Capital Structure & Solvency

Complete the Case Study: Financial Analysis Tools

In this Assignment, you will dig deep into the financial statements of a company selected by your instructor.

Assignment: Capital Structure & Solvency
Case Study Assignment: Comprehensive Financial Analysis Case
In this Assignment, you will dig deep into the financial statements of a company selected by your instructor. You will analyze the company’s past financial performance to help you forecast their future business, profitability, and cash flow. You will use these results to forecast the value of the company; what YOU think the company is actually worth today. You will compare your value to the current stock price, explaining any differences.
This is how decisions to buy and sell stock and to buy and sell companies are made every day all over the world. The nightly business news is full of the “buy, sell, and hold”
recommendations derived from analysis like this. Bet those jobs pay very nicely, don’t you!
Locate the Comprehensive Financial Analysis Case CC-1 on page 692 in your text. Be sure to submit thoughtful and substantial answers to the questions following each case. Include the elements detailed in the Rubric below.

Capital Structure & Solvency

This is a challenging activity. You should prepare to spend substantial time working on your response.
Directions for Submitting Your Assignment
Before you submit your Assignment, you should save your work on your computer in a
location, and with a name, that you will remember. Make sure your Assignment is in the
appropriate format (Word, Excel, PowerPoint, or other); then, when you are ready, you may
submit on the Dropbox page.
MT482 – Unit 9 Assignment: Capital Structure & Solvency
Analysis Case Points
Possible
Points
Earned
Content, Analysis, and Effective Writing Skills
It provides an executive summary of the company and its industry. 6
Detailed evaluation of:

Capital Structure & Solvency

Short-term liquidity (current debt-paying ability).
2
Cash forecasting and pro forma analysis. 2
Capital structure and solvency. 2
Return on invested capital. 2
Unit 9 [MT482]
Page 2 of 2
MT482 – Unit 9 Assignment: Capital Structure & Solvency
Analysis Case Points
Possible
Points
Earned
Asset turnover (utilization). 2
Profitability and equity analysis. 2
Comments on the usefulness of the financial statements of this
company for your analysis. 4
Discusses how accounting principles used in the financial
statements affect your analytical measures. 4
Prepares a forecast of the income statement, balance sheet, and
statement of cash flows for a five-year horizon and a terminal
year in Year 6.
12
Estimates the value of your company’s common stock per share
using the valuation analysis and procedures described in the
Financial Statement Analysis Report
12

Capital Structure & Solvency

Responds to all questions exhibiting strong critical thinking and
appropriate analysis. 30
Sentences are clear, concise, and direct; tone is appropriate.
Grammatical skills are strong with almost no errors per page.
Paper follows APA 6thed. formatting and follows the criteria
given:
 Cover page with your name, course number, your instructor,
date, subject, a brief statement that you (and you alone)
produced the paper, and a citation of all references that are
mentioned in your statement.
 Executive Summary (max. ¾ page in Bold)
 Table of Contents
 Introduction
 Body
 Conclusion and Recommendation(s)
 References
20
Total Points 100

CASE CC–1
Capital Structure & Solvency

Required:

Based on these financial statements, the company’s background, industry statistics, and other market and company information prepare a financial statement analysis report covering the following points:

a. Executive summary of the company and its industry.

b. Detailed evaluation of:

(1) Short-term liquidity (current debt-paying ability).

(2) Cash forecasting and pro forma analysis.

(3) Capital structure and solvency.

(4) Return on invested capital.

(5) Asset turnover (utilization).

Capital Structure & Solvency

(6) Profitability and equity analysis. Note: You are expected to use a variety of financial analysis tools in answering (b). Your analysis should yield inferences for each of these six areas.

Page 693c. Comment on the usefulness of the financial statements of this company for your analysis.

d. How did accounting principles used in the financial statements affect your analytical measures?

e. Prepare a forecast of the income statement, balance sheet, and statement of cash flows for a five-year horizon and a terminal year in Year 6.

f. Estimate the value of your company’s common stock per share using the valuation analysis and procedures described in the Comprehensive Case.

CASE CC–2
Capital Structure & Solvency

The financial statements and notes of ZETA Corporation are reproduced over the next several pages.

Required:

Answer the following questions, and provide supporting calculations. Explain the accounts and amounts used in each analysis.

a. What transactions and events explain the $7,000 increase in stockholders’ equity for Year 6?

b. Note 6 discloses “capitalized lease obligations” of $1,000. What accounts are increased in Year 6, and by what amounts, to reflect these leases? Explain. How are these leases reflected in the statement of cash flows?

c. Use T-account analysis to determine how much long-term debt is paid in Year 6. Does your answer agree with the amount reported by ZETA?

d. Note 1 describes a change in accounting principle.

(1) What effect did this change in accounting have on the Year 6 balance sheet and income statement?

(2) Describe the necessary adjustments in the Year 5 balance sheet and income statement for an effective comparison of Year 5 with Year 6.

Capital Structure & Solvency

(3) How would the $1,000 “cumulative effect” for Year 6 be reported in a statement of cash flows (direct method). (Hint: Reconstruct the accounts and amounts affected to record the $1,000 effect.)

e. Note 3 describes ZETA’s acquisition of TRO Company.

(1) Is TRO a separate legal entity at December 31, Year 6, or is it dissolved into ZETA?

(2) What effect did the acquisition of TRO Company have at December 31, Year 6 (date of acquisition), on the:

i. ZETA balance sheet?

ii. Consolidated balance sheet?

(3) What are TRO’s revenues for Year 6?

CHECK
(c) Repaid $2,500

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