How to Conduct a Compelling Team Company Analysis Project in 10 Easy Steps
One of the most challenging aspects of the Financial and Managerial Accounting class is conducting a Team Company Analysis Project. This assignment requires you and your teammate to dive deep into the financial health of two or more companies, compare their performance, and make a recommendation to potential investors. While it may seem daunting at first, breaking the project down into manageable sections—like ratio analysis, risk assessment, and vertical/horizontal analysis—will help simplify the process. In this guide, we will walk you through each step, showing you how to perform calculations using Microsoft Excel and present your findings professionally to get the highest grade in class.
Task:
Using the 2022 annual report of the two assigned companies (Linamar Corporation and Magna International Inc.), each team will discuss the financial health of the assigned companies with the ultimate goal of recommending one of the companies to an investor. The Team Company Analysis Project should consist of the following sections: executive summary, company overview, vertical and horizontal analysis, ratio analysis, risk analysis, and recommendation. You may use scholarly resources and your textbook as references.
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Follow These 10 Steps to Write a Compelling Team Company Analysis Project
Step 1. Find the Annual Report for the two Firms.
This is usually accompanied by a link to the annual reports of the two organizations you have been asked to analyze. For example, in this task, you have been asked to analyze Linamar Corporation and Magna International using their 2022 annual reports. If no link has been provided, do not worry; just search the firm’s name + (The year) annual report on Google. For Magna, you could search magna “2022 annual report,” and the pdf will be available to you. Once you have both reports, navigate to the “REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” section. This is towards the end of the report and might be titled differently. Either way, it presents the financial audit report by an external firm hired by the organization you will be analyzing.
Step 2. Prepare a Microsoft Excel Spreadsheet using the Firm's Data
Once you navigate to this section, find the consolidated statement of income and the consolidated balance sheets. This is all you need for the report. Now, navigate to Microsoft Excel or Google spreadsheets and create a spreadsheet. Create two sheets for each organization and name them based on the firm names as shown below. For example, you could title one Linamar and the second Magna. In each, start by copying the data from the annual report to the spreadsheet such that you have the balance sheet and Income statement for each organization on your spreadsheet. See the example below. Double-check to ensure you copied the data correctly to avoid mistakes. Pro-Tip, Use the spreadsheet to find the totals. This will help you confirm you entered the data correctly.
Step 3. Do the Horizontal and Vertical Analysis.
Step 3.1 Vertical analysis: Vertical analysis is an accounting tool that enables proportional analysis of documents, such as financial statements. While performing a vertical analysis, every line item on a financial statement is entered as a percentage of another item. This shows how different line items (e.g., expenses or revenues) relate to a base figure, like total sales. For example, if Linamar’s cost of goods sold is 60% of its revenue, you can say, “For every dollar Linamar earns, 60 cents go toward production costs.” Use the formula; Comparison Amount (e.g., inventories)/Base Amount (e.g., Total Assets). Remember the base amount is different for assets and liabilities and equity.
Step 3.2 Horizontal analysis: This compares financial data across two or more years to see how items change. For instance, if Magna’s net income increased by 15% from 2021 to 2022, that’s horizontal analysis. If you are wondering how to do this, it is quite easy. Use Excel to create tables that show the percentage breakdowns for vertical analysis and the year-over-year changes for horizontal analysis. Use the formula; Change Amount/Base Year.
For example, lets say you want to do a vertical analysis for cash and cash equivalents for the year 2022. Just create a column, label it vertical analysis, and format the number as a percentage, enter equals on the same row as the cash and cash equivalents, select the cell in question, i.e., B3, enter divide, and then the cell with the total assets. For example, =B3/$B$16. The dollar signs will help you maintain the same cell for the rest of the cells as you copy the formula down. Do this for all analyses. Remember to use a different formula for horizontal analysis and lock the totals. These analyses help you understand trends within the company and spot whether their financial health is improving or deteriorating. It’s a great way to assess internal performance.
Step 4. Do a Ratio Analysis.
Now we’re getting into the ratio analysis, one of the most important sections of your project. You’ll calculate several ratios to assess each company’s liquidity, efficiency, and profitability. Here are some key ratios you’ll need: Liquidity Ratios (e.g., current ratio, quick ratio): These tell you if a company can pay its short-term obligations. Profitability Ratios (e.g., return on assets, return on equity): These show how efficiently a company is generating profit from its resources. Leverage Ratios (e.g., debt-to-equity ratio) assess the company’s debt compared to its equity. Use Excel for these calculations, too! For example, the current ratio formula is =Current Assets/Current Liabilities. Do this alongside the horizontal and vertical analyses in the same sheet.
Step 5. Data Analysis Write-Up
Once you’ve calculated the ratios for both companies, start comparing both organizations on the vertical and horizontal analyses level, then the ratio levels. Copy tables from your spreadsheet and appropriately label and refer to them as you make assertions based on your data. You need a deep understanding of these concepts to make sense of the numbers. After this, compare them to industry averages (which might be provided in your project guidelines) to see which company is doing better in each area. These ratios help you determine if the company is a safe and profitable investment. Investors love to see these numbers because they provide a clear snapshot of financial performance. At the very least, this should be about 20 double-spaced pages.
Step 6. Risk Analysis
This section is all about understanding the risks each company faces. This should be easy since all of the information has been provided to you in the annual report on the risk analysis section. Read through the Management Discussion and Analysis (MD&A) sections of the annual reports of both companies to spot risks. Risk analysis shows investors the potential downside of their investment. You need to balance the rewards (from the ratio analysis) with the risks to make a sound recommendation. You’ll look at two types of risks:
Operational and Market Risks: This includes competition, changes in technology, or regulations that could impact the company’s performance.
Fraud Risks: Using the Fraud Triangle (Pressure, Opportunity, Rationalization), you’ll evaluate whether there’s a high risk of financial fraud. For instance, if a company’s internal controls are weak (e.g., the CEO is also the Chairman of the Board), that increases the opportunity for fraud. This section should be about 5 double spaced-pages.
Step 7 Recommendation: Picking the Winner
After all your hard work, it’s time to recommend one company over the other. Use all the data you’ve gathered—ratio analysis, risk analysis, and trends from your vertical/horizontal analysis—to justify your choice.
Summarize why one company is a better investment, but don’t just repeat what you’ve already said. Bring everything together here. This should be about two pages.
Step 8. Organization Overview
Write an overview of the organizations and place it a the beginning of your paper as part of the introduction. Indicate the industry for each company. What are the main products or services? Who are their competitors? Your introduction should narrow down the topic and end with a thesis. It should be no more than a double-spaced page.
Step 9. Executive Summary
While this section appears at the beginning of your paper, it should be written last. It should be organized based on sections without using headings. Make it about two double-spaced pages, and make sure to mention the winner and why.
Step 10. Final Touches
Format your work, make sure your citations are in order (no borrowed ideas are uncited), use Grammarly to correct grammatical errors, and then proofread your work. That’s it guys, you are well on your way to earning the top grade in Financial and Managerial Accounting.
