John Doe Student

ABC Corporation

[Insert active web link to your 10-K here]

ACTG 2200 Project 2

Professor Hall, Section 4

March 8, 2023

Part I

10-K Sections: Form 10-K has four PARTS and 15-16 ITEM numbers. This is the same for every company. Briefly describe what is typically contained in each ITEM number in 1-2 sentences. You may use the reference material “How to Read a 10-K” (https://www.sec.gov/files/reada10k.pdf), but you must use your own words to express your understanding. The purpose of this question is NOT for you to describe each ITEM in the context of your specific company, but rather to demonstrate that you understand what each ITEM typically includes for ANY company. (10 points)

Item 1:

Item 2:

Item 3:

Item 4:

Item 5:

Item 6:

Item 7:

Item 8:

Item 9:

Item 10:

Item 11:

Item 12:

Item 13:

Item 14:

Item 15:

Item 16:

Company & Background Description: Describe your company and its business including the background of the company, its lines of business (products) and market segments, overseas operations, and any other information in which a potential investor may be interested. Be complete in your answer. You want your reader to have a good understanding of the background of your company and you want your reader to WANT to know more. Prepare the report to entice potential investors. Use the “front end” of the report, i.e. items 1-7 to prepare your answer. A 10-point answer will typically be at least one full page long, single spaced, using normal margins. (10 points)

(use small tables throughout your report wherever you think it might be helpful to display information)

Business Environment: Describe the business environment or industry in which your company operates. For example, its competitors, the political and economic climate in which it operates, litigation, risks, contingent liabilities, and any other relevant issues addressed by the 10-K. Include ALL significant and relevant risks for the company, not all risks that are generic to its industry. Compare your company to a competitor to determine which risks relate only to your company. A 10-point answer will typically be at least one full page long, single spaced, using normal margins. (10 points)

(use bullets throughout wherever you think it might be helpful)

ABC Company

 

Part II

Current Ratio: What is the company’s current ratio for the current AND prior year (include the definition of the ratio, and show your calculations for each year shown)? Explain what the results mean. Is the ratio adequate to meet current obligations? What has been the trend for this ratio from last year – improving or declining? (5 points)

(Note: all information to answer this question came from the Company’s Balance Sheets, 10-K p. 43)

Current Ratio = Current assets = 4,588,080 = 1.38 times

Current liabilities 3,315,397

As of March 31, 2022 (the Balance Sheet date), ABC Corporation has a current ratio of 1.38. This means that for every $1 of current liabilities, the company has $1.38 with which to pay off those liabilities. This ratio is technically adequate as it is above 1, meaning that ABC Corporation can pay off all its liabilities at least once using current assets. That being said, the ratio is not great; a higher ratio would be better.

This ratio has declined over the last year, as shown here:

2022 Ratio = 4,588,080 = 1.38

3,315,397

2021 Ratio = 4,785,870 = 2.16

2,210,477

The fiscal year 2021 current ratio was considerably better than the 2022 ratio. The problem with the Current Ratio is that it includes some current assets that are not likely to ever be converted to cash, such as prepaid rent or prepaid insurance.

A better way to measure the ability of ABC Corporation to pay off its current liabilities is by calculating the Quick Ratio, which only includes the following very liquid current assets:

Quick Ratio = Cash + Current Investments + Accounts Receivables

Current Liabilities

2022 Quick Ratio = 1,275,943 + 1,467,842 = 0.83*

3,315,397

*There were no Current Investments in 2022.

Analysis:

The Current Ratio for ABC Corp. isn’t great, but using that calculation, it can technically pay off is liabilities. However, using the Quick Ratio, ABC cannot pay off its liabilities. The Quick Ratio came out to a value that was less than one, meaning for every $1 ABC has in current liabilities, ABC can only realistically pay back $0.83. Overall, ABC does not have enough liquid assets to pay off its liabilities. Both ratios are not good for a large company like ABC.

Inventory: What inventory valuation method does the company use? What is the company’s inventory turnover ratio for the current AND prior year (include the definition of the ratio, and show your calculations for each year shown)? Explain what the results mean. What has been the trend for this ratio from last year – improving or declining? What additional footnote information is disclosed? (5 points)

PP&E/Total Assets: What depreciation method does the company use? What is the asset turnover ratio for the current AND prior year (include the definition of the ratio, and show your calculations for each year shown)? Explain what the results mean. What has been the trend for this ratio from last year – improving or declining? What additional long-lived asset footnote information is disclosed? (5 points)

