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Your Name Here
Your Company Name Here
Annual Report Workbook
Getting under the hood of an Annual Report
and knowing what’s inside
by Donald Bittar
Introduction
You can use this workbook for analyzing many companies and
saving your analysis for each one, like many professionals.
Just like them, over time, you can compare a company’s actual
performance to your analysis and predictions. Saving your
analysis sheets can help sharpen you analytical skills.

The questions in the workbook are numbered the same way as
they are in the book, ‘Getting Under the Hood of an Annual
Report’. As there are no questions in the first chapter of the
book, the workbook starts with Chapter 2. It will make it easier
for you to relate the questions in the workbook to those in the
book.
Your input to the workbook will appear in a dark green font
while the questions appear in blue. The different font colors
can make it easier for you to see your work.
You’ll need to do some number crunching to complete your
annual report analysis. The Big Calculating Tool, located on
your CD, can save you a great deal of time and make the
number crunching nearly painless. Every ratio and calculation
for the book is included in the Big Calculating Tool. You’ll
have more time for analysis if you use the Big Calculating Tool.
Table of Contents
Questions for Chapter 24
Question 2.0 – What do you want to learn about company and
why?4
Question 2.1 - Fundamental Information Set For Your
Company4
Question 2.2 - The Marketplace Context5
Question 2.3 - Challenges and Success for Your Company6
Question 3.1 – What is Management saying about your
company?8
Question 3.2 – What did the Chairman say?9
Question 3.3 – Internal Controls and Auditors10

Question 4.0 – What is your company’s fiscal year11
Question 4.1 – Current Assets11
Question 4.2 – Property, Plant and Equipment11
Question 4.3 – How good is the Goodwill12
Question 4.4 – Current Liabilities13
Question 4.5 – How much stock is there and who owns it?13
Question 4.6 – Who owns the stock?13
Question 4.7 – First look at the company’s strength14
Question 4.8 – Significant changes in the balance sheet15
Question 4.9 – Significant changes in the cash account15
Question 4.10 – Debt to equity and the competition15
Question 4.11 – ‘Income statement’. What’s in a name?16
Question 4.12 – How does your company report the core
business?16
Question 4.13 – How does your company describe its business
income?17
Question 4.14 – Irregular items. Good or Bad?17
Question 4.15 – The big questions. Are they makin’ money?
Are they lookin’ good?18
Question 4.16 – Which trend is important and why?19
Question 4.17 – How strong is your company’s cash position?19
Question 4.18 – How well can your company pay its bills?20
Question 4.19 – How leveraged is your company?21
Question 4.20 – How well does your company invest in its
future?22
Question 4.21 – Capital and Treasury Stock22
Question 4.21 –Basic information about your company not
found on the financial statement?23
Question 4.22 –Other significant information about your
company not found on the financial statement?23
Question 5.1 – Working Capital Balance25
Question 5.2 – Acid Test or Quick Ratio25
Question 5.3 – Current Ratio26
Question 5.4 – Cash Ratio27
Question 5.5 – Return on Sales Ratio28

Question 5.6 – Return on Equity Ratio28
Question 5.7 – Return on Assets Ratio29
Question 5.8 – Asset Turn Ratio30
Question 5.9 – Gross Profit Margin Ratio30
Question 5.10 – Inventory Turnover Ratio31
Question 5.11 – Days in Inventory Ratio32
Question 5.12 – Accounts Receivable Turnover Ratio33
Question 5.13 – Average Collection Period33
Question 5.14 – Accounts Payable Turnover Ratio34
Question 5.15 – Net Working Capital Turnover Ratio35
Question 5.16 – Debt to Equity Ratio36
Question 5.17 – Debt to Asset Ratio37
Question 5.18 – Gearing Ratio or Long Term Debt to
Shareholders’ Equity Ratio37
Question 5.19 – Interest Coverage Ratio or Debt Service
Ratio38
Question 5.20 –Earnings per Share39
Question 5.21 – Price/Earnings Ratio40
Question 5.22 –Dividend per Share40
Question 5.23 – Dividend Payout Ratio41
Question 6.0 – Calculate the Altman Z-Score43
Question 6.1 - What did you learn about your company43
Question 6.2 - Would you buy, sell, hold or stay away43
Questions for Chapter 2Question 2.0 – What do you want to
learn about company and why?
2.0 - What You Want To Learn About the Company and Why?
Priority

What do you want to learn?
Why do you want to learn it?
A
B
C
D
Question 2.1 - Fundamental Information Set For Your Company
The answer to the following questions may be found in either
the Annual Report to Stockholders or on the SEC Form 10-K. It
may also be necessary for you to use other sources. To fully
answer the questions, you must identify the source for your
information and also include the answer. If the question is not
applicable to your company, place “NA” as the answer. To
identify the source use “AR” for Annual Report to Stockholders
and “10K” for the SEC Form 10-K. If something else, use
“Other” and include the identification at the end of your answer.
2.1 - Fundamental Information Set For Your Company
Question
Source
Answer
A
What is the official company name?
B
What is Company headquarters address?

C
What is the Executive Office telephone number?
D
What is the Investor Relations telephone number?
E
What is the official company website?
F
What is the fiscal year ending date?
G
State of incorporation
H
What government agency, other than the SEC, has a significant
impact on your Company?
I
What is the trading symbol for your Company’s common stock?
J
Which stock exchange lists the common stock for your
Company?
K

What is the name of the stock transfer agent for your Company?
L
What is the Par Value for the common shares of your Company?
M
What is the number of common shares outstanding?
N
In the past 3 years what is the highest trading price for the
common stock for your company.
O
In the past 3 years what is the lowest trading price for the
common stock for your company?
P
How many members are on the Board of Directors?
Q
How many Board Members are present or past employees of the
Company?
R
How many are Board Members are from outside your Company?
S
Which companies or institutions do the outside Board Members

represent?
T
How many subsidiaries are directly or indirectly controlled by
your Company?
U
How many subsidiaries have jurisdictions outside the United
States?
Question 2.2 - The Marketplace Context
If analyzing a company’s performance were only about the
numbers, predicting the performance of a company would be
easy. Performance, success and failure are outcomes that are
affected by the marketplace. Your company does not exist
inside a vacuum. It lives alongside other companies actively
struggling to protect existing customer relationships and
working to create new customers. Often companies will
compete for the same customers. For some companies the
competitors are easily identifiable. Your company’s SIC code
can help you identify its competitors. They will have the same
SIC code. Other companies compete indirectly with alternative
products or technologies making it difficult to identify
competitors. Consider FedEx with both direct and indirect
competitors.
The answer to the following questions may be found in either
the Annual Report to Stockholders or on the SEC Form 10-K. It
may also be necessary for you to use other sources. To fully
answer the questions, you must identify the source for your
information and also include the answer. If the question is not
applicable to your company, place “NA” as the answer. To
identify the source use “AR” for Annual Report to Stockholders
and “10K” for the SEC Form 10-K. If something else, use

“Other” and include the identification at the end of your answer.
2.2 - The Marketplace Context
Question
Source
Answer
A
What is the Standard Industrial Classification and the SIC Code
for your company? List all that may apply?
B
What is the company’s primary product, product group or
business segment?
C
Is there a single customer that accounts for more than 10% of
total net sales?
D
What is the major customer profile for your company?
E
Is there a competitor larger than your Company?
F
Which company is the most significant competitor for your
Company?
G

What is the country of origin for this competitor?
H
During the past 2 years, has your Company launched a
significant new product or service? If yes, what is the product
or service?
I
During the past 2 years, has your company entered a new
market? If yes, what is the market and where is located?
J
During the past 2 years, has your Company launched a new
technology? If yes, what is it?
K
What are the technological issues for your Company? How are
they described?
Question 2.3 - Challenges and Success for Your Company
Review the Annual Report for Stockholders and the Form 10-K
for your company. Using the above list of Marketplace Issues,
identify the marketplace issues affecting your company. Your
company is large enough to be newsworthy. Most likely, the
issue you identified in the Annual Report for Stockholders or
the Form 10-K might be reported elsewhere. With research
apart from the Annual Report for Stockholders and the Form 10-
K you may be able to find additional information about the
issue. There are several print media research sources available
in the library:
1. Wall Street Journal
2. New York Times

3. Barron’s
4. Moody’s Complete Corporate Index
5. Standard and Poor’s Industry Guide
The Internet makes a vast universe of material available to you.
It is fast and convenient. The chances are remote that you will
not be able to discover sufficient information to satisfy your
needs. Use your favorite search tool and start digging.
Your company is a good place to start. Their website may have
relevant press releases about the issue. Some of the officers
may have made speeches or written articles about it.
Describe the significant marketplace issues identified in the
Annual Report for Stockholders and the Form 10-K for your
company. For each issue:
1. Include the marketplace category.
2. The description of the issue as it appeared in the Annual
Report for Stockholders and the Form 10-K for your company.
3. Your interpretation of its significance to the company, what
the importance is to the company and if management is capable
of creating a positive outcome.
2.3 - Challenges and Success for Your Company
Marketplace Issue
Description of the Issue
Significance
A
B

C
D
Questions for Chapter 3Question 3.1 – What is Management
saying about your company?
When reading the Management’s Discussion and Analysis of
Operations and Financial Condition (MD&A) asking each of the
following questions will help to identify a significant fact that
will help you understand your annual report. Pick an item
reported in the MD&A which you believe to be significant and
ask yourself:
· What is it?
· When did it occur?
· Where did the action take place?
· Who was involved?
· Why did this happen?
· How did it happen
Answer as much of the five Ws and one H as you can from the
annual report. Next, use the internet and other printed media
sources to get additional information about the item. From the
combined sources you should be able gather a reasonably
complete assessment of the item.
Identify the source of your outside material.
Use the following template to complete your answers.

3.1.1 - What is Management saying about your company?
Copy the item from the MD&A and paste it below.
3.1.2
Five Ws and One H
Form 10-K MD&A
Outside Source Material
Paste information from the 10K in this column.
Paste information from outside sources in this column. Include
the source link.
A
In your own words describe the item?
B
When did it occur?
C
Where did the action take place?
D
Who was involved?
E
Why did this happen?

F
How did it happen?
G
In your opinion, what do you believe is the importance of this
item to your company? How will it impact the company?
Question 3.2 – What did the Chairman say?
Read the Chairman’s Message in the Annual Report to
Stockholders for your company. You might also find the
Chairman’s message in the company’s annual proxy statement.
Identify the issues and events outlined in the Message.
Highlighting the text of the issues and events can help assess
their significance and prioritize them.
3.2.1 - What did the Chairman say?
A
In your opinion, what is the most significant issue in the
Message?
B
Quote the Chairman’s description of the issue?
C
What is the significance of the issue for the company?
D
Did the Message include a solution for the issue? If yes, what
was it?

E
Did the solution instill confidence in you?
F
If yes, why? If no, why?
The Chairman’s Message is read by a wide and diverse
constituency. Select a group of constituents excluding
stockholders, investors and financial analyst. Write your
opinion of how you believe they will react to the Chairman’s
message. Select one from the following constituents.
Creditors
Regulatory agencies
Competitors
Employees
Local and state governments
Suppliers
Salespeople
Foreign governments
Vendors
Franchisees
Environmental activists
Distributors
Unions
Consumer advocates
Customers
Human rights advocates
Press and media
Regulatory agencies

3.2.2 – What did the Chairman say?
A
Constituent’s name
B
With respect to the company, is the constituency supportive,
neutral or adversarial?
C
What issue in the Chairman’s message will cause the greatest
reaction?
D
How do you believe the constituency will react to the issue?
E
Why do you believe they will react that way?
F
Will their reaction create a positive or negative impact on the
Company? What will be the impact and why?
Question 3.3 – Internal Controls and Auditors
Information about the company’s compliance with SOX can be
found in SEC Form 10-K. The section called Controls and
Procedures includes information about how the company is
complying with the SOX reporting requirements. Generally
preceding the section on Controls and Procedures is the Report
of Independent Registered Public Accounting Firm. It will also
contain information about internal controls and auditors.

Review these sections of your company’s SEC Form 10-K and
answer the following questions.
3.3 – Internal Controls and Auditors
A
Who in your company is responsible for the internal disclosure
controls and procedures?
B
Who are members of the Audit Committee?
C
What is the name of the independent auditor for your company?
D
What was the auditor’s opinion of the consolidated financial
statement?
E
What was the auditor’s opinion of the internal disclosure
controls and procedures?
Questions for Chapter 4Question 4.0 – What is your company’s
fiscal year
4.0 – What is your company’s fiscal year?
A
When does your company’s fiscal year end?

B
In your opinion, why did your company select this date to end
its fiscal year?
C
Do competitors use the same fiscal year as your company?
Question 4.1 – Current Assets
Some companies have current assets other than Cash, Short
Term Investments, Accounts Receivables and Inventories.
Locate the Current Asset section of the Balance Sheet for your
company and review the current asset categories.
What categories of current assets, other than Cash, Short Term
Investments, Accounts Receivables and Inventories are reported
by your company? What is their significance to the company?
Mark your answer “NA” if your company does not report
current asset categories other than Cash, Short Term
Investments, Accounts Receivables and Inventories.
4.1 – Current Assets
Current Asset Category
Significance
A
B
C

D
Question 4.2 – Property, Plant and Equipment
Some companies have categories for Property, Plant and
Equipment other than land, buildings, factories, furniture and
equipment. What categories of Property Plant and Equipment
other than land, buildings, factories, furniture and equipment
are reported by your company? What is it their significance to
the company? Mark your answer “NA” if your company does
not report categories of Property Plant and Equipment other
than land, buildings, factories, furniture and equipment.
4.2 – Property, Plant and Equipment?
Property Plant and Equipment Category
Significance
A
B
C
D
Question 4.3 – How good is the Goodwill
Goodwill is a balance sheet item reported by many companies.

The details of the Goodwill are generally described in the Notes
to the Financial Statement. Goodwill should reflect the
strategic future value of an acquisition. Mark your answer
“NA” if your company does not report Goodwill.
4.3 – How good is the Goodwill?
A
Does your company report Goodwill?
B
What is the value of the Goodwill?
C
What is the ratio of Goodwill to Total Assets (Goodwill Total
Assets)?
D
In your opinion why is the ratio of Goodwill to Total Assets
significant or insignificant?
E
What was the source of the Goodwill?
F
In your opinion why was the acquisition justified or not
justified?
Question 4.4 – Current Liabilities
Some companies have current liabilities other than Accounts
Payable, Accrued Salaries and Wages and Accrued Income Tax.
Locate the Current Liabilities section of the Balance Sheet for

your company and review the current liability categories.
What categories of current liabilities other than Accounts
Payable, Accrued Salaries and Wages and Accrued Income Tax
are reported by your company? What is it their significance to
the company? Mark your answer “NA” if your company does
not report current liability categories other than Accounts
Payable, Accrued Salaries and Wages and Accrued Income Tax.
4.4 – Current Liabilities
Current Liability Category
Significance
A
B
C
D
Question 4.5 – How much stock is there and who owns it?
The equity structure is a significant aspect of a public company.
It can have a dramatic impact on stock price movement and
appreciation. Review the SEC Form 10-K and Annual Report to

Stockholders and answer the following questions.
4.5 – How much stock is there and who owns it?
A
What is the par value of the common stock?
B
What is the number of shares outstanding?
C
What is the current listed market price for the common stock?
D
What is the number of common shares authorized?
E
What is the number of treasury shares?
Question 4.6 – Who owns the stock?
Knowing who owns large blocks of stock can be useful
information when assessing the investment value of a company.
The percent ownership of a company will determine the amount
of control a shareholder has over the company. In a democratic
election, each citizen has only one vote. In a corporate
election, each shareholder gets one vote for each share of stock
the shareholder owns. A shareholder with 1million share gets
1million votes while a shareholder with 10 shares gets only 10
votes. In a company with 3million shares outstanding, the
shareholder with 1million shares has much more influence and
power than the shareholder with 10 shares. Proxy Statement
The company’s annual proxy statement will disclose the number
of shares owned by the each member of the Board of Directors.
It will also identify all shareholders who own 5% or more of the

common stock and voting stock of the company. The annual
proxy statement must be filed with the Securities Exchange
Commission using Form DEF 14a, the definitive annual proxy
statement.
4.6 – Who owns the stock?
A
How many shares are held by Officers and Directors? What
does this tell you?
B
Who is the largest stockholder? What does this tell you about
the company?
C
What other classes of stock are outstanding?
Question 4.7 – First look at the company’s strength
The balance sheet is a snapshot of the company financial
strength. Endurance and strength are important when
attempting to assess an athlete’s ability and it is the same for a
public company. The first place to look for a company’s
endurance and strength are the current and previous year
balance sheets.
Calculate the percent increase or decrease in each of the
following balance sheet accounts. Place the percentage in
parenthesis if it is negative.
4.7 – First look at the company’s strength

