BUSI 2506 : FIFO to Average Cost - Straight Line Depreciation - Business Assignment Help

Assignment Task :

DESCRIPTION 

Each group will play the role of a loans officer at a large Canadian bank, which has recently received a  large loan application from a public company (each group’s company of choice). The loans officer will  analyze the most recent year-end financial statements (either 2019 or 2020) and related documents of  the company, prepare proforma financial statements and make a recommendation to the loans  manager to either approve or deny the company’s loan application recently received. Each group will  also have to recommend at least three terms that should be contained in the loan contract in case the  loans manager approves the loan application (e.g. interest rate, security, term, etc.).  

DELIVERABLE 

Each group will write a report with the body of the report not exceeding 3,500 words plus exhibits of  quantitative nature. The report should provide the background, assumptions and analysis to support the  recommendation or either to approve or deny the loan application of the company and why the three  identified terms in the loan contract are of importance.  

ESSENTIAL COMPONENTS OF ANALYSIS 

1. Prepare common-sized (both vertical and horizontal) balance sheet, income statement and cash  flow statement for the assigned company for the two years included in the financial statements and  comment on whether the financial position, profitability and changes in cash flows have improved or  worsened from the prior year. For the benchmark amount for the cash flow statement, use the sum of  the absolute value of the subtotals for the three categories of cash flows.  

2. Calculate a minimum of 10 ratios for the most recent year spanning the four main categories of  profitability, solvency, liquidity and efficiency for the assigned company, competitor company and  industry data where available. One of the ratios must be the price-earnings ratio. 

3. Explain whether the assigned company performed better or worse than a direct competitor  company and its industry for each of the ratios and on an overall basis. 

4. Identify and explain why three changes should be made to the assigned company’s most recent  year-end financial statements to make their policies more realistic and/or more comparable to the  policies of a competitor company. For example, you could adjust from FIFO to average cost, straight line depreciation to units based, etc. Prepare an excel spreadsheet to show the impact of the new  policies on the assigned company’s balance sheet and income statement for the most recent year. There  should be a separate column for each of the three changes in policies.  

5. Recalculate the ratios from 2) above for the assigned company using the revised financial  statements. Then, explain whether the assigned company’s revised financial statements make the  company look better or worse for each of the ratios and on an overall basis.

6. Prepare proforma financial statements for the third year considering all information obtained  about the entity (i.e. after reading the MD&A, the most recent annual reports, press releases, etc.). The  starting point for the proforma financial statements is the unadjusted most recent year-end financial  statement of the assigned company. The proforma statements should include the balance sheet, income  statement and statement of retained earnings. Notes to the financial statements are not required. A  bonus of 5 marks is available for completing a realistic pro forma cash flow statement. 

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