ECON 301 (DATA ANALYSIS) MINI PROJECT 3 (FINANCIAL STATEMENT ANALYSIS) File saved as: G:\PD - 2019-05-28\I-Docs\Academic\SDSU\Economics\Econ 301 (Data Analysis)\Mini Projects\Econ 301 - Mini Project 3 - Financial Statement Analysis (Excel).doc Assignment Objective: Perform horizontal and vertical financial statement analysis in Excel. Perform Ratio Analysis in Excel Data Source: Income Statement and Balance Sheet. Individual/Group: Individual assignment using the financial statements from individual project. Assignment Deadline: Tuesday, March 03, 2020 Method of Submission: 1. Print out hard copies of Excel spreadsheets. 2. E-Mail Excel spreadsheets used to perform analysis. Assignment Specifics: 1. Download your company’s financial statements from Mergent in Excel format. 2. Be sure to perform your analysis on: A. Three years of Year-End Income Statements B. Three years of Year End Balance Sheets 3. Copy original spreadsheets onto another worksheet in the workbook to begin your analysis. 4. Make two more copies (one for horizontal analysis, the other for vertical analysis). 5. Perform horizontal analysis on one of the spreadsheets. 6. Perform vertical analysis on the other spreadsheet. 7. Perform ratio analysis in another spreadsheet. Factors to consider when performing assignment: 1. How is the company grouping the income, expense and balance sheet items? 2. What jumps out at you from anything on the financial statements. (Unusual items deserve more investigation.) 3. How much tax does the company report paying? (Companies that pay tax are profitable, companies that do not pay tax may not profitable.) 4. Are there any “extraordinary items” (good or bad) that are not likely to show up in the future? IMAGE 1: Arch of Titus. Rome. c. 81 CE (restored 1822-24). Concrete and white marble, height 15 m. IMAGE 2: Temple of Hera I, Poseidonia (Roman Paestum). Southern Italy, c. 550-540 BCE. PROJECT NOTESType of AnalysisFinancial StatementDescriptionHorizontalIncome StatementWhen performing horizontal financial statement analysis on theincome statement, all income statement items are expressedin terms of their corresponding revenue or expense category inthe base year.Horizontal income statement analysis allows a user to see howwell a company is doing in terms of revenues, expenses andprofits over time.The base year for the series is the oldest year, and the changein each revenue, expense and profit line in subsequent years isexpressed as a percentage change from the previous year.Ideally, a company would be able to grow its revenue at afaster rate than its expenses. If this is the case, then thatcompany's profits would increase over time. If a company'sexpenses are increasing faster than its reven.

1. ECON 301 (DATA ANALYSIS)
MINI PROJECT 3 (FINANCIAL STATEMENT ANALYSIS)
File saved as: G:PD - 2019-05-28I-
DocsAcademicSDSUEconomicsEcon 301 (Data
Analysis)Mini
ProjectsEcon 301 - Mini Project 3 - Financial Statement
Analysis (Excel).doc
Assignment Objective:
Perform horizontal and vertical financial statement analysis in
Excel. Perform Ratio Analysis in
Excel
Data Source:
Income Statement and Balance Sheet.
Individual/Group:
Individual assignment using the financial statements from
individual project.
Assignment Deadline:
Tuesday, March 03, 2020
Method of Submission:

2. 1. Print out hard copies of Excel spreadsheets.
2. E-Mail Excel spreadsheets used to perform analysis.
Assignment Specifics:
1. Download your company’s financial statements from Mergent
in Excel format.
2. Be sure to perform your analysis on:
A. Three years of Year-End Income Statements
B. Three years of Year End Balance Sheets
3. Copy original spreadsheets onto another worksheet in the
workbook to begin your
analysis.
4. Make two more copies (one for horizontal analysis, the other
for vertical analysis).
5. Perform horizontal analysis on one of the spreadsheets.
6. Perform vertical analysis on the other spreadsheet.
7. Perform ratio analysis in another spreadsheet.
Factors to consider when performing assignment:
1. How is the company grouping the income, expense and
balance sheet items?
2. What jumps out at you from anything on the financial
statements. (Unusual items
deserve more investigation.)
3. How much tax does the company report paying? (Companies
that pay tax are profitable,

3. companies that do not pay tax may not profitable.)
4. Are there any “extraordinary items” (good or bad) that are
not likely to show up in the
future?
IMAGE 1:
Arch of Titus. Rome. c. 81 CE (restored 1822-24). Concrete and
white marble, height 15 m.
IMAGE 2:
Temple of Hera I, Poseidonia (Roman Paestum). Southern Italy,
c. 550-540 BCE.
PROJECT NOTESType of AnalysisFinancial
StatementDescriptionHorizontalIncome StatementWhen
performing horizontal financial statement analysis on theincome
statement, all income statement items are expressedin terms of
their corresponding revenue or expense category inthe base
year.Horizontal income statement analysis allows a user to see
howwell a company is doing in terms of revenues, expenses
andprofits over time.The base year for the series is the oldest
year, and the changein each revenue, expense and profit line in
subsequent years isexpressed as a percentage change from the
previous year.Ideally, a company would be able to grow its
revenue at afaster rate than its expenses. If this is the case,
then thatcompany's profits would increase over time. If a
company'sexpenses are increasing faster than its revenues,
thenthat company's profits would decline over

4. time.HorizontalBalance SheetWhen performing horizontal
financial statement analysis on thebalance sheet, all balance
sheet items are expressedin terms of their corresponding asset,
liability or owner's equityitem in the base year.Horizontal
balance sheet analysis allows a user to see howwell a company
is doing in terms of assets, liabilities andowner's equity over
time.The base year for the series is the oldest year, and the
changein each asset, liability and owner's equity line in
subsequentyears is expressed as a percentage change from the
previousyear. Ideally, a company would be able to grow its
assets at afaster rate than its liabilities. If this is the case, then
thatcompany's owners' equity would increase over time. If on
theother hand a company's liabilities are increasing faster than
itsassets, then that company's owners' equity would declineover
time.Purpose ofThe purpose of performing horizontal financial
statementHorizontal Financialanalysis is to see how well a
company is doing over time, andStatement Analysisin relation
to its peers (other companies in the same industry),over that
same period. An industry analyst is looking forcompanies that
do better than their competitors over time.VerticalIncome
StatementWhen performing vertical financial statement analysis
on theincome statement, all income statement items for a given
yearare expressed as a percentage of net sales.Although vertical
income statement analysis is performed for agiven year, it can
be performed for more than one year. Oneof the benefits of
doing vertical income statement analysis overmore than one
year is that you can see how consistent acompany is in terms of
managing costs and expenses relativeto sales.When performing
vertical financial statement analysis on theincome statement for
a single year, an analyst might comparea company's cost and
expense percentages relative to thosesame percentages for its
peers. A company that has bettercontrol of its costs and
expenses relative to its peersis likely to be better managed, and
make a better investment.VerticalBalance SheetWhen
performing vertical financial statement analysis on thebalance
sheet, all balance sheet items for a given yearare expressed as a

5. percentage of total assets.Like vertical income statement
analysis, vertical balance sheetanalysis is performed for a given
year, but can also beperformed for more than one year.Analysts
look a individual companies in an industry todetermine how a
company is managing its assets and liabilitiesrelative to its
peers. A company that has lowers liabilities(as a percentage)
relative to its peers, is probably less risky,compared to a
company that has more liabilities (as apercentage of assets).The
most important asset to look at for any company in anyindustry
is how much cash they have relative to total assets,expressed as
a percentage of total assets. Cash is the mostimportant asset for
any company to have, because cash canbuy any other asset or
pay any liability.Another item to look for when performing
vertical financialstatement analysis on the balance sheet is
owners' equity.Companies that have more liabilities (as a
percentage of assets)will have smaller owner's equity (as a
percentage of assets)because liabilities and owners' equity are
on the same side ofthe balance sheet. Paradoxically, this can
make a companywith more debt (liabilities) relative to assets
more profitablebecause of the use of leverage. However too
much debtexposes the company to a greater risk of
bankruptcy.Purpose ofVertical financial statement analysis
allows a user to see expressVertical Financialall income
statement items as a percentage of sales, andStatement
Analysiscompare companies in the same industry, that might
becompletely different in size, by the same metrics.Vertical
financial statement analysis allows a user to express allbalance
sheet items as a percentage of assets to comparecompanies in
the same industry, that might becompletely different in size, by
the same metrics.RatioAs the name would imply, ratio analysis
involves (for the most)creating ratios by dividing a number in
one financial statementby another number in the same financial
statement, or dividinga number in one financial statement, by a
number in anotherfinancial statement. (Working capital
calculations typicallyare part of ratio analysis, but working
capital is not a ratio.)Purpose ofAgain, the primary purpose of

