ACCT301A Spring 2020 CSUF
Group Written Assignment
Insight concerning the performance and financial condition of a company often comes from evaluating
its financial data in comparison with other firms in the same industry. Assume that you are a group of
industry experts rendering investment recommendations to one of your major clients, Dalton Ruiz.
Prepare a typed memorandum giving your investment recommendation addressed to “Dalton Ruiz”.
Required:
Obtain 2019 annual reports from three corporations in the same primary industry.Respond to the following questions:
1. How do earnings trends compare in terms of both the direction (increase/decrease) and stability
of income (income from operations versus income from non-recurring items)?
2. Which of the three firms had the greatest earnings relative to resources available? (Hint: Use
return on assets, ROA, income before discontinued operations ÷ average total assets.)
3. Which corporation has made most effective use of financial leverage during fiscal year 2019?
(Hint: Follow the steps below to assess the relationship between risk and profitability.)
a. Compare the debt-to-equity ratios (i.e., total liabilities ÷ total shareholders’ equity) of the
three firms. Note that shareholders receive no return on their investments until after all
creditor claims are paid. Therefore, the higher the debt to equity ratio, the higher the risk
to shareholders.
b. Compare the return on shareholders’ equity (ROE, income before discontinued
operations ÷ average shareholders’ equity) of the three firms. Note that by earning a
return on borrowed funds that exceeds the cost of borrowing the funds (i.e., interest
payment), a company can provide its shareholders with a total return higher than it could
achieve by employing equity funds alone.
c. Evaluate the tradeoffs between risk and profitability made by the three firms in 2019.
4. Of the three firms, which seems riskiest in terms of its ability to pay short-term obligations
(liquidity) and total liabilities (financial flexibility)? (Hint: Use “Current cash debt coverage
ratio” and “Cash debt coverage ratio”)
5. Which one(s) of the three firms would you recommend investing based on the above analysis?
Note: You can obtain electronic copies of annual reports from EDGAR (Electronic Data Gathering,
Analysis, and Retrieval; http://www.sec.gov/edgar/searchedgar/companysearch.html). EDGAR performs
automated collection, validation, indexing, and forwarding of submissions by companies and others who
are required by law to file forms with the SEC. All publicly traded domestic companies use EDGAR to
make the majority of their filings. Form 10-K, which includes the annual report, is required to be filed
on EDGAR and the SEC makes this information available on the Internet. You can also obtain
electronic copies of annual reports from company websites (usually under “Investor Relations”). Do not
use quarterly reports (i.e., Form 10-Q).
Format and Length Guidelines:
The written assignment consists of a memo of no more than three typed pages (double spaced, with 12
point Times New Roman font and a minimum of 1” margin from all sides) conveying your
recommendation for the case issues and an explanation/justification for the recommendation. You can
attach as exhibits any computations or other analyses used to resolve case issues (but you must refer to
these in your memo); exhibits will not count toward the three-page length. You should attach to your
memo a copy of the specific pages from the three annual reports (10-Ks) on which your computations
are based.
1. Memos must be written in proper memo format. This format is outlined as follows:
Introduction
Explain purpose of the report and provide set-up for remainder of paper, including brief
overview of contents.
Discussion
Discussion should follow the stated method of organization in the introductory paragraph.
Clearly identify problem/issue at hand.
Elaborate major points and provide analysis of various alternatives. This is the main part
of the paper.
o Good transitions between points are essential here if argument is to appear
forceful.
o Visual aids such as charts/tables/graphs may be referenced here, but should be
included at the end of the paper as attachments.
Recommendations
Make specific recommendations based on the analysis provided in the discussion.
Conclusion
Briefly restate important points/findings here and reiterate why recommended course of
action is best. The conclusion should provide some combination of summary, action
recommendation, and contact information. The writers should sum up the main points of
the memo as well as explicitly state the reader’s next step. Also, the writer should offer
the reader means of contacting him/her in case any questions remain. A telephone
number and/or e-mail address should be provided.
2. Your memo must begin with an introductory paragraph stating the purpose of the memo, and end
with a brief concluding paragraph. Use the following headings for this assignment between the
introductory and concluding paragraphs:
— Earnings Trends;
— Relationship between Risk and Profitability;
— Liquidity and Financial Flexibility.
— Recommendation.
3. Memos must reference any attached exhibits. Exhibits should be typed (using MS Word, Excel,
Tableau, etc.) or neatly handwritten, and can include computations or any other analyses that are
required in the assignment and/or that you believe are needed to support arguments advanced in
your memo. Exhibits do not count toward the memo’s maximum page length.
4. The “FROM” line of each memo must include (this part of the memo can be single-spaced):
— Names of the authors;
— Your class section.
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