Financial Statement Analysis Our purpose this week:

Financial Statement Analysis Our purpose this week: learning how to measure the performance of companies by analyzing their financial statements. Show us that you have read and understood the required readings, links and attached files – quote them where appropriate.Assignment:You are the assistant to the CEO of a major company. Your CEO keeps an eye on the competition, and asks you to do the following. Using ratio analysis, compare two major competitors in the same industry.Instructions:Pick any two U.S. public companies in the same industry.Select the 10 most important financial ratios for your two companies and calculate each for the last 2 fiscal years using Excel.Follow the same format as in the examples posted in the file attached in the Week 3 Conference for the Drugstore Chains example. Use the “Compare” worksheet. The “W”, “C”, “Profiles” and “Z Score” worksheets are not required, and nor is the Dupont Analysis.1. Create a single Excel file for your entire assignment.2. You may obtain financial information and the companies’latest annual reports on the web directly from MSN Money or Yahoo Finance.For additional information, look for the SEC Form10-K link from one of the MSN Money or Yahoo Finance financial sites.3. You should calculate, and comment upon, all 10 financial ratios for the last 2 fiscal years.4. All calculations should be shown, and all answers should be thoroughly explained.5. Whenever you use balance sheet items to calculate ratios, for each year be sure to average the beginning-of-year and end-of-year amounts to get the average for that year.6. What can you tell from your analysis? What are the strengths and weaknesses of each company? Which is the stronger competitor? Give your reasons.DrugstoreChains.xls. contains a comprehensive analysis of the financial statements of two large drugstore chains. It also shows how to predict bankruptcy with reasonable accuracy by using financial ratios. In addition, there is optional material in the attached DrugstoreChains.xls file that:a) Illustrates and explains how different companies succeed by focusing on different key ratios like Net Income/Sales, or Sales/Total Assets (asset turnover) or Total Assets/Common Equity (leverage).c) Shows the source for every number on every Excel worksheet: just click on any number in any Excel worksheet and you will see where it comes from. Showing the source for every number on every Excel worksheet is very important and helpful to readers, and you should do this on all of your Excel spreadsheets. These assignments are designed to help you to develop your analytical ability and your ability to explain your analysis in words. There are many uses for financial statement ratio analysis, especially in business strategy – for an example, see the “Strategic Control Map” developed by McKinsey & Company, the well-known international strategy consulting firm.