converted into better results, but hopefully, the future will be providing better results. The financial leverage of the company has increased drastically in 2013, which has increased the risk factor of the business, therefore it present it is better than to adopt the policy of wait and watch for forthcoming period results, if they are good, then the investment may be made.

39

Chapter 5: Validate Your Conclusion – Question 1

The Altman Z-score is a predictive model created by Edward Altman in the 1960’s. The score combines and weights five financial ratios to estimate the likelihood of a company going bankrupt. The lower the Altman Z-score the higher the odds of bankruptcy. Research findings suggest the Z-score predicts 72 - 80% of corporate bankruptcies two years prior to the actual filing.

Z-score > than 3 = considered healthy

Z-score between 1.8 and 3 = considered a warning sign

Z-score < than 1.8 = could be headed for bankruptcy

Computing the Z-score for your company is very simple. Go to one of the Websites listed below and compute the Z-scores for the respective years identified below. Print out your results and turn them in with this workbook.

www.jaxworks.com/calc2a.htm

www.ironwoodadvisory.com/zscore.htm

Two Years Prior One Year Prior Current Year

Z-score 9.66 10.1 6.92

Z-score interpretation compared to the financial analysis. Does the Z-score agree or disagree with your analysis?

The Z Score for all three years are better than 3, it means that the company position is quite sound. However, in 2011 and 2012, it was around 10 and declined to 7 in 2013. The decline in Z Score is the increase in financial risk of the company due to increase in debt equity ratio to 1.57 times, which is more than twice of 2011 and 2012 debt equity ratio. It means that decline in Z socre matches the financial analysis and true representative of financial analysis made above.

Congratulations.

Now submit to your instructor your completed workbook per the instructions provided at the beginning of this document.

40

Date post:	22-Sep-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times