The purpose of this assignment is to analyze the financial performance of a company to make recommendations to potential investors about the purchase of stock. Studying all aspects of a company’s financial statements is necessary in order to understand the financial performance and health of a company. This is particularly important for investors trying to determine whether to buy stock in the company.

An investor has approached you about whether purchasing stock in the company would be a wise investment. Using your financial analysis of one of the approved companies, you will send a letter to the investor summarizing your findings and explaining whether or not you recommend a stock purchase at this time. Refer to the “Annual Reports for Approved Companies,” located in the Class Resources. You will use information in the Form 10-K to complete this assignment. Using the correct formulas and a separate tab for each analysis, calculate the following ratios using Microsoft Excel:

1. Three liquidity ratios for the past 2 years
2. Three solvency ratios for the past 2 years
3. Three profitability ratios for the past 2 years

In addition, use the list of approved companies within the same industry to conduct research about a competitor company. Using IBIS World or another applicable resource, locate three ratios for the competitor company. Compare your company to the competitor company and indicate the differences in the ratios for the two organizations. Next, locate the same three ratios for the industry. Compare your company to the industry average and discuss how well it is performing compared to the industry. Note: you are not required to calculate the ratios for this portion of the assignment, but proper citations are required for the ratios used in the comparison. Justify your analysis by explaining your findings.

Using your research findings and analysis of company performance in relation to industry competitors, construct a 500 word letter making stock purchase recommendations for a potential investor. In the letter, address the following, referencing specific ratios and comparative numbers as appropriate:

1. Discuss the overall financial performance of your company in relation to the specific competitor.
2. Discuss whether the company performed better or worse than the industry average, providing specific numbers and an explanation of what the numbers illustrate. For this portion of the memo, consider the 21 questions in Chapter 6 of the textbook to explain what the ratio results tell the user of the financial statements about the health of the company. Instead of providing calculations or showing numerical comparison(s), describe the performance of the company and use the ratio results to support your points.
3. Recommend whether the potential investor should purchase stock in your company and justify your recommendation based upon your research and analysis of the company ratios and industry competition.

Submit the Excel file that contains your ratios and the Word file letter to the digital classroom.

Approve companies

1. The Coca-Cola Co. (Ticker KO)
2. PepsiCo (Ticker PEP)
3. Home Depot (Ticker HD)
4. Lowe’s (Ticker LOW)
5. Gap, Inc. (Ticker GPS)
6. Abercrombie and Fitch Co. (Ticker ANF)
7. Ford Motor Co. (Ticker F)
8. General Motors Co. (Ticker GM)
9. Dunkin’ Brands, Inc. (Ticker DNKN)
10. Starbucks Corp. (Ticker SBUX)