6. performing ratio anaysis is toRatio Analysisallow an analyst to
compare a company in an indsutry, to othercompanies in the
same industry, regardless of size. (When wecompare the same
ratios of companies of different sizes, in thesame industry, the
size of one company compared to its peersis not important.)
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INCOME STATEMENT - 1Vertical Financial Statement
AnalysisAll Figures in ThousandsAll Figures in ThousandsAll
Figures in ThousandsYear Ending December 31Year Ending
December 31Year Ending December
31201020112012DollarsPercentageDollarsPercentageDollarsPer
centageSales$1,250,000$1,500,000$1,650,000-Cost of
Sales750,000950,000975,000Gross
Profit$500,000$550,000$675,000ExpensesBusiness
Insurance15,00015,00015,000Depreciation
Expense5,0005,0005,000Employee Health
Insurance25,00027,50030,000Manager
Salaries100,000125,000135,000Incentive
Pay5,00015,0001,875Interest
Expense35,00030,00025,000Office
Rent50,00050,00050,000Outside
Consultants25,00050,00075,000Travel and
Entertainment12,50015,00017,500Voice and
Data15,00017,50020,000Total
Expenses$287,500$350,000$374,375Pre-Tax Net
Income$212,500$200,000$300,625Taxes
(@35.0%)$74,375$70,000$105,219After-Tax Net
Income$138,125$130,000$195,406
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INCOME STATEMENT - 2Horizontal Financial Statement
AnalysisAll Figures in ThousandsAll Figures in ThousandsAll
Figures in ThousandsYear Ending December 31Year Ending
December 31Year Ending December
31201020112012DollarsDollarsPercentageDollarsPercentageSal
es$1,250,000$1,500,000$1,650,000-Cost of
Sales750,000950,000975,000Gross
Profit$500,000$550,000$675,000ExpensesBusiness
Insurance15,00015,00015,000Depreciation
Expense5,0005,0005,000Employee Health
Insurance25,00027,50030,000Manager
Salaries100,000125,000135,000Incentive
Pay5,00015,0001,875Interest
Expense35,00030,00025,000Office
Rent50,00050,00050,000Outside
Consultants25,00050,00075,000Travel and
Entertainment12,50015,00017,500Voice and
Data15,00017,50020,000Total
Expenses$287,500$350,000$374,375Pre-Tax Net
Income$212,500$200,000$300,625Taxes
(@35.0%)$74,375$70,000$105,219After-Tax Net
Income$138,125$130,000$195,406
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BALANCE SHEET - 1Vertical Financial Statement AnalysisAll
Figures in ThousandsAll Figures in ThousandsAll Figures in
ThousandsDecember 31, 2010December 31, 2011December 31,
2012DollarsPercentageDollarsPercentageDollarsPercentageAsse

8. tsCurrent AssetsCash100,000147,500150,000Accounts
Receivable125,000175,000295,000Inventory225,000235,000240
,000Total Current Assets$450,000$557,500$685,000Long Term
AssetsFixtures50,00050,00055,000Tools and
Equipment125,000135,000130,000Vehicles155,000150,000145,
000Accumulated Depreciation-35,000-40,000-45,000Total Long
Term Assets$295,000$295,000$285,000Total
Assets$745,000$852,500$970,000LiabilitiesCurrent
LiabilitiesAccounts Payable75,00085,00095,000Notes
Payable50,00047,50045,000Total Current
Liabilities$125,000$132,500$140,000Long Term
LiabilitiesLong Term Debt (Due December 31,
2015)125,000120,000115,000Long Term Debt (Due December
31, 2020)050,00044,594Total Long Term
Debt$125,000$170,000$159,594Total
Liabilities$250,000$302,500$299,594Owner's EquityPaid in
Capital200,000200,000200,000Beginning Retained
Earnings231,875295,000350,000Net
Income138,125130,000195,406-Dividends to
Shareholders75,00075,00075,000=Retained
Earnings295,000350,000470,406Total Owner's
Equity495,000550,000670,406Total Liabilities and
Equity745,000852,500970,000Out of Balance00-0
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BALANCE SHEET - 2Horizontal Financial Statement
AnalysisAll Figures in ThousandsAll Figures in ThousandsAll
Figures in ThousandsDecember 31, 2010December 31,
2011December 31,
2012DollarsDollarsPercentageDollarsPercentageAssetsCurrent
AssetsCash100,000147,500150,000Accounts
Receivable125,000175,000295,000Inventory225,000235,000240
,000Total Current Assets$450,000$557,500$685,000Long Term