Current Year
Previous Year
Percent Change
A
Cash and cash equivalents
B
Accounts Receivable
C
Inventory
D
Property, plant & equipment
E
Accounts Payable
F
Accrued Salaries

G
Accrued Income Tax
H
Long term debt
I
Common Stock
J
Treasury Stock
K
Retained Earnings
Question 4.8 – Significant changes in the balance sheet
In your opinion, what were the two most significant changes in
the company’s balance sheet between the current year and the
previous year? What were the two balance sheet accounts?
Why do you believe they are significant?
4.8 – Significant changes in the balance sheet

Balance Sheet Account
Why the change was significant?
A
B
Question 4.9 – Significant changes in the cash account
Cash is an important part of a business. Some people say,
“Cash is king.” Describe the change in the Cash and Cash
Equivalent account between the current year and the previous
year. In your opinion why was it or was it not significant?
4.9 – Significant changes in the cash account
Change in the account
Why the change was significant?
Question 4.10 – Debt to equity and the competition
The debt load for a company may or may not be a burden. It
can become a competitive detriment when the debt service it too
large or when the company’s ability to borrow is too retrained.
It could also create vulnerability if the company’s chief
competitor has the borrowing strength to “buy market share.”
What is the current ratio of total debt to total stockholder’s
equity for your company’s most significant competitor? What
is the current ratio of total debt to total stockholder’s equity for
your company? Has the ratio changed between the current year
and the previous year for your company? Why or why not was
the change in the ratio significant?
4.10 – Debt to equity and the competition

A
equity for your company’s most significant competitor?
B
equity for your company?
C
Has the ratio changed between the current year and the previous
year for your company?
D
Why or why not was the change in the ratio significant?
Question 4.11 – ‘Income statement’. What’s in a name?
The income statement is a report of the company’s revenue and
expenses. Companies have been using the report for almost a
hundred years. Over the years, accountants have adopted
different names for the income statement. What name does your
company use for the income statement? In your opinion why do
they use it instead of ‘income statement’?
4.11 – ‘Income statement’. What’s in a name?
A
What name does your company use for the ‘income statement’?
B
In your opinion, why do they use it?
business?

Often, a company will use terms closely related to their core
business when describing the line items in the operational
section of the income statement. Some standard descriptions
for the line items in the operational section of the income
statement are:
· net sales
· cost of goods sold
· gross profit
· general administrative expense
· operating income
How does your company describe the items in its operating
section of the income statement? Does the company use
descriptions other than net sales, cost of goods sold, gross
profit, general administrative expense and operating income?
Why do you believe they use them? What does it tell you about
the core business for the company? Mark your answer “NA” if
your company did not unique operating section descriptions.
4.12 – How does your company report the core business?
Item descriptions
In your opinion, why is it used?
A
B
C
D

E
F
What does it tell you about the core business for the company?
income?
The way a company reports its income can help to better
understand how the company prioritizes its revenue streams and
how it perceives its core business. Does your company report
revenues by business segment? What segments are individually
identified? In your opinion, does the most significant business
appear first? What is the most significant business segment and
why? Mark your answer “NA” if your company did not report
revenue by business segment.
4.13 – How does your company describe its business income?
Revenue segment descriptions
Identify the most significant segment and explain why it is the
most significant.
A
B
C
D

E
Question 4.14 – Irregular items. Good or Bad?
While the term “irregular” is not intended as a value judgment,
these items can have a positive or negative impact on the
company. Review the income statement. Select the one
irregular item on the income statement or in the notes section
you believe is the most significant. Mark your answer “NA” if
your company did not report an irregular item.
4.14 – Irregular items. Good or Bad?
A
How many irregular items were reported individually on the
income statement?
B
Describe the irregular item you believe is most significant? Use
the description as it appears on the income statement or in the
notes.
C
What was the dollar value of the item?
D
Was the item reported individually as a separate line item on the
income statement or in the notes section? In your opinion, why

was it reported in the notes or as a line item?
E
Did the item have a positive, negative or neutral impact on the
company?
F
In your opinion, why does the item have a positive, negative or
neutral impact on the company?
G
In your opinion, will the impact be short term, ongoing or long
term. Why?
Are they lookin’ good?
The answer to Benny’s question “Are they makin’ money?”
cannot always be answered with a “yes” or a “no”. Whether
your company is “lookin’ good” may be difficult to answered
with a “yes” or a “no”. Understanding the income and expense
trends will generally reveal enough information to answer “the
big questions”. Review the three year period reported in your
company’s income statement. Describe the trend for each of the
major accounts on your company’s income statement. Describe
the trend direction. Use phrases like: up only this year but level
in previous years, consistently up, down only this year,
consistently down or level for all years. Also, in your opinion
is the trend positive, negative, insignificant? Your company
may have different account descriptions and additional
significant accounts. Modify the accounts to fit your
company’s income statement. Enter the amounts in millions of
dollars from the SEC Form 10K, for the current year, the
previous year and the next previous year.
Are they lookin’ good?

Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Net Sales
B
Cost of Goods Sold
C
Gross Profit
D
Operating Expense
E
Operating Income (loss)

F
Non-operating income (loss)
G
Income Tax
H
Net Income
I
J
K

L
M
Question 4.16 – Which trend is important and why?
The account with largest declining or increasing trend is not
always the most significant trend on a company’s income
statement. Of the trends you identified in the previous
question, which account, in your opinion, has the most
significant trend for your company? Why do you believe it to
be the most significant? Trends generally do not remain
constant forever. What might reverse the significant trend and
how might the reversal affect your company?
4.16 – Which trend is important and why?
A
What account has the most significant trend for your company?
B
Why do you believe it is the most significant trend?
C
What might reverse this trend and how would the reversal

impact the company?
Question 4.17 – How strong is your company’s cash position?
Enter the amounts for each cash flow account from your
company’s Statement of Cash Flow.
Review the three year period reported in your company’s
Statement of Cash Flow. Describe the trend for each of the
major accounts. Describe the trend direction. Use phrases like:
up only this year but level in previous years, consistently up,
down only this year, consistently down or level for all years.
Also, in your opinion is the trend positive, negative,
insignificant? Your company may have different account
descriptions and additional significant accounts. Modify the
accounts to fit your company’s Statement of Cash Flow. Enter
the amounts in millions of dollars from the SEC Form 10K, for
the current year, the previous year and the next previous year.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Net cash from operating activity
B
Net cash from investing activity

C
Net cash from financing activity
D
Net increase (decrease) in cash and cash equivalents
E
Cash and cash equivalents at beginning of year
F
Cash and cash equivalents at end of year
Question 4.18 – How well can your company pay its bills?
Enter the amounts, for all three periods, for the Net Cash from
Operating Activity account from your company’s Statement of
Cash Flow. Enter the amounts, for all three periods, for the
Current Liabilities from your company’s Balance Sheet. For
each period, calculate the Operating Cash Flow Ratio using the
following formula.
Net Cash from Operating Activity ÷ Current Liabilities
Enter the amounts in millions of dollars from the SEC Form
10K, for the current year, the previous year and the next
previous year. Describe the trend for each of the major

accounts. Describe the trend direction. Use phrases like: up
only this year but level in previous years, consistently up, down
only this year, consistently down or level for all years. Also, in
your opinion is the trend positive, negative, insignificant?
Question 4.18 – How well can your company pay its bills
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
B
Current Liabilities
C
Operating Cash Flow Ratio
The operating cash flow ratio can gauge a company's liquidity
in the short term. Using cash flow as opposed to income is
sometimes a better indication of liquidity simply because, as we
know, cash is how bills are normally paid off. If the operating

cash flow ratio is less than one, it means that the company has
generated less cash over the year than it needs to pay off short
term liabilities as at the year end. This may signal a need to
raise money to meet liabilities.Question 4.19 – How leveraged
is your company?
Enter the amounts, for all three periods, for the Net Cash from
Operating Activity account from your company’s Statement of
Cash Flow. Enter the amounts, for all three periods, for the
Interest Expense from your company’s Income Statement. For
each period, calculate the Cash Interest Coverage Ratio using
the following formula.
Net Cash from Operating Activity ÷ Income Expense
previous year. Describe the trend for each of the major
accounts. Describe the trend direction. Use phrases like: up
only this year but level in previous years, consistently up, down
only this year, consistently down or level for all years. Also, in
your opinion is the trend positive, negative, insignificant?
Question 4.19 – How leveraged is your company?
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
B
Interest Expense

