Analysis of a Company's Financial Statements
Assume you have been hired by a client to evaluate...

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Analysis of a Company's Financial Statements 
  Assume you have been hired by a client to evaluate the financial health of the company you have selected. The client wants advice on whether or not the company is a viable option for their current portfolio. Create your analysis and recommendation for the client using the company's financial statements and your prior knowledge of accounting, supplemented by textbooks or other references of your choosing, to answer the following questions and computations: 
   
   What were the company's assets, liabilities, and owners' equity amounts at the end of fiscal year? 
   If the company were liquidated at the end of the fiscal year, are the shareholders guaranteed to receive the total shown in your answer for owners' equity (question 1)? Clearly explain why or why not. 
   What were the company's noncurrent liabilities for the fiscal year? 
   What was the company's current ratio for the fiscal year? 
   For the fiscal year, did the company have a cash inflow or outflow from investing activities? How much? 
   For the fiscal year, how much was the company's cash flow from operations? Why is this not the same amount as the company's operating income? Explain in general terms. 
   What is the company's revenue recognition policy? (Hint: Look in the notes to the financial statements.) 
   Calculate general, administrative, and selling expenses as a percentage of sales for the past three fiscal years. By what percentage did these expenses increase or decrease? This is calculated as Percentage Change = (Current Year % − Prior Year %) / Prior Year %. 
   Compute the company's total asset turnover for the fiscal year and explain its meaning. Show all of your work. 
   How much is in the prepaid expenses and other current assets account at the end of fiscal year? Where did you find this information? 
   What did the company report for deferred rent and other liabilities at the end of fiscal year? Where did you find this information? 
   What is the difference between prepaid rent and deferred rent? 
   What are accrued liabilities? Describe in general terms. 
   What would generate the interest income that is reported on the income statement? 
   What are the company's earnings per share (basic only) for the three years reported? 
   Compute the company's net profit margin for the three years reported. What does the trend suggest to you? 
   How much cash and cash equivalents does the company report at the end of the fiscal year? 
   What was the change in accounts receivable and how did it affect net cash provided by operating activities for the current year? 
   Compute the company's gross profit percentage for the most recent two years. Has it risen or fallen? Explain the meaning of the change. 
   
  Deliverable to the Client: Analysis Summary and Investment Recommendation 
  Prepare a business memo addressed to the client summarizing your analysis and providing a recommendation on investing: 
   
   Write 2–4 pages in a professional format appropriate for the information you are presenting. 
   Make sure you have answered all of the provided questions and computations in your analysis. If a question or computation does not apply, there should be a statement within your memo stating that the aspect does not apply and why. For example: "Based on the review of the XYZ Company, there were no prepaid expenses." 
   Include support for your investment recommendation by citing the company's financial statements and other references of your choosing,

Pulkit · Accepted Answer

Business Memorandum
To: Mr Robert
From: ABC Advisory
We have been doing analysis of the Financial Statements of e.l.f. Beauty, Inc. and following are our observations out of it–
· As per the Consolidated Balance Sheet of the company for the year ending 31 December 2017 the company’s assets are $ 417,244 thousand which consist of current assets including cash. The company’s liabilities are $ 223,381 thousand and the owners’ equity which is total assets minus total liabilities is $ 193,863 thousand.
· In the current scenario if the company goes into liquidation at the end of the fiscal year it is not certain that the shareholders will get the amount of owners’ equity as above because the company has got negative retained earnings. 
· The company’s noncurrent liabilities are $ 172,020 thousands for the year ending 31 December 2017.
· The company’s current ratio is 2.41 which is obtained by dividing current assets ($ 123,644 thousand) by current liabilities ($ 51,361 thousand)
· The company has cash outflow from investing activities of $ 10,419 thousand.
· The company’s cash flow from operations for the fiscal year is $ 12,378 thousand whereas the operating income is $ 33,475 thousand. The two figures are not same because while calculating operating income non-cash items like depreciation, amortization cost, interest, and taxes etc. are taken into account whereas in calculating cash flow from operating activities net income is adjusted for non-cash expenses and changes in working capital.
· Revenue consists of the sale of beauty products to retail customers, e.l.f. stores and e-commerce channels. Revenue is recognized when the product is delivered or shipped, the title has passed and all risk and rewards of ownership have transferred.

Analysis of a Company's Financial Statements Assume you have been hired by a client to evaluate the financial health of the company you have selected. The client wants advice on whether or not the...

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