Gulf University for Science and Technology

ACCT 500- Financial and Managerial Accounting Project

Fall 2013-2014

(Work in groups of fives)- Deadline for submission 10 December 2013

Select one company listed on the Kuwait Stock Exchange (exclude banks, insurance, real estate, financial services and investment instrument sectors) and obtain the most recent English copy if it’s annual report (2012 Annual report containing 2011 comparative figures) to shareholders (you should find the annual report under Investor Relations on the company’s website).

You are required to work ingroups of 5.Please email me names of group members and your selected company before29 October 2013.

Letter to Stockholders

Your annual report should contain a letter (or two) to the shareholders from one (or two) key officers of the company. Read it (them), and answer the following questions (for each one).

1. Who wrote the letter? What is that person’s position in the company?

2. In one hundred words or less, explain the basic message in the letter.

3. What is the basic pattern for letters of this type? How well does the letter fit the mold?

Other material

Your annual report most likely contains several pages of material between the Stockholders Letter and the financial sections, or possibly even before the Stockholders Letter.

4. Provide a description (one hundred fifty words or less) of this material and the message it communicates. Does it impress you?

Financial Highlights

5. Does the company present any financial highlights in the annual report to shareholders?

6. If so, what items is the company highlighting this year?

7. Do the highlighted items show the company in a positive, mixed or negative light? Explain.

8. What items are not included in the financial highlights that you think should have been included in the company’s list of highlighted items?

Explain your answer. [Hint: answer this question after you have completed the rest of the project.]

Fiscal Year

9. The fiscal year for the company extends from when to when? Where did you locate this information?

10. Explain why the company has chosen this particular time period for its fiscal year.

Balance Sheet

11. For which dates/years does the company report a balance sheet?

12. Using totals for each category (total assets, total liabilities, total Share Holders’ Equity), what is the balance sheet equation for the most recent year?

13. What three assets are largest in amount on the most recent balance sheet?

14. Does the make-up of the assets seem consistent with what you expected to see for this type of company? Explain.

15. What three liabilities are largest in amount on the most recent balance sheet?

16. Which is larger in amount for the most recent year, contributed capital or retained earnings?

17. Convert the balance sheet for each year into common size format (vertical analysis) and present neatly in columns.

18. What is the percentage of current assets to total assets for each year?

19. What is the percentage of current assets to current liabilities for each year? What does this ratio tell you? Compute the net working capital?

20. What is the percentage of total debt (liabilities) to total assets for each year (this is called the debt percentage)? Explain

21. Did the debt percentage increase (ratio of total debt to total asset), decrease or stay the same from the prior year to the current year? What do these numbers say about the company?

22. What is the percentage of stockholders equity to total assets for each year? Explain

23. Does the company’s ratio of stockholders equity to total assets seem consistent with the business risk of the company? Explain.

24 Compute the quick ratio and explain it. What do these numbers say about the company?

25. What was the percentage change in total assets from the prior year to the current year? Be sure to mark your answer as an increase or decrease.

26. Does the company’s common stock have a par value? If so, how much was the reported par value per share? What was the market value per share at year end?

27. How many shares of common stock were issued at the end of each fiscal year?

Income Statement

28. For which dates (or periods of time) does the company report income statements?

29. Using totals for each category (total revenue, total expense), what is the income statement equation for the most recent year?

30. What amount of net sales is reported for each year?

31. What is the percentage change in sales for each year? Describe the trend in revenues.

32. What amount of net income is reported for each fiscal year? Compute the earnings per share and explain it? Compute the return on assets and return on equity? Explain all ratios.

33. What is the percentage change in net income for each year? Which is changing faster, sales or net income?

34. What three expenses are largest in amount on the most recent income statement?

35. Convert the income statement for each year into common size format and present neatly in columns.

36. Identify significant trends from the common size income statements.

37. If the company sells products, compute the gross margin and the gross profit margin percentage for each fiscal year?

38. What was the amount of operating income for each year? What is the operating profit margin for each year? Describe the trend in operating income. What was the net profit margin for each fiscal year? What is the trend in the ratio?

39. Compute three turnover ratios and explain them

Statement of Cash Flows

40. Using totals for each category, what is the cash flows equation for the most recent year?

41. Does the company report cash flows from operating activities using the direct or the indirect method? Describe how you can tell. Compute the operating cash flow ratio and explain it? Compute and explain the cash return on assets?

42. Does the ending balance of cash and cash equivalents agree with the amount reported on the balance sheet?

43. On what statement(s) would you expect to find information regarding the declaration and payment of dividends? Did the company declare or pay dividends in any year? If yes, compute the dividend per share ?

44. Compute the cash flow interest coverage ratio and the interest coverage ratio? Which one, in your opinion, is better, and why?

45. Describe the trend in cash flows from financing activities?

Statement of Changes in Stockholders Equity

46. Using amounts from the statement of changes in stