Page 725 - Accounting Principles (A Business Perspective)

17. Analysis and interpretation of financial statements

should select a spokesperson to tell the rest of the class the results of the group's calculations. Finally, the class
should decide whether or not to invest in the corporation based on the ratios they calculated.
Group project F In a group of two or three students, go to the library and attempt to locate Dun & Bradstreet's

Industry Norms and Key Business Ratios. You may have to ask the reference librarian for assistance to see if this
item is available at your institution. If it is not available at your institution, ask if it is available through an
interlibrary loan. (Obviously, if you cannot obtain this item, you cannot do this project.) Then select and obtain the
latest annual report of a company of your choice. Determine the company's SIC Code (a code that indicates the
industry in which that company operates). SIC Codes for specific companies are available on COMPACT
DISCLOSURE, an electronic source that may be available at your library. As an alternative, you could call the
company's home office to inquire about its SIC Code. The annual report often contains the company's phone

number. From the annual report, determine various ratios for the company, such as the current ratio, debt to equity
ratio, and net income to net sales. Then compare these ratios to the industry norms for the company's SIC Code as
given in the Dun & Bradstreet source. Write a report to your instructor summarizing the results of your
investigation.
Group project G In a group of two or three students, obtain the annual report of a company of your choice
Identify the major sections of the annual report and the order in which they appear. Would you recommend the
order be changed to emphasize the most useful and important information? If so, how? Then describe some specific
useful information in each section. Comment on your perceptions of the credibility that a reader of the annual
report could reasonably assign to each section of the report. For instance, if such a discussion appears in the annual

report you select, would you assign high credibility to everything that appears in the Letter to Stockholders
regarding the company's future prospects? Write a report to your instructor summarizing the results of your
investigation.
Using the Internet—A view of the real world

Visit the following website for Eastman Kodak Company:
http://www.kodak.com
By following choices on the screen, locate the income statements and balance sheets for the latest two years.
Calculate all of the ratios illustrated in the chapter for which the data are available. Compare the ratios to those
shown for Synotech as presented in the chapter. Write a report to your instructor showing your calculations and
comment on the results of your comparison of the two companies.
Visit the following website for General Electric Company:
http://www.ge.com
By following choices on the screen, locate the income statements and balance sheets for the latest two years.

Calculate all of the ratios illustrated in the chapter for which the data are available. Compare the ratios to those
shown for Synotech as presented in the chapter. Write a report to your instructor showing your calculations and
comment on the results of your comparison of the two companies.
Answers to self-test

True-false
True. Financial statement analysis consists of applying analytical tools and techniques to financial statements
and other relevant data to obtain useful information.

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