The Annual Report Project –
Financial Statement Analysis
Part 2
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Employee Retirement Plans & Stock-Based Compensation
1. Does the company offer a pension plan? If so, what type? (Defined Benefit / Defined Contribution)
2. Use the format below to analyze the plan.
(Defined Benefit Plan)
Compare pension expense with operating revenue.
Current year
Last year
Two years ago
A. Pension Expense
B. Operating Revenues
A / B
Compare pension expense with income before income taxes.
Current year
Last year
Two years ago
A. Pension Expense
B. Income before income taxes
A / B
Compare benefit obligation with value of plan assets.
Current year
Last year
Benefit obligation
FV plan assets
Overfunded ( underfunded)
Analyze rates:
Discount Rate
Current year
Last year
Two years ago
Combined weighted-Average Rate
Rate of Compensation increase
Current year
Last year
Two years ago
U.S. Plans
Expected Return on Plan Assets
Current year
Last year
Two years ago
U.S. Plans
(Defined Contribution Plan)
Compare pension expense with operating revenue.
Current year
Last year
Two years ago
A. Pension Expense
B. Operating Revenues
A / B
Compare pension expense with income before income taxes.
Current year
Last year
Two years ago
A. Pension Expense
B. Income before income taxes
A / B
3. Comment on any changes over the past few years in these pension plans.
4. Briefly discuss any stock-based compensation that your company offers.
a. Describe what they offer
b. List outstanding values at fiscal year-end
Income Statement
1. What is the period covered by the income statements?
2. Does the format of the statement most closely follow a single step or multiple step income statement? How can you tell?
3. Give the amounts and ratios for the following income statement items over the past three years?
Current Year
Prior Year
Two Years Ago
CGS to Net Sales Ratio (%)
Gross Profit Rate (%)
Profit Margin (%)
Return on Assets
Total Asset turnover
Return on Total Equity
Return on Common Equity
Return on Investments
Sales To Fixed Assets Ratio
EPS – Basic
EPS – Diluted
Times Interest Earned
Debt ratio
Debt / Equity ratio
Price Earnings Ratio
Dividend Payout
Dividend Yield
Book Value
4. Using elements listed on your companys income statement, prepare a common size income statement using the following format. (Vertical Analysis Chapter 5)
Account
Current Year
%
Prior Year
%
Two Years Ago
%
5. Using elements listed on your companys income statement calculate the increase or decrease in dollars and percent between the years using the following format. (Year to Year Change Analysis Chapter 5)
Account
Current Year
Prior Year
+/- $
%
Two Years Ago
+/- $
%
6. Using elements listed on your companys income statement calculate the ratios and amounts using two years prior as the base year (100%) using the following format. Your answers should all be in percentages. (Horizontal Analysis Chapter 5)
Account
Current Year/Base
Prior Year/Base
Two years ago/ Base
7. In thoughtful, well-organized paragraphs, comment on changes you see in the income statement over the three-year period.
Use a separate sheet of paper and label it Income Statement Analysis. Answer in complete sentences. Use a separate paragraph to discuss each item. Label your paragraph according to the letters below. This analysis should be at least one full page in length.
Among the items to consider:
a. What is the trend in total revenues over the three years?
b. What is the trend in gross profit over the three years?
c. What is the trend in net income over the three years?
d. What is the trend in profit margin over the three years?
e. Comment on any significant changes in revenues or expenses, negative and positive changes.
f. Comment on any significant changes in the discontinued operations, extraordinary items, or changes in accounting policy.
Statement of Cash Flows
1. What is the period covered by the Statement of Cash Flows?
2. Does the company use the direct or indirect method for operating activities? How can you tell?
3. Indicate the amount for each of the following categories for the past three years.
Current Year
Prior Year
Two Years Ago
Net cash from operations
Net cash from investing
Net cash from financing
Net increase (decrease) in Cash Flows
Cash Beginning of Year
Cash End of Year
4. Accrual versus cash.
Current Year
Prior Year
Two Years Ago
Net Income
Net cash from operations
Net sales
a. Are Net Income, Net cash from operations and Net Sales moving in a similar manner? Discuss the meaning of the trends.
5. Discuss the major items accounting for the difference in net income and net cash from operations. Use complete sentences.
6. Calculate the following ratios:
Current Year
Prior Year
Two Years Ago
Operating Cash Flows Ratio (OCF/Average Current Liabilities)
Operating Cash to Total Debt
Operating CF to Cash Dividends
7. In thoughtful, well-organized paragraphs comment on changes you see in the cash flow statement. Label this section Cash Flow Analysis. Consider the following:
a. What are the major operating activities?
b. What are the major investing activities?
c. What are the major financing activities?
d. Comment on any significant changes in these activities over the past three years.
Segmented Reporting
Does your company report segmented information? Briefly discuss how they segment their information.
List the segments that your company has identified.
Non-geographic
1. Horizontal Common-Size analysis for net sales (Use Two years ago as base year)
Current year
Previous year
Two years ago
Net Sales:
Total
2. Horizontal Common-size analysis for operating income. (Use Two years ago as base year)
Current year
Previous year
Two years ago
Operating income:
Total
Horizontal Common-size analysis for capital expenditures. (Use Two years ago as base year)
Current year
Previous year
Two years ago
Capital expenditures:
Total
Vertical Common-size analysis for net sales (Use net sales as a base)
Current year
Previous year
Two years ago
Net Sales
Total
b. Geographic Segments
Horizontal common-size analysis for net sales. (Use Two years ago as base)
Current year
Previous year
Two years ago
Net Sales
Total
2. Vertical common-size analysis for net sales. (Use net sales as a base)
Current year
Previous year
Two years ago
Net Sales
Total