Assignment Overview: The project is intended to give you practice in using and interpreting
financial information for actual companies. The project requires you to compute some common
financial ratios for two companies and to interpret your results. The companies you will analyze
are high tech companies Facebook Inc. (FB) and Twitter Inc. (TWTR).
Getting started: Obtain financial statements for 2013 and 2014 through the company’s website
or via some other link such as http://finance.yahoo.com. The company’s financial statements are
part of Form 10-K found under “SEC filings” in Yahoo! (and often under the Investor Relations
section of the firm’s website). Stock market prices for your company are also linked from the
yahoo site under “Historical Prices”. (Use the “close” price rather than the “adjusted close”
price.)
Analysis Process and Goal:
1. We want to assess each company’s performance on the dimensions of current profitability,
solvency, and liquidity as well as expected future profits (market prospects).
2. We want to compare the companies’ on these dimensions and draw some tentative conclusions
concerning their performance.
3. We want to gather and incorporate information from outside sources (i.e., articles, business
websites, etc) about the industry and the companies.
Questions:
1. Briefly summarize the industry and the competitive environment. (5 points)
2. Provide an overview of each firm and its strategies for success. (5 points)
3. Compute the ratios listed below for year 2014, and interpret the ratios in English. (For
example: “The leverage ratio is 53%, which means that 53% of the assets are financed by debt or
contributed by creditors.”) (40 points, 5 points each)
Ratios: (summarized on p. 342)
1) Rate Earned on Assets
2) Rate Earned on Stockholders’ Equity
3) Price-Earnings Ratio
4) Current ratio
5) Inventory turnover
6) Accounts receivable turnover
7) Leverage ratio (i.e., ratio of liabilities to stockholders’ equity)
8) Earnings per Share on Common Stock
4. Compare the ratios between the two firms. Can you see differences/similarities in the
companies’ strategies reflected in the difference in the ratios? (15 points)
5. Decision focus: based on your analysis,
a. Which company’s stock would you buy? Why? (7.5 points)
b. If you were a banker, which company would you lend money to? Why? (7.5 points)
6. As described in Chapter 9 of the textbook, use the appropriate ratios (from those you
calculated above) to assess the two firms on their:
a. Profitability (5 points)
b. Solvency (5 points)
c. Liquidity (5 points)
d. Expected future profitability (5 points)
Presentation: Clearly label your computations step by step. Provide the inputs to your
calculation as well as the final answer. Your solutions must be typed, twelve point font, double
spaced.
Collaboration: You may work by yourself or in a group up to three people.
Grading: You are graded on three aspects – analysis, computation accuracy, and presentation.
1. Is your analysis insightful reflecting understanding of the industry and the companies? Did
you demonstrate that you understand the implications of the ratio? Did you do any additional
research on events and trends in the industry?
2. Are your ratio computed correctly and explained clearly?
3. Is your project completed and presented in a professional manner? Is it on time and in the
specified format?
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