A fictional company, the Salamanca Corporation, has hired you as an outside consultant to its investment committee, and has requested that you thoroughly analyze a company of your own choosing as a potential investment for the Salamanca Corporation. You are to use an Annual Report or a 10K from your selected company as the basis for your analysis as well as any other information that might be available newspapers, magazines, the Internet including peer group data from Dun & Bradstreet, Moodys, Standard & Poors. Dont overlook other SEC disclosures such as information included in 8K and DEF 14A proxy filings. A companys Investor Relations page is another good source of information.
You are to assume that the Salamanca Corporation is a national, publicly owned food products company, which is based outside Dallas, Texas. For 2019, it earned approximately $84,000,000 on sales of $600,000,000. At 12/31/19, its investments in marketable securities were $40,000,000 which represented 8% of total assets of $500,000,000.
The final product to be delivered to the investment committee of the Salamanca Corporation shall consist of the following:
A letter to the investment committee of the Salamanca Corporation with a recommendation as to whether the company that you have analyzed would be considered a safe and viable investment option. The letter should summarize the main reasons for your conclusion with detailed support to follow. In the letter speculate on the amount of earnings/loss for your company that you would expect to see in the near future. Also, give your impression of the three most important issues your company will face in the coming year. These are not restricted to the financial arena, but could be the result of changes in technology, the environment, health care, the legislative process, etc.
A thumbnail sketch or brief overview of the company you have selected to include who the CEO and CFO are (a little of their background), headquarters, year founded, fiscal period, independent auditors, related parties etc.
Part III Main Support
A. Financial statement analysis to include horizontal and vertical analysis and ratios and trends Select only those ratios that are relevant. Your financial statement analysis should include a summary highlighting positive and negative trends or strengths and weaknesses that you have identified.
B. Footnote analysis comment on areas of concern based on your understanding of the
footnotes. (Hint you may need to read between the lines.
C. Auditors Report identify whether its the standard unqualified opinion or if it has been modified. If there has been a modification, discuss the nature of it. Disclose audit tenure, and any changes in/disagreements with accountants. How much are the audit fees?
D. Critical Audit Matters (CAMs) identify what CAMs were disclosed in the auditors report. How do they compare to the CAMs being reported by other firms? See the October 2019 articles in the Journal of Accountancy and Accounting Today for examples.
Part IV Predictors
A. Calculate the Altman Z score. In what range does your company fall as far as the likelihood of filing bankruptcy?
B. Calculate the Beneish M score. Based on the calculation, discuss how likely your company is to engage in earnings manipulation.
Part V Company Management
A. Managements Discussion and Analysis state how you feel about MD&A. Does it seem to
be a fair representation of the company or do you think that it presents an inaccurate picture?
I want your opinion?
B. Board of Directors Stability discuss the tenure of board members and the audit committee over the past 3 years and director independence. How many members, gender diversity, age, other pertinent facts? Does the company have a Code of Conduct?
C. Compensation Discussion and Analysis what is the compensation structure of the chief executives salary, bonus, stock, etc.?
D. Chief Financial Officer does the CFO have an accounting/auditing background, are they a CPA, how long have they been with the company, how much do they earn?
Part VI Non-Financial
A. Current Events Is your company currently in the news? Identify issues currently affecting
companies, which are similar to your company, which have the potential to affect your company as well. (Look at the BIG PICTURE and BE CREATIVE)
B. Social Responsibility In what ways does the company you selected have a responsibility to
society? (e.g. Tobacco industry and consumer product safety) Does social responsibility
present a problem to your company?
C. Identify your companys two largest competitors.
D. Investment decisions can be influenced by more than just financial results. Identify any non-financial issues facing your company, which tempered your conclusion.
1. Technological 4. Marketing
2. Environmental 5. Regulatory
3. Largest customer 6. Employee issues
Remember that the letter to the investment committee of the Salamanca Corporation is the finished product. Make it persuasive and professional looking. The paper should be typed (double-spaced) and about 10 – 12 pages in length. You will be graded on your writing skills, the strength of your analysis, critical thinking skills, and the overall effectiveness of your presentation.
The information that I have provided to you should be used only as a guide, leaving much room for interpretation. I like ingenuity. Have fun and good luck!
INSTRUCTIONS FOR SUBMITTING THE TERM PAPER:
1. Upload the term paper through Canvas using the link labeled Term Paper. Any supporting schedules and computations for the Part III A Financial Statement Analysis and Part IV Predictors may either be included in the body of the paper or uploaded separately as attachments using the link Supporting Schedules.
2. The following sections from the Form 10-K must be uploaded to a separate link labeled Term Paper 10-K Information:
a. Cover page from the Form 10-K that identifies the name of the company and the fiscal year end.
b. Opinion on internal control over financial reporting
c. Opinion on the financial statements
d. Financial statements to include the income statements, statements of comprehensive income, balance sheets, statements of stockholders equity, and statements of cash flows.
e. Notes to the financial statements
Note: The term paper will not be graded unless the information from the Form 10-K, as listed above, is included.