C
Cash Interest Coverage Ratio
The Cash Interest Coverage Ratio is an indicator of how well
your company will be able to make the interest payments on its
entire debt load. A highly leveraged company will have a low
ratio, and a company with a strong financial position will have a
high ratio. Any company with a cash interest ratio less than 1.0
is in risk of potential default. The company must raise cash
outside its core business to make its current interest payments.
A ratio of 1.5 is generally considered the bare minimum level of
comfort for any company in any industry.
Interest coverage is the equivalent of a person taking the
combined interest expense from their mortgage, credit cards,
automobile loans and education loans and calculating the
number of times they can pay it with their annual pre-tax
income. For bondholders, the Cash Interest Coverage Ratio
might act as a safety gauge. It might give the bondholder a
sense of how far a company’s earnings can fall before the
company will start defaulting on its bond payments. For
stockholders, the Cash Interest Coverage Ratio is important
because it gives a clear picture of the short-term financial
health of a business.
future?
Enter the amounts, for all three periods, for the Retained

Earnings per share and the Stockholders’ Equity per share from
your company’s Statement of Stockholders’ Equity. For each
period, calculate the Retained Earnings Ratio using the
following formula.
Retained Earnings Per Share ÷ Stockholders’ Equity per share
Enter the amounts in dollars from the SEC Form 10K, for the
current year, the previous year and the next previous year.
Describe the trend for each of the major accounts. Describe the
trend direction. Use phrases like: up only this year but level in
previous years, consistently up, down only this year,
is the trend positive, negative, insignificant?
Dividends paid to stockholders from earnings cannot be used to
help the company grow. One way for the company to grow is to
invest the earnings in the core business for the company.
Generally, companies will retain their earnings to invest in
growth opportunities, such as buying new equipment, investing
in research and development or acquisitions.
Last, explain why your company is or is not investing
adequately in its future.
future?
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Retained Earnings per share

B
Stockholders’ Equity per share
C
Retained Earnings Ratio
D
Is your company investing adequately in its future and why?
Question 4.21 – Capital and Treasury Stock
Enter the amounts, for all three periods, for number of shares
outstanding for common stock and preferred stock outstanding
and treasury stock. List the addition ‘classes’ of capital stock
which you company may have. Enter the amounts in millions of
shares from the SEC Form 10K, for the current year, the
previous year and the next previous year. Enter “NA” if your
company has no preferred stock or treasury stock. Describe the
trend for each of the major accounts. Describe the trend
direction. Use phrases like: up only this year but level in
Accounts
Current Yr
Previous Yr

Next Previous Yr
Trend Description
A
Common stock
B
Preferred stock
C
Treasury stock
D
E
F

found on the financial statement?
How is information about the following items disclosed by your
company in the Notes to the Financial Statement? Generally,
this information can be found in Note 1. The titles may not be
identical to the title in the question. Enter “NA” if your
company has no notes for a question.
A
Description of Business
B
Consolidation
C
Foreign Currency
D
Cash and Cash Equivalents
E
Inventories
company not found on the financial statement?
How is information about the following items disclosed by your
company in the Notes to the Financial Statement? The titles

may not be identical to the title in the question. Enter the
information disclosed about each of the items in the Notes for
your company. Additionally, enter the note number in which
the information was disclosed. Last, explain why you believe
this disclosure is or is not significant. Enter “NA” if your
company has no notes for a question.
Question 4.22 –Other information about your company not
Accounts
Note #
Disclosure
Importance
A
Discontinued Operations
B
Related Parties
C
Contingencies
Questions for Chapter 5Question 5.1 – Working Capital Balance
The working capital balance compares current assets to current
liabilities. It can also demonstrate the amount of liquid reserve
the company has available to handle contingencies. A high

working capital balance is necessary if your company might
have difficulty borrowing on short notice. A low working
capital balance might mean your company may have difficulty
meeting its short-term obligations.
Enter the amounts, for all three periods, for the Current Assets
and the Current Liabilities from your company’s Balance Sheet.
For each period, calculate the Working Capital Balance using
the following formula.
Current Assets - Current Liabilities
previous year. Describe the trend direction for the Working
Capital Balance. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Working Capital Balance
for your company is or is not adequate for its future.
Question 5.1 – Working Capital Balance
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Current Assets
B
Current Liabilities

C
Working Capital Balance
D
Why is or is not the Working Capital Balance adequate for your
company?
Question 5.2 – Acid Test or Quick Ratio
This ratio will help you measure the degree of liquidity for your
company. The quick ratio compares the company’s cash, cash
equivalents and accounts receivable to the current liabilities.
The primary difference between the current ratio and the quick
ratio is the quick ratio does not include inventory and prepaid
expenses in the calculation. The company’s quick ratio should
be lower than its current ratio. It is a severe test of liquidity.
Enter the amounts, for all three periods, for the Cash, Accounts
Receivable, Short-term investments and the Current Liabilities
from your company’s Balance Sheet. For each period, calculate
the Acid Test Ratio using the following formula.
(Cash + Accounts Receivable + Short-term Investments) ÷
Current Liabilities
previous year. Describe the trend direction for the Acid Test
Ratio. Use phrases like: up only this year but level in previous
years, consistently up, down only this year, consistently down
or level for all years. Also, in your opinion is the trend
positive, negative, insignificant?

Last, in your opinion, explain why the Acid Test Ratio for your
company is or is not adequate for its future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Cash
B
Accounts Receivable
Short term investments
Current Liabilities
C

Acid Test Ratio
D
Why is or is not the Acid Test Ratio adequate for your
company?
E
Acid Test trend Description
Question 5.3 – Current Ratio
This is another ratio to help you measure the degree of liquidity
for your company. The Current Ratio compares the company’s
current assets to its current liabilities.
Enter the amounts, for all three periods, for the Current Assets
and the Current Liabilities from your company’s Balance Sheet.
For each period, calculate the Current Ratio using the following
formula.
Current Assets ÷ Current Liabilities
previous year. Describe the trend direction for the Current
Last, in your opinion, explain why the Current Ratio for your

Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Current Assets
B
Current Liabilities
C
Current Ratio
D
Why is or is not the Current Ratio adequate for your company?
E
Current Ratio trend description
Question 5.4 – Cash Ratio
This is ratio to help you measure the degree of short term
liquidity for your company. The Cash Ratio compares the
company’s cash to its current liabilities. The ratio is
particularly useful if the company’s receivables and its
inventory are pledged or if there may be liquidity problems with
inventory and receivables.

Enter the amounts, for all three periods, for the Cash and the
Current Liabilities from your company’s Balance Sheet. For
each period, calculate the Cash Ratio using the following
formula.
Cash ÷ Current Liabilities
previous year. Describe the trend direction for the Cash Ratio.
Use phrases like: up only this year but level in previous years,
consistently up, down only this year, consistently down or level
for all years. Also, in your opinion is the trend positive,
negative, insignificant?
Last, in your opinion, explain why the Cash Ratio for your
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Cash
B
Current Liabilities

C
Cash Ratio
D
Why is or is not the Cash Ratio adequate for your company?
E
Cash Ratio trend description
Question 5.5 – Return on Sales Ratio
This ratio will help you measure the net income generated by
each dollar of sales. It is an effective gauge for determining the
rate of profit returned on sales. The Return on Sales Ratio can
be useful for estimating how well the company can handle price
wars, sales declines and rising costs.
Enter the amounts, for all three periods, for the Net Income and
the Net Sales from your company’s Income Statement. For each
period, calculate the Return on Sales Ratio using the following
formula.
Net Income ÷ Net Sales
previous year. Describe the trend direction for the Return on
Sales Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Return on Sales Ratio for
your company is or is not adequate for its future.

Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Net Income
B
Net Sales
C
Return on Sales Ratio
D
Why is or is not the Return on Sales Ratio adequate for your
company?
Question 5.6 – Return on Equity Ratio
This ratio is widely used by many investors. It is an effective
measure for the income earned on the shareholder's investment
in the business. The Return on Equity Ratio can be useful for
making a value judgment on how well management is create
profits with the investment shareholders have in the company.
The higher the Return on Equity Ratio, the better it is.

Enter the amounts, for all three periods, for the Net Income
from your company’s Income Statement and Stockholders’
Equity from the balance sheet. For each period, calculate the
Return on Equity Ratio using the following formula.
Net Income ÷ Stockholders’ Equity
Equity Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Return on Equity Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Net Income
B
Stockholders’ Equity
C

Return on Equity Ratio
D
Why is or is not the Return on Equity Ratio adequate for your
company?
Question 5.7 – Return on Assets Ratio
This ratio is used to measure how well a company is turning its
assets into profit. It may sound like the total assets turnover
ratio but it is different. The total assets turnover ratio measures
how effectively a company's assets generate revenue. It is a
useful tool to measure how well management is turns the
company’s assets into profit. The higher the value for the
Return on Assets Ratio, the better the company is performing.
Enter the amounts, for all three periods, for the Net Income
from your company’s Income Statement and Total Assets from
the balance sheet. For each period, calculate the Return on
Assets Ratio using the following formula.
Net Income ÷ Total Assets
Assets Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Return on Assets Ratio

Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Net Income
B
Total Assets
C
Return on Assets Ratio
D
Why is or is not the Return on Assets Ratio adequate for your
company?
E
Return on Asset Ratio trend description
Question 5.8 – Asset Turn Ratio
This ratio is used to measure how well a company is using its
assets to create revenues. The higher the value for the Asset
Turn Ratio, the better the company is performing.
Enter the amounts, for all three periods, for the Net Sales from

your company’s Income Statement and Total Assets from the
balance sheet. For each period, calculate the Asset Turn Ratio
using the following formula.
Net Sales ÷ Total Assets
previous year. Describe the trend direction for the Asset Turn
Last, in your opinion, explain why the Asset Turn Ratio for
your company is or is not adequate for its future.
Question 5.8 – Asset Turnover Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Net Sales
B
Total Assets
C
Asset Turn Ratio

D
Why is or is not the Assets Turn Ratio adequate for your
company?
E
Asset Turnover Ratio trend description
Question 5.9 – Gross Profit Margin Ratio
This ratio is used to measure the relationship between net sales
revenue and the cost of goods sold. It shows the amount of
each dollar of sales your company turns into profit. The higher
the value for the Gross Profit Margin Ratio, the better your
company is performing. It is also important to note different
industries may have very different gross margins.
Enter the amounts, for all three periods, for the Gross Profit and
Net Sales from your company’s Income Statement. For each
period, calculate the Gross Profit Margin Ratio using the
following formula.
Gross Profit ÷ Net Sales
previous year. Describe the trend direction for the Gross Profit
Margin Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Gross Profit Margin
Ratio for your company is or is not adequate for its future.

Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Gross Profit
B
Net Sales
C
Gross Profit Margin Ratio
D
Why is or is not the Gross Profit Margin Ratio adequate for
your company?
E
Gross Profit Margin Ratio trend description
Question 5.10 – Inventory Turnover Ratio
This ratio is used to measure how effectively your company
converts its inventory into cash. It shows how well your
company manages its inventory levels. If inventory turnover is
too low, it may indicate the company is overstocking inventory.

It may also indicate the company is having issues selling
products. The higher the value for the Inventory Turnover
Ratio, the better your company is performing. It is also
important to note different industries may have very different
inventory turn ratios. For some industries, the Inventory
Turnover Ratio is not a significant as it is for other industries.
Enter the amounts, for all three periods, for the Cost of Goods
Sold from your company’s Income Statement and Inventory
from the balance sheet. For each period, calculate the Inventory
Turn Ratio using the following formula.
Cost of Goods Sold ÷ Inventory
previous year. Describe the trend direction for the Inventory
Turn Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Inventory Turnover Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Cost of Goods Sold

B
Inventory
C
Inventory Turn Ratio
D
Why is or is not the Inventory Turn Ratio adequate for your
company?
E
Inventory Turnover Ratio trend description
Question 5.11 – Days in Inventory Ratio
holds its inventory before it is sold. Generally, the longer
inventory is remains unsold, the greater the chance it may not
be sold or sold at less than its value. The Days in Inventory
Ratio more important for companies with inventory that is
perishable or subject to obsolescence. Companies with short
product life cycles like high technology, automobile, toys and
fashion might find this ratio important.
Enter the value, for all three periods, for the Inventory Turnover
Ratio. For each period, calculate the Days In Inventory Ratio
365 ÷ Inventory Turnover Ratio
previous year. Describe the trend direction for the Days In

Inventory Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Days In Inventory Ratio
Question 5.11 – Days In Inventory Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
365
365
365
365
B
Inventory Turn Ratio
C
Days In Inventory Ratio
D
Why is or is not the Days In Inventory Ratio adequate for your
company?

Question 5.12 – Accounts Receivable Turnover Ratio
This ratio is used to measure how effectively your company is
able to collect from its customers.
A high turnover value is better. It shows your company is
collecting revenues effectively and customers pay bills on time.
A high figure also suggests that a firm's credit and collection
policies are sound. Accounts receivable turnover may differ
between different industries. For some industries, the Accounts
Receivable Turnover Ratio is not a significant as it is for other
industries.
your company’s Income Statement and Accounts Receivable
from the balance sheet. For each period, calculate the Accounts
Receivable Turnover Ratio using the following formula.
Net Sales ÷ Accounts Receivable
previous year. Describe the trend direction for the Accounts
Receivable Turnover Ratio. Use phrases like: up only this year
but level in previous years, consistently up, down only this
year, consistently down or level for all years. Also, in your
opinion is the trend positive, negative, insignificant?
Last, in your opinion, explain why the Accounts Receivable
Turnover Ratio for your company is or is not adequate for its
future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio

A
Net Sales
B
Accounts Receivable
C
Accounts Receivable Turnover Ratio
D
Why is or is not the Accounts Receivable Turnover Ratio
adequate for your company?
E
Accounts Receivable Turnover Ratio trend description
Question 5.13 – Average Collection Period
collects money from customers. The Average Collection Period
shows the average number of days the company must wait for
its Accounts Receivable to be paid. Comparing the days in the
average collection period to the payment terms generally
available to customers can help describe how quickly the
company is collecting its money. Often, the longer receivables
remain unpaid the more difficult they are to collect.
Enter the value, for all three periods, for the Accounts

Receivable Turnover Ratio. For each period, calculate the
Average Collection Period using the following formula.
365 ÷ Accounts Receivable Turnover Ratio
previous year. Describe the trend direction for the Average
Collection Period. Use phrases like: up only this year but level
in previous years, consistently up, down only this year,
Last, in your opinion, explain why the Average Collection
Period for your company is or is not adequate for its future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
365
365
365
365
B
Accounts Receivable Turnover Ratio
C
Average Collection Period

D
Why is or is not the Average Collection Period adequate for
your company?
Question 5.14 – Accounts Payable Turnover Ratio
This ratio is used to measure the length of time needed for your
company to repay its vendors.
A high turnover value is better than a low turnover value.
Generally, it shows your company is paying bills on time. The
ratio might be a good barometer of your company’s financial
stability. A high Account Payable Turnover ratio indicates your
company produces cash quickly. A low ratio might infer your
company may have cash flow issues.
Enter the amounts, for all three periods, for the Cost of Goods
Sold from your company’s Income Statement and Accounts
Payable from the balance sheet. For each period, calculate the
Accounts Payable Turnover Ratio using the following formula.
Cost of Goods Sold ÷ Accounts Payable
previous year. Describe the trend direction for the Accounts
Payable Turnover Ratio. Use phrases like: up only this year but
level in previous years, consistently up, down only this year,
Last, in your opinion, explain why the Accounts Payable
future.

Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Cost of Goods Sold
B
Accounts Payable
C
Accounts Payable Turnover Ratio
D
Why is or is not the Accounts Payable Turnover Ratio adequate
for your company?
Question 5.15 – Net Working Capital Turnover Ratio
The company’s operations and inventory generate sales. This
ratio is used to measure how well the money your company uses
to support its operations generates sales. Generally, a higher
ratio means the company is generating more sales for each
dollar spent on operations. A high turnover value is better than
a low turnover value.

Working capital is the difference between current assets and
current liabilities. To calculate working capital for your
company use the following formula:
Current Assets – Current Liabilities
Working Capital Calculation
Accounts
Current Yr
Previous Yr
Next Previous Yr
Current Assets
Current Liabilities
Working Capital
your company’s Income Statement and the Working Capital.
For each period, calculate the Net Working Capital Turnover
Ratio using the following formula.
Net Sales ÷ Working Capital
previous year. Describe the trend direction for the Net Working
Capital Turnover Ratio. Use phrases like: up only this year but
level in previous years, consistently up, down only this year,

Last, in your opinion, explain why the Net Working Capital
future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Net Sales
B
Working Capital
C
Net Working Capital Turnover Ratio
D
Why is or is not the Net Working Capital Turnover Ratio
adequate for your company?
Question 5.16 – Debt to Equity Ratio
This ratio is used to compare the amount of capital provided by

lenders compared to the amount of capital provided by
shareholders. The Debt to Income Ratio helps to signal the
possibility of debt problems. A company overleveraged with
debt makes itself vulnerable to market downturns and
unforeseen contingencies. A reasonable balance between debt
and equity is generally a healthy position for a company.
Depending on the industry and company, a Debt to Equity Ratio
between 0.5 and 1.5 is generally acceptable.
Enter the amounts, for all three periods, for the Total Liabilities
and Stockholders’ Equity from your company’s balance sheet.
For each period, calculate the Debt to Equity Ratio using the
following formula.
Total Liabilities ÷ Stockholders’ Equity
previous year. Describe the trend direction for the Debt to
Equity Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Debt to Equity Ratio for
your company is or is not acceptable for its future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Total Liabilities

B
C
Debt to Equity Ratio
D
Why is or is not the Debt to Equity Ratio acceptable for your
company?
E
Debt to Equity Ratio trend description
Question 5.17 – Debt to Asset Ratio
This ratio is used to compare the amount of debt to the
company’s assets. The Debt to Asset Ratio shows how much of
your company’s assets were acquired through debt. A ratio
greater than one generally means most of the company's assets
are financed through debt. These companies are generally
described as "highly leveraged" and could vulnerable from
creditor demands for repayment. Depending on the company
and the industry, a Debt to Asset Ratio in excess of 65% may
indicate debt issues for a company.
Enter the amounts, for all three periods, for the Total Liabilities
and Total Assets from your company’s balance sheet. For each
period, calculate the Debt to Equity Ratio using the following
formula.

Total Liabilities ÷ Total Assets
previous year. Describe the trend direction for the Debt to
Asset Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Debt to Asset Ratio for
your company is or is not acceptable for its future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Total Liabilities
B
Total Assets
C
Debt to Asset Ratio

D
Why is or is not the Debt to Asset Ratio acceptable for your
company?
Shareholders’ Equity Ratio
This ratio is used to compare the amount of long term debt to
the stockholders’ equity. The Gearing Ratio shows how well
your company’s will be able to service, satisfy existing long
term debt or acquire additional long term debt. A company
with a high Gearing Ratio is more vulnerable to competitor
assaults, price reductions and business downturns. Generally,
no matter what the difficulty facing the company, it must
continue to service its debt. Companies with a low Gearing
Ratio usually have sufficient equity to manage through difficult
periods.
Enter the amounts, for all three periods, for the Long Term
Liabilities and Stockholders’ Equity from your company’s
balance sheet. For each period, calculate the Gearing Ratio
Long Term Liabilities ÷ Stockholders’ Equity
previous year. Describe the trend direction for the Gearing
Last, in your opinion, explain why the Gearing Ratio for your
company is or is not acceptable for its future.

Question 5.18 – Gearing Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Long Term Liabilities
B
C
Gearing Ratio
D
Why is or is not the Gearing Ratio acceptable for your
company?
E
Gearing Ratio trend description

Question 5.19 – Interest Coverage Ratio or Debt Service Ratio
This ratio is used to discover how easily your company can pay
the interest on its outstanding debt. A low Interest Coverage
Ratio can mean your company may find it difficult to pay its
debt expense. An Interest Coverage Ratio below 1 might imply
a company is not producing sufficient income to pay the interest
expenses. Generally, this would indicate caution for an
investor.
Enter the amounts, for all three periods, for the Profit Before
Taxes and Interest Expense from your company’s Income
Statement. For each period, calculate the Interest Coverage
(Profit Before Taxes+ Interest Expense) ÷ Interest Expense
previous year. Describe the trend direction for the Interest
Coverage Ratio. Use phrases like: up only this year but level in
Last, in your opinion, explain why the Interest Coverage Ratio
for your company is or is not acceptable for its future.
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Profit Before Taxes

B
Interest Expense
C
Interest Coverage Ratio
D
Why is or is not the Interest Coverage Ratio acceptable for your
company?
Question 5.20 –Earnings per Share
Earnings per share means the part of a company's earnings, net
of taxes and preferred stock dividends, allotted to each share of
common stock. It is a widely used barometer to measure a
company's profitability per share of common stock.
Historically, the Earnings Per Share has played a significant
role in determining the market price for stocks. A company’s
earnings can change suddenly for many reasons including
manipulation, accounting changes, and restatements. For this
and many other reasons, the earnings per share is not an
absolute determinate of the market value for a company’s
shares.
Enter the amounts, for all three periods, for the Earnings Per
Share from your company’s Income Statement.

Describe the trend direction for the Earnings Per Share. Use
phrases like: up only this year but level in previous years,
Last, in your opinion, explain why the Price/Earnings Ratio for
your company’s stock is or is not adequate for its future.
Question 5.20 – Earnings per Share
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Earnings Per Share
B
Why is or is not the Earnings Per Share adequate for your
company’s stock?
C
Earnings Per Share trend description
Question 5.21 – Price/Earnings Ratio
This ratio is used to learn what investors are currently willing
to pay for the company’s earnings. The Price/Earnings Ratio is
one of the most widely used measures of stock value. It shows
the relationship between the current stock price and the

company's per share of stock. The higher the Price/Earnings
Ratio, the more the market is willing to pay for a company’s
earnings. Some investors believe a high P/E indicates an
overpriced stock. This may be true but it may also mean the
market is optimistic about the stock’s future and is willing to
pay more for the stock. A low Price/Earnings Ratio might
suggest “no confidence” for the stock or it could mean the price
is undervalued and may rise in the future. Some “undervalued”
stocks have become big winners for some investors. Please note
there is a strong emphasis on the word “some”.
Enter the amounts, for all three periods, for the current price of
your company’s common stock. Also enter Earnings Per Share
from your company’s Income Statement. For each period,
calculate the Price/Earnings Ratio using the following formula.
Current Stock Price ÷ Earnings Per Share
Describe the trend direction for the Price/Earnings Ratio. Use
Last, in your opinion, explain why the Price/Earnings Ratio for
Accounts
Current Yr
Previous Yr
Next Previous Yr
Industry Ratio
A
Stock Price

B
Earnings Per Share
C
Price/Earnings Ratio
D
Why is or is not the Price/Earnings Ratio adequate for your
company’s stock?
E
Price/Earnings Ratio trend description
Question 5.22 –Dividend per Share
Dividend per share means the part of a company's earnings paid
directly to stockholders for each share of common stock. For
companies with preferred stock, the dividends for the preferred
stock are identified separate of the dividends for common stock.
For some investors dividend income is very significant.
Dividends provide income to investors even when the market
price for the share may decline.
Companies with a strategic focus on growth may choose to
reinvest all their earnings in the company. Typically growth
companies will pay low or no dividend. Often, companies
might pay high dividends to their shareholders when they have
reached their maturity and there is little opportunity for growth.

