Assignment 5: Annual Reports and Financial Accounting

For each question, if it asks for information about a company, write about each company your team is covering and make the report correspondingly longer. If it asks about something else, then just answer the question, and do not write a longer answer just because you have a bigger team.

1. (Annual Reports) Notes at the end of annual reports comment on unusual events or accounting changes. Pick one note for each company your team is covering and explain what it means.

2. (Financial Accounting) For Eli Lilly and for each of your companies, find the current ratio and the debt-equity ratio for two successive years. Which of the companies seems the safest in the short run based on these ratios? In the long run?

3. (Tax Accounting) Find a copy of the IRS form for applying to change the tax year your companies use, and attach it to your report.

4. (Earnings) For each of your companies, make a chart of earnings per share for the past three years. Explain why you think earnings for each followed the pattern that it did.

5. (Information and Stock Prices) (a) For each of your companies, find day on which the company's stock moved an unusual amount up or down in the past year. (If you can, find the biggest move of this year, but don't spend too much time figuring out which is the biggest). (b) Find a newspaper story appearing the day before, that day, or the day after, which might explain the price change. Download it and attach it to the assignment. (c) Using the price change the total number of shares, calculate the total dollar change in the value of the company's equity. (E.g, the stock fell 2 dollars per share and there are 20 million shares, so the equity fell 40 million dollars.) (d) Discuss whether it is reasonable that the stock would move by the percentage and in the direction it did because of the news. Did the market overreact or underreact?

6. (Finance and the Macroeconomy) Suppose you were told that the U.S. GDP was going to fall 2 percent next year, but nowhere else in the world would have a recession. Using your companies' annual reports, discuss the effect you think this would have on the stock price. What specific percentage price declines would you predict? (This, of course, is a prediction even a Ph.D. economist could not make easily or well, so don't worry too much. I want you to get some practice making rough estimates using very limited theory and facts.)