Long-Term Debt: What is the dollar value of the company’s total long-term debt (sum the current portion of long-term debt with long-term debt)? If the company has no long-term debt, please state this. What is the company’s TOTAL debt/equity ratio for the current AND prior year (include the definition of the ratio, and show your calculations for each year shown)? What has been the trend for this ratio from last year – improving or declining? Compare the company ratio to the industry or to a competitor, and comment on its appropriateness for the company. (6 points)

Stockholders’ Equity: List all the stock included in the Stockholders’ Equity Section of the Balance Sheet. Include each different type of stock, par value, and the number of shares authorized, issued, and outstanding for each. Describe any special features of each type of stock (refer to Footnotes or MD&A for this information). Based on the information in the 10-K, when did the company pay its last dividend? What was the per-share dollar amount of the most recent dividend, and what has been the trend in annual dividends over the past THREE years (eg, increasing, decreasing)? (6 points)

The company has the following types of stock outstanding as of March 31, 2022:

Preferred stock, $0.01 par value

Authorized: 600 million shares

Issued: 0 shares

Outstanding: 0 shares

Common stock, $0.01 par value

Authorized: 230 million shares

Issued: 37.132 million shares

Outstanding: 28.08 million shares (37.132 million Issued – 9.052 million Treasury Stock)

Treasury Stock – 9.052 million shares

(Balance Sheet, 10-K p. 43)

Dividends: _______________

Earnings Per Share (EPS): What is the company’s basic (simple) earnings per share (EPS) for common stock? Where is this information cited in the report? What has been the three-year trend for EPS? (3 points)

In thousands or ($000) Description	Current Year ($)	Prior Year ($)	$ Change	% Change
Revenue or Sales	$10,000	$9,900	$100	1.0%
Cost of Goods Sold or Cost of Sales	$8,000	$7,900	$100	1.3%
Significant Operating Expenses (list)	$1,200	$1,080	$120	1.1$
Net Income from Operations ($)	$800	$920	($120)	(13.0%)
Net Income from Operations (% of Revenue)	8%	9.3%	N/A	(14.0%)
Cash & Cash Equivalents	$2,300	$3,200	($900)	(28.1%)
Cash Flows from Operating Activities	($1,200)	$1,150	($2,350)	(204.3%)
Cash Flows from Investing Activities	Etc.
Cash Flows from Financing Activities	Etc.

Revenues: Referring to the table above, what factors led to the dollar ($) and percentage (%) increase or decrease in Revenue (or Sales) from the prior year? Use Management’s Discussion and Analysis (MD&A, Item 7), to discuss this. (4 points)

Cost of Goods Sold and Other Expenses: Referring to the table above, what factors led to the dollar ($) and percentage (%) increase or decrease in Cost of Goods Sold (or Cost of Sales) AND the other Operating Expenses separately listed on your income statement from the prior year? Discuss each expense separately. As a percent of total revenue for the current year, did Operating Expenses increase or decrease? Use the information in the MD&A section to discuss this. (6 points)

Cash Flows: Referring to the table above, what factors led to the dollar ($) and percentage (%) increase or decrease in Cash & Cash Equivalents from the prior year? Answer this question by discussing the major cash inflows or outflows from the company’s operating, investing, and financing activities from the Statement of Cash Flows. The MD&A section (Item 7) may also be helpful. Based on your analysis, do you think the company is in a better or worse cash position than last year, and how do you feel about the SOURCE of the company’s cash flows this year? Note: having a higher cash balance from last year does not necessarily mean the company is in a better cash position. (6 points)

Stock Price: What is the market price of the Company’s stock on the day you are preparing this? (Use Google, nyse.com, or nasdaq.com for data). Discuss the one-year trend in the stock price. (Optional: Include a price chart in your answer) (3 points)

Audit Reports: Identify who the company’s Auditor is and read their reports. There may be more than one report included in the 10-K – if so, please read and reference both. Describe what message each report is trying to convey, and explain what comfort the reports give you. (4 points)

Investment Decision: Would you invest in this company’s stock? Why or why not? Be very thorough. Stating “I would invest in the company because I like its products” will NOT be even close to sufficient for full points. While there is no right answer (you can answer either Yes or No), you must support your answer with information you obtained from your previous analysis (eg, competition, litigation, stock price, dividend payments, EPS, debt/equity ratio, current ratio, asset turnover ratio, sources of cash flows, revenue, expenses, net income trends, etc.). In other words, assume the entire purpose of your report was to help you answer this final question, so base your answer to this question on the data you gathered previously. Be thorough for full points. (10 points)

Hyperlink and Page References: On your cover page, include an active hyperlink to the actual 10-K you used. Use page numbers from your 10-K throughout your report to reference where you obtained various pieces of information in the 10-K. (3 points)