Conduct a SWOT analysis of the two firms. Please discuss each Strength, Weakness, Opportunity or Threat that you list in the write up, i.e. don’t simply list a strength
Please see attached assignment instructions. I am only responsible for the Horizontal Analysis portion. It needs to be completed in the attached Excel template.
The link to the Novartis financial information I need to use for this deliverable can be found at this link:
https://www.sec.gov/ix?doc=/Archives/edgar/data/0001114448/000137036823000048/nvs-20221231.htm
Deliverable 2: Analyzing your firms
SWOT:
In this Deliverable I want you to do the following:
A SWOT analysis examines the Strengths, Weaknesses, Opportunities or Threats. Conduct a SWOT analysis of the two firms. Please discuss each Strength, Weakness, Opportunity or Threat that you list in the write up, i.e. don’t simply list a strength…I want to know why it is a strength via a discussion.
Ratios and Dashboards:
Vertical Analysis of financial statements: To compare two firms it is often useful to use ratios. Creating “Common Size” financial statements takes advantage of the use of ratios by expressing the items on the financial statement as a percentage of a key figure such as Sales for an income statement or Assets for a Balance Sheet. This process is sometimes called Vertical Analysis. Use the ExcelTemplate and the tabs provided to create “common size” financial statements. Perform the following
Express the Income Statement as a percentage of Sales for each year, i.e. you should divide every line item on your income statement by your Sales (Revenues) line. Note, when you do this you are creating all of the margin measures, eg. NI/Sales = Profit Margin
Graph: Create a single Line graph of Profit Margin and Operating Margin through time, i.e. include both series in a single graph. There is a tab in the ExcelTemplate where you can place this graph.
If through this analysis you notice something else that you want to tell be about graphically, feel free to create other graphs.
Express the Cash Flow Statement as a percentage of Sales for each year. Note: here we are dividing every line on the Cash flow statement by Sales (revenues) from the income statement. While there are other ways to common size a cash flow statement, I think this is the most useful as you see things such as your Operating Cash Flows to Sales ratio which gives you a sense of how well the firm is generating CFs relative to their Sales (which recall is not cash because of accrual accounting).
Graph: create a single line graph of Operating CFs/Sales, Investing CFs/Sales, and Financing CFs/Sales through time
If through this analysis you notice something else that you want to tell be about graphically, feel free to create other graphs.
Express the Balance Sheet as a percentage of Assets for each year. Note: this gives you several important ratios, such as your Debt ratio (Debt ratio = Total Debt/Total Assets) and your Equity Ratio (Equity Ratio = Total Equity/ Total Assets). This is a quick way to see the capital structure of the firm since you get the percentage of debt financing used and the percentage of Equity Financing used. Additionally, you can get measures such as PP&E to Total Assets which helps you think about capital intensity. Lots of good ratios come from common sizing the balance sheet.
Graph: Create a line Graph of Current Assets/Total Assets, Fixed Assets/Total Assets
Graph: Create a line Graph of Current Liabilities/ Total Assets, Long term Liabilities/Total Assets
Graph: Create a single line Graph of Total Debt/Total Assets and Total Equity/ Total Assets.
If through this analysis you notice something else that you want to tell be about graphically, feel free to create other graphs.
Horizontal Analysis of financial statements: Looking at trends over time can be useful to see how specific line items on the financial statements are changing over time. You can get an idea of places where the company needs to improve, or perhaps they are needed to improve and have already started making progress. This type of analysis is sometimes called a Horizontal Analysis. Analysts frequently concerned with top-line growth (Revenue growth) and bottom-line growth (Net Income growth). Likewise growth in Assets, Liabilities, and Equity can be equally important. Finally, examining growth in elements from the Cash Flows statement is also important. For example, growth in Operating Cash Flows.
When we perform a Horizontal Analysis we are trying to get a Year to Year percentage change in something (eg. Revenues). We probably all learned to calculate a percentage change we use:
This formula works fine when dealing with a strictly positive set of numbers. However, since accounting numbers can be represented as negatives then we should modify the formula by taking the absolute value of the denominator, as shown here:
Taking the absolute value of the denominator will keep the sign the way that we want for our analysis.
In the ExcelTemplate use the tabs provided to conduct a Horizontal Analysis. Use the modified formula above to perform a Horizontal Analysis for the following statements, i.e. calculate percentage growth between years for the:
Balance Sheet
Income Statement
Statement of CFs.
Note: when dealing with Year-over-Year (YOY) Percentage changes, it is useful to know what the raw data amounts are. Thus when you discuss a percentage change you should discuss the level as well as the percentage change. For example, Revenue increased from 10m to 11m representing a 10 percent increase. Furthermore, when graphing YOY changes you should display the level as well as the percentage change. This can be nicely done through a combination bar and line graph. Here is a great video that can help you with structuring these types of figures (note: this is not my original content):
Comment on Revenue and Profit changes
Graph: Create a Line Graph of changes in Revenues, Operating Incomes, and Net Incomes over time, i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Comment on changes in AR compared to Revenue changes
Graph: Changes in AR and Revenue, i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Comment on changes in Cash
Graph: Changes in Cash (as reported on the Balance sheet), i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Comment on changes in Capital Structure, i.e. Changes in Debt and Equity
Graph: Changes in Equity, i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Graph Changes in Debt, i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Comment on changes in Cash Flow from Operating, Investing, and Financing Activities.
Graph: changes in Cash Flow From Operations, Cash Flow from Investing, and Cash flow from financing activities, i.e. create a bar and line graph that illustrates both the amount and the percentage change on the same graph
Dashboards and Ratio Analysis: Complete the additional tabs labelled “D2” in the ExcelTemplate. These tabs hold ratios that pertain to the Liquidity, Solvency, Profitability, Asset Utilization, Market Value, etc.
The tabs are structured so that you copy and paste the tables into your WordTemplate.
Comment on the various ratios that you calculated. When you are commenting on ratios you should do both a Peer Analysis and a Trend Analysis.
In a Peer Analysis you are interpreting the ratio at hand for your company of emphasis relative to the compare company
In a Trend Analysis you are interpreting the ratio at hand for your company of emphasis relative to itself, i.e. what is the trend over time. Note: this can sometimes be done through a graph.
Turn In Instructions:
Please turn in the two Spreadsheets (the Excel templates) of the financials, and a single Word document (the Word Template) that contains the following:
Team name (company of interest)/number and the member’s names. Eg:
Team: Team 1 – Company name(s)
Team members: Joe Smith
Sally Dogooder
Sam Slacker
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