9. AssetsFixtures50,00050,00055,000Tools and
Equipment125,000135,000130,000Vehicles155,000150,000145,
000Accumulated Depreciation-35,000-40,000-45,000Total Long
Term Assets$295,000$295,000$285,000Total
Assets$745,000$852,500$970,000LiabilitiesCurrent
LiabilitiesAccounts Payable75,00085,00095,000Notes
Payable50,00047,50045,000Total Current
Liabilities$125,000$132,500$140,000Long Term
LiabilitiesLong Term Debt (Due December 31,
2015)125,000120,000115,000Long Term Debt (Due December
31, 2020)050,00044,594Total Long Term
Debt$125,000$170,000$159,594Total
Liabilities$250,000$302,500$299,594Owner's EquityPaid in
Capital200,000200,000200,000Beginning Retained
Earnings231,875295,000350,000Net
Income138,125130,000195,406-Dividends to
Shareholders75,00075,00075,000=Retained
Earnings295,000350,000470,406Total Owner's
Equity495,000550,000670,406Total Liabilities and
Equity745,000852,500970,000Out of Balance00-0
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Ratio FormulasLIQUIDITY RATIOSThe ability of the firm to
meet its short-term obligationsNET WORKING
CAPITALCURRENT ASSETS - CURRENT
LIABILITIESCURRENT RATIOCURRENT
ASSETS/CURRENT LIABILITIESQUICK RATIO(CURRENT
ASSETS - INVENTORY)/CURRENT LIABILITIESACTIVITY
RATIOSThe firm's ability to generate revenues in excess of
expenses and earn an adequate rate of returnINVENTORY
TURNOVERCOST OF GOODS SOLD/INVENTORYAVERAGE
COLLECTION PERIODACCOUNTS RECEIVABLE/AVERAGE
SALES PER DAYAVERAGE PAYMENT PERIODACCOUNTS

10. PAYABLE/AVERAGE PURCHASES PER DAYDAYS IN
RECEIVABLESACCOUNTS RECEIVABLES/360FIXED
ASSET TURNOVERSALES/NET FIXED ASSETSTOTAL
ASSET TURNOVERSALES/TOTAL ASSETSDEBT
RATIOSThe extent to which a firm relies on debt
financing(DEGREE OF INDEBTEDNESS)DEBT RATIOTOTAL
LIABILITIES/TOTAL ASSETSDEBT-EQUITY RATIOLONG
TERM DEBT/STOCKHOLDER'S EQUITY(ABILITY TO
SERVICE DEBT)TIMES INTEREST EARNEDEARNINGS
BEFORE INTEREST AND TAXES/INTERESTFIXED-
PAYMENT COVERAGE RATIO(EARNINGS BEFORE
INTEREST AND TAXES + LEASE PAYMENTS)/
INTEREST + LEASE PAYMENTS {(PRINCIPAL +
PREFERRED DIVIDENDS) X [1/(1-T)]}PROFITABILITY
RATIOThe effectiveness of the firm's use of resourcesGROSS
PROFIT MARGINGROSS PROFITS/SALESOPERATING
PROFIT MARGINOPERATING PROFITS/SALESNET PROFIT
MARGINNET AFTER TAX PROFIT/SALESPRETAX NET
INCOME TO SALESPRE TAX PROFIT/SALESRETURN ON
TOTAL ASSETSNET AFTER TAX PROFIT/TOTAL
ASSETSRETURN ON EQUITYNET AFTER TAX
PROFIT/STOCKHOLDER'S EQUITYASSET
UTILIZATIONSALES TO CASHSALES TO ACCOUNT
RECEIVABLESSALES TO INVENTORYSALES TO
WORKING CAPITALSALES TO FIXED ASSETSSALES TO
TOTAL ASSETSMARKET UTILIZATIONPRICE TO
EARNINGS RATIOPRICE TO BOOK VALUE
RATIOEARNINGS YIELD RATIODIVIDEND YIELD
RATIODIVIDEND PAYOUT RATIO
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RatiosLIQUIDITY RATIOS201020112012NET WORKING

11. CAPITALCURRENT RATIOQUICK RATIOACTIVITY
RATIOSINVENTORY TURNOVERAVERAGE COLLECTION
PERIODAVERAGE PAYMENT PERIODDAYS IN
RECEIVABLESFIXED ASSET TURNOVERTOTAL ASSET
TURNOVERDEBT RATIOS(DEGREE OF
INDEBTEDNESS)DEBT RATIODEBT-EQUITY
RATIO(ABILITY TO SERVICE DEBT)TIMES INTEREST
EARNEDFIXED-PAYMENT COVERAGE
RATIOPROFITABILITY RATIOGROSS PROFIT
MARGINOPERATING PROFIT MARGINNET PROFIT
MARGINPRETAX NET INCOME TO SALESRETURN ON
TOTAL ASSETSRETURN ON EQUITYASSET
UTILIZATIONSALES TO CASHSALES TO ACCOUNT
RECEIVABLESSALES TO INVENTORYSALES TO
WORKING CAPITALSALES TO FIXED ASSETSSALES TO
TOTAL ASSETSMARKET UTILIZATIONPRICE TO
EARNINGS RATIOPRICE TO BOOK VALUE
RATIOEARNINGS YIELD RATIODIVIDEND YIELD
RATIODIVIDEND PAYOUT RATIO
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COMPUTER PAPER
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CALENDARSUNDAYMONDAYTUESDAYWEDNESDAYTHU
RSDAYFRIDAYSATURDAY1234567891011121314151617181
92021222324252627282930NOTES
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