Analyze the Balance Sheet to see if there are large changes in the company’s assets, liabilities, or equity
Step 1. Collect the company’s financial statements from the last three to five years including:
• Balance Sheets
• Cash Flow Statements
• Income Statements
• Shareholders equity statements
These financial reports can be found in a recent annual report, in the company’s 10K filing, or on the U.S. Securities and Exchange Commission EDGAR database.
Place a copy of these in the Appendix at the end of your paper.
Step 2. Analyze these financial statements and scan them in order to look for large movements in specific items from one year to the next.
Question “Did revenues have a big jump, or a big fall, from one particular year to the next? Did total or fixed assets grow or fall?”
Also, look for suspicious activity. If anything jumps out at you, research what you know about the business to find out why an item is suspicious-looking. For instance, did the company sell off some of its operations during the period of time you’re analyzing?
Step 3. Make sure to review the financial statement’s notes. These notes may have information that could be important in your analysis of the business.
Step 4. Analyze the Balance Sheet to see if there are large changes in the company’s assets, liabilities, or equity.
Step 5. Examine the Income Statement to identify trends over time. Compare year on year
Step 6. Next, evaluate the business’s Shareholder’s Equity Statement. For example “Has the company issued new shares, or bought some back? Has the retained earnings account been growing or shrinking?”
Step 7. Analyze the company’s Cash Flow Statement.
Step 8. Calculate financial ratios. Learn the top five financial ratios and how to calculate them.
Do all of the ratios on this page, not just the top 5.
Be sure to calculate and explain what the ratios mean to the company you are analyzing.
Step 9. Then, gather the company’s key competitor’s data. Compare your company with competitors using a table to show some of the pertinent financial data of your company and several major competitors. Discuss the difference and put them in perspective.
Step 10. Review the market data of the business’s stock price, as well as the Price to Earnings (P/E) Ratio.
Step 11. Review the Dividend Payout. The Dividend Payout Ratio measures the percentage of a company’s net income given to shareholders in the form of dividends.
How to calculate the Dividend Payout Ratio: Total Annual Dividends Per Share / Diluted Earnings Per Share
Step 12. Now, you can evaluate all of the data YOU generated. Be sure to identify your work with headings, i.e. what are you comparing? Where does the company say they are competitively and are they there in your opinion? Why or why not? Competition, market share, rivals and so forth should be included in the discussion.