You are the CFO of a major company. Your CEO keeps an eye on the competition, and asks you to do the
following analyses:
Instructions:
You will be assigned a pair of US public firms in the same industry. The firm names are Home Depot and Lowes. These two firms are comparable in terms of
size and other operating characteristics.
A) Select at least 10 most important financial ratios for your two companies and calculate each for the
last 2 fiscal years using Excel. Explain why you selected these ratios. (a sample project in Excel
file will be posted to the classroom early in the semester for your reference.) Create a comparison
chart for these ratios for 2 years for each company. Explain how you calculated each
ratio. Explain what each ratio should mean to management. Using ratio analysis, compare two
major competitors in the same industry.
All calculations should be shown, and all answers should be thoroughly explained.
It is useful to compare financial ratios for a company with financial ratios of its industry. Industry
financial ratios can be found on Morningstar.com, Yahoo Finance and MSN Money.
There is an example posted in the file attached for your reference. The “Compare”
worksheet shows comparison of ratios, however it does not include the required words
about how the ratios were calculated nor does it include what the numbers mean for
management.
You will note that the W and C worksheets are used to calculate average balance sheet
numbers. These are useful when there are large year to year changes on the balance sheet.
If you obtain data from the SEC web site “Interactive Data, then you can copy and paste
into Excel. If you use data from other web sites, it may or may not allow excel to
calculate ratios. The company website usually lists Excel file of its annual report.
Create a single Excel file for your calculations, and cut and paste relevant pages to your Word
and/or PPT file. You need to submit this Excel File, together with the final report. Spend time to
understand what you are trying to do and simplify your format, your calculations and
approach. Think about which ratios are important and WHY?
You may obtain financial information and the companies’ latest annual reports on the web directly
from MSN Money or Yahoo Finance or Morningstar. However, it may be necessary to enter the
numbers by hand into excel to allow Excel to calculate ratios. For additional information, look for
the SEC Form10-K link from one of the MSN Money, or Morningstar, or Yahoo Finance financial
sites.
What can you tell from your analysis? What are the strengths and weaknesses of each
company? Which is the stronger competitor? Give your reasons.
B) Describe any industry specific accounting problems and practices. Tabulate and compare
the accounting methods chosen by your firms in their most recent financial statements.
How do these choices affect the ability to make comparisons among firms? Compare the
most important financial ratios for your set of firms. How is this comparison affected by
your firms’ accounting choices? What do these ratios suggest about firm strategies within
the industry? If you were making stock recommendations, would you recommend
buy/hold/sell on any of these firms? Why, or why not?