For mature companies, a more effective use of the earnings is to
return them to the shareholders in the form of dividends.
Enter the amounts, for all three periods, for the Dividend Per
Share of common stock from your company’s Income Statement.
Describe the trend direction for the Dividend Per Share. Use
Last, in your opinion, explain why the Dividend Per Share for
Question 5.22 – Dividend per Share
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Dividend Per Share
B
Why is or is not the Dividend Per Share adequate for your
company’s stock?
Question 5.23 – Dividend Payout Ratio
This ratio is used to measure the percent of the company’s
earnings being returned to the stockholders. The Dividend

Payout Ratio is another widely used measure of stock value
particularly for those investors interested in stocks with income.
It allows investors to identify companies with sufficient internal
growth to possibly pay dividends in the future. A ratio between
40% and 60% would allow a company to pay a dividend while
continuing to reinvest earnings in the company.
Enter the amounts, for all three periods, for Earnings Per Share
and Dividend Per Share from your company’s Income
Statement. For each period, calculate the Dividend Payout
Dividend Per Share ÷ Earnings Per Share
Describe the trend direction for the Dividend Payout Ratio. Use
Last, in your opinion, explain why the Dividend Payout Ratio
for your company’s stock is or is not adequate for its future.
Question 5.23 – Dividend Payout Ratio
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A
Dividend Per Share

B
Earnings Per Share
C
Dividend Payout Ratio
D
Why is or is not the Dividend Payout Ratio adequate for your
company’s stock?
Questions for Chapter 6Question 6.0 – Calculate the Altman Z-
Score
Calculate the Altman Z-Score for you company for the current
year, previous year and next previous year. Describe the Altman
Z-Score trend. What does the Altman Z-Score trend tell you
about the financial strength of your company?
Question 6.0 – Altman Z-Score
Accounts
Current Yr
Previous Yr
Next Previous Yr
Trend Description
A

Altman Z-Score
B
What does the Altman Z-Score trend tell you about the financial
strength of your company?
Question 6.1 - What did you learn about your company
What are the major items you learned about your Company?
Why were they important for you?
Question 6.1 – What did you learn about your company
What did you learn
Why was it important
A
B
C
D
E
Question 6.2 - Would you buy, sell, hold or stay away
Answer if you would buy, sell, hold or stay away from your
company’s common stock. Additionally, what are the three
major reasons you might buy, sell, hold or stay away from your
company’s common stock?

Question 6.2 – Buy, Sell, Hold or Stay Away
A
Would you buy, sell, hold or stay away
B
Reason 1
C
Reason 2
D
Reason 3
Copyright DA Bittar 2009, 2010, 2012
Annual Repor t
..and knowing what’s inside
assets
turnover ratios
SEC form 10-k
balance sheet
liabilities
SOX

income statement
assets
turnover ratios
balance sheet
shareholders
shareholders
GETTING UNDER
THE HOOD
OF AN
income statement
cash flow
SEC form 10-k
liabilities
SOX
turnover ratios
SEC form 10-k
cash
balance sheet
cash flow

COGS
profitability
profit margin
IFRS
Gearing RatioAltman Z-Score
COGS
profitability
profit margin
IFRS
Gearing Ratio
Altman Z-Score
profit margin
Donald A . Bittar
E
d
itio
n 1
Page 1

Getting Under the Hood of an
Annual Report
and knowing what’s inside
2020 Edition
By: Donald Bittar
For the past 30 years, Donald Bittar has helped companies as an
officer, board member and
consultant to prepare their annual report to shareholders. He
has been the CFO and board
member for both public and private companies. Teacher of the
Year in 2013, he teaches at the
Graduate and Undergraduate School of Business, Bisk College
of Business of Florida Institute of
Technology. In 2019 he was the winner of the FiNext
Excellence in Finance Award.
Donald has continually operated DABittar and Associates, a
management and technology
consulting firm for public companies and banks. A successful
serial entrepreneur, he founded
and ran Associated Mortgage of North America, Inc. and Marine
Telephone, Inc. He is the
inventor of US Patent 7789842, an adjustable sling that can be

used to hold a patient's arm, wrist
and hand in a multiple position and eliminate stress to the neck
and shoulder.
Mr. Bittar received an MBA from Long Island University in
1964 and is resident of Palm Bay,
Florida
His second book, ‘A Good Business Plan is a Beautiful Thing’
is being used in leading
universities and businesses nationwide.
Published by:
DABittar Publications
Books for Financial Freedom
Published in Melbourne Florida, United States of America
All rights reserved. No part of this book may be reproduced or
transmitted in any form or by any
means, electronic or mechanical, including photocopying,
recording or by any information
storage and retrieval system, without written permission from
the author, except for the inclusion

of brief quotations in a review.
Copyright © 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2019
DA Bittar
http://dabittar.com/
Page 2
Dedication
For Eddie and Cindy who helped me follow the mountain man
and Greyson, my grandson, who transformed for me the word,
joy.
Page 3

Acknowledgment
Several people helped to make this book possible. They include
Alex Vamosi and Chris Durie at
the Florida Institute of Technology, College of Business who
provided the encouragement and
feedback to continue developing the idea. A special thank you
goes to FIT’s Tim Muth who
never failed to give me his always valuable ‘two cents’.
Additional thanks goes to my friends
and brothers Joe Fraumeni, Jack Spira, Phil Farber, John
Antoon, Chris Romandetti and Bruce
Cury. Their gentle and sometimes not so gentle prodding kept
me diligently moving forward.
A final thank you belongs to my wife, Cindy. Without her
careful proof reading, attention to
detail and unflagging belief in me this book could never have
been written.

Trademark Acknowledgements
‘Getting Under the Hood of an Annual Report for Shareholders
and Knowing What’s Inside’ is
an independent publication and has not been authorized,
sponsored, or otherwise approved by:
• The Financial Accounting Standards Board.
• Euronext, the New York Stock Exchange or the American
Stock Exchange.
• NASDAQ.
• The Chicago Stock Exchange.
• The Securities and Exchange Commission.
FASB is a registered trademark of the Financial Accounting
Standards Board.
The ARC Awards is a registered trademark of MerComm, Inc.
Pepsi is a registered trademark of PepsiCo.
Coke and Coca Cola are registered trademarks of the Coca Cola

Company Inc.
Marriott is a registered trademark of Marriott International Inc.
InterContinental Hotel is a registered trademark of
InterContinental Hotels Group PLC.
Darden is a registered trademark of Darden Restaurants, Inc.
Yum! Is a registered trademark of Yum! Brands, Inc.
Black & Decker is a registered trademark of Stanley Black &
Decker, Inc.
Samuel Adams is a registered trademark of Boston Beer
Company Inc.
Vonage is a registered trademark of Vonage Holdings Corp.
UPS is a registered trademark of United Parcel Service of
America, Inc
DHL is a registered trademark of Deutsche Post AG.
Express Mail is a registered trademark of United States Post
Office.
Office Depot is a registered trademark of Office Depot Inc.
Abercrombie & Fitch, Fitch and A&F are registered trademarks
of Abercrombie & Fitch Co.
Zyprexa is a registered trademark of Eli Lilly and Company.
Apple and iPhone are registered trademarks of Apple Inc.

