COSTCO'S FINANCIAL ANALYSIS

  PROCESS OF PERFORMING FINANCIAL ANALYSIS OF A PUBLIC COMPANY GENERAL COMPONENT No more than one paragraph describing the history of the company. 1. Obtain the most recent ten years of annual total sales (total revenue) data from the firm’s financial history. In addition, use just the last three years for the firms financial statement data: I recommend, you use abbreviated financial statements. They can be found inNasdaq.com, Yahoo Finance, MSN Money. DO NOT GET BOGGED DOWN IN THE DETAILED OF THE AGGREGATE FINANCIALS a. Income Statement b. Balance Sheet c. Statement of Cash Flow 2. Derive common size statements for the income statement and the balance sheet NOT the cash flow a. Looking at trends in the data b. Looking at variations in the same data as well as variations in the trends ECONOMIC COMPONENT 3. How does the above relate to the industry that the company is in, i.e. need to perform competitive economic analysis about the company: a. Macroeconomic analysis----is the company’s sales cyclical or counter cyclical for example? b. Industry analysis---market share, is the company’s sales growing, declining, or staying the same? How is the company performing relative to its competition? SWOT 4. STRENGTHS and WEAKNESSES should focus exclusively on the INTERNAL CHARERISTICS OF THE FIRM’S FINANCES. 5. The OPPORTUNITIES and THREATS should focus exclusively on the EXTERNAL CHARACTERISTICS OF THE FIRM. FINANCE COMPONENT The above should provide you the assumptions for deriving proformas for each of the three financial statements (balance sheet, income statement, and statement of cash flow), and will allow you to do your critical financial analysis of the firm. The pro forma, must be forecasted out three years. Make sure you focus on your assumptions and explicitly show them since they 9 will drive your forecasted data, which will allow you to perform the critical analysis where the company is going, based on your forecasted data. THIS SHOULD BE THE FOCUS OF YOUR WRITTEN ANALYSIS; STATED DIFFERENTLY, THE FOCUS NEEDS TO BE ON THE FUTURE OF YOUR COMPANY AND WHERE IT IS GOING AND WHY. THE EMPHASIS SHOULD NOT BE ON THE HISTORY OF THE COMPANY, OTHER THEN WHAT I HAVE ASK YOU TO INCLUDE, THAT IS STATED ABOVE. FINALLY, IN YOUR ANALYSIS YOU NEED TO JUSTIFY YOUR CONCLUSIONS, FOR EXAMPLE IS THE COMPANY IN A STRONG FINANCIAL POSITION, BASED ON ITS EXPECTED SHARE PRICE AND MARKET CAPITALIZATION, WHY OR WHY NOT? WHAT DIRECTION DOES THE COMPANY NEED TO GO IN EITHER CASE? These are some of the questions that need answering. FORMAT FOR FINANCIAL ANALYSIS PAPER WRITEUP I. Executive Summary II. Introduction ? One paragraph history of the firm ? Problem Statement-----Is the firm financially viable? III. Review of Literature ? Newspapers ? Periodicals ? Etc. IV. Structural Framework---Estimation of sales (revenue) forecast using your data ? Regression Analysis ? Alternative Estimation Techniques ? Derivation of Proformas---Balance Sheet, Income Statement, Cash Flow V. Analysis of your findings ? Using your historical data from your financial statements and common size financial statements ? Using your forecast data from your pro-forma financial statements and other information such as economic value added, free cash flow, intrinsic value, return on invested capital to name a few examples that can help in your analysis VI. Summary and conclusions 10 VII. Appendix ? Tables ? Graphs ? Other 1. Use the APA format---Full Documentation, which includes explicitly identifying others works. 2. NO CUTTING AND PASTING 3. Title page 4. Executive Summary 5. Maximum of five (4) written pages, does not include title page, executive summary or appendences---tables etc. go into appendix 6. Bibliography 7. Page numbers