Walmart is a registered trademark of Walmart Stores Inc.
Home Depot is a registered trademark of The Home Depot Inc.
Tyson Foods and Tyson are registered trademarks of Tyson
Foods, Inc.
3M is a registered trademark of the 3M Company.
Intel is a registered trademark of Intel Corporation
OXY is a registered trademark of the Occidental Petroleum
Corporation.
FedEx is a registered trademark of FedEx Corporation.
Energizer, Playtex and Schick-Wilkinson are registered
trademarks of Energizer Holdings, Inc.
P&G is a registered trademark of Procter & Gamble Company
Smuckers is a registered trademark of the J. M. Smucker
Company
Pfizer is a registered trademark of Pfizer Inc.
Page 5

Warning—Disclaimer
This book is designed to provide information on how to read
and understand the contents of an
annual report to shareholders for a public company. It is sold
with the understanding that the
publisher and author are not engaged in rendering legal,
accounting or other professional
services. If legal or other expert assistance is required, the
services of a competent professional
should be sought. It is not the purpose of this manual to reprint
all the information that is
otherwise available to the reader, but instead to complement,
amplify and supplement other
available information.
You are urged to read all the available material, learn as much
as possible about analyzing the
annual report to shareholders for a public company and tailor
the information to your individual
needs. Analyzing an annual report to shareholders for a public
company is not a get-rich-quick
scheme. Anyone who decides to analyze an annual report to

shareholders for a public company
must expect to invest a lot of time and effort into it.
Every effort has been made to make this manual as complete
and as accurate as possible.
However, there may be mistakes, both typographical and in
content. Therefore, this text should
be used only as a general guide and not as the ultimate source
for information about analyzing
the annual report to shareholders for a public company.
Furthermore, this manual contains
information on analyzing an annual report to shareholders for a
public company that is current
only up to the printing date.
The purpose of this manual is to educate and entertain. The
author and DABittar and Associates
shall have neither liability nor responsibility to any person or
entity with respect to any loss or
damage caused, or alleged to have been caused, directly or
indirectly, by the information
contained in this book.
If you do not wish to be bound by the above, you may return

this book to the publisher for a full
refund.
Page 6
Table of Contents
Chapter 1: Getting Started and
Prepared............................................................ 9
SEC and the Annual Report to Shareholders
......................................................................... 9
EDGAR, the SEC 10-K Librarian
...........................................................................................11
Reporting Format
...............................................................................................
...................12
GAAP
...............................................................................................
................................................... 12
PCAOB
...............................................................................................
................................................ 12
IFRS
...............................................................................................
.................................................... 13
What’s Inside the Annual Report to Shareholders
.................................................................13

Who Reads the Annual Report to Shareholders
....................................................................14
The Battle of the Covers
...............................................................................................
.........16
Coca Cola vs. Pepsi
...............................................................................................
............................ 16
Marriott International vs. InterContinental Hotels Group
.................................................................... 18
Darden Restaurants vs Yum! Brands
...............................................................................................
.. 18
Choosing a Company
...............................................................................................
.............20
Pick a company you like
...............................................................................................
...................... 20
Public
Companies..............................................................................
................................................. 20
Reports You Will Need
...............................................................................................
...........21
Annual Report to Shareholders and How to Find Them
.................................................................... 21
SEC Form 10-K
...............................................................................................
................................... 22
Organization of the Form 10-K

...............................................................................................
........ 22
Where to find the Form 10-K for your Company
............................................................................ 23
How does it look
...............................................................................................
.............................. 24
Proxy Statement
...............................................................................................
.................................. 27
Where to find it
...............................................................................................
................................ 28
NAICS, “son of SIC”
...............................................................................................
...............28
SIC
...............................................................................................
....................................................... 28
NAICS
...............................................................................................
.................................................. 28
EDGAR
.................................................................................. .............
................................................ 30
Identifying Competitors
...............................................................................................
........................ 31
Chapter 2: The Basic Information
..................................................................... 32
Question 2.0 – What Do You Want To Learn About the
Company and Why ................................ 32
Question 2.1 - Fundamental Information Set For Your Company

................................................. 33
Question 2.2 - The Marketplace Context
....................................................................................... 34
Management Challenges and Success
.................................................................................36
Marketplace Issues
...............................................................................................
................39
Question 2.3 - Challenges and Success for Your Company
......................................................... 45
Chapter 3 - The Chairman and Management Speak
........................................... 47
Analyzing The MD&A Items
...............................................................................................
...47
Management speaks for Perrigo
...............................................................................................
..... 48
Question 3.1 – What is Management saying about your
company? ............................................. 50
Analyzing the Message to Shareholders
...............................................................................51
Why is it Important
...............................................................................................
............................... 51
Page 7
What to expect

...............................................................................................
..................................... 54
Question 3.2 – What did the Chairman say?
................................................................................. 58
Corporate Transparency
...............................................................................................
........59
SOX
........................................................................................... ....
..................................................... 59
The Role of the Independent Auditor
...............................................................................................
.. 60
Question 3.3 – Internal Controls and Auditors
............................................................................... 60
Chapter 4 – Where are the Numbers
................................................................. 62
The Balance Sheet
...............................................................................................
.................62
Fiscal Year
...............................................................................................
........................................... 63
Question 4.0 – What is your company’s fiscal year
....................................................................... 63
What does the Balance Sheet tell about the
Company?.................................................................... 64
Balance Sheet Structure
...............................................................................................
..................... 64

Assets
...............................................................................................
....................................64
Current Assets
...............................................................................................
..................................... 64
Question 4.1 – Current Assets
........................................................................................ .......
........ 65
Noncurrent Assets
...............................................................................................
............................... 66
Question 4.2 – Property, Plant and Equipment
............................................................................. 66
Question 4.3 – How good is the Goodwill
...................................................................................... 68
Liabilities
...............................................................................................
................................68
Current Liabilities
...............................................................................................
................................. 69
Question 4.4 – Current Liabilities
...............................................................................................
.... 70
Long Term Liabilities
...............................................................................................
........................... 70
Newmont Mining, Gold Prices, Profits and Long Term Debt
......................................................... 70

Shareholder’s Equity
...............................................................................................
..............72
Contributed Capital
...............................................................................................
.............................. 72
Retained Earnings
...............................................................................................
............................... 74
Question 4.5 – How much stock is there?
..................................................................................... 74
Question 4.6 – Who owns the stock?
............................................................................................
75
Question 4.7 – First look at the company’s strength
...................................................................... 76
Question 4.8 – Significant changes in the balance sheet
.............................................................. 76
Question 4.9 – Significant changes in the cash account
............................................................... 77
Question 4.10 – Debt to equity and the competition
...................................................................... 77
Income Statement
...............................................................................................
..................78
Question 4.11 – ‘Income statement’. What’s in a name?
............................................................. 78
Structure of the Income Statement
...............................................................................................
...... 78
Operating Section
...............................................................................................
................................ 79

business? ........................................... 81
income? .................................... 82
Non-Operating Section
...............................................................................................
........................ 82
Irregular Items
...............................................................................................
..................................... 83
Question 4.14 – Irregular items. Good or Bad?
............................................................................ 84
Net Income
...............................................................................................
.......................................... 85
Are they lookin’ good? ................. 85
Question 4.16 – Which trend is important and why?
..................................................................... 87
Statement of Cash Flows
...............................................................................................
.......88
Who reads it and why?
...............................................................................................
........................ 88
Structure for the Statement of Cash Flow
.......................................................................................... 88
AMD and the crunch
...............................................................................................
............................ 89

.................................................... 90
Question 4.18 – How well can your company pay its bills?
........................................................... 91
Question 4.19 – How leveraged is your company?
....................................................................... 92
Page 8
Statement of Shareholders’ Equity
........................................................................................93
Structure for the Statement of Shareholders’ Equity
.......................................................................... 93
future? .............................................. 95
................................................................................. 95
Notes to the Financial Statement
..........................................................................................97
What can you find in the Notes?
...............................................................................................
......... 97
found on the financial statement? .... 98
company not found on the financial
statement?
...............................................................................................
...................................... 98
Chapter 5 - Looking Under the Hood of Your Annual Report

............................ 100
Industry and Competitor Ratios
...............................................................................................
.... 101
How well can your company pay the bills?
.......................................................................... 101
Question 5.1 – Working Capital Balance
..................................................................................... 101
...................................................................................... 102
...............................................................................................
........ 103
...............................................................................................
............ 104
Is your company making money?
........................................................................................ 104
.........................................................................................
105
........................................................................................ 105
........................................................................................ 106
Question 5.8 – Asset Turnover Ratio
...........................................................................................
107
.................................................................................... 107
How well is management performing
................................................................................... 108

................................................................................... 108
Question 5.11 – Days in Inventory Ratio
..................................................................................... 109
................................................................ 110
................................................................................. 111
..................................................................... 111
.................................................................. 112
How much can your company borrow
................................................................................. 113
...........................................................................................
114
............................................................................................
114
Shareholders’ Equity Ratio ..................... 115
................................................. 116
How is the stock performing?
..............................................................................................
117
Question 5.20 –Earnings per Share
.............................................................................................
117
..........................................................................................
118
Question 5.22 –Dividend per Share
.............................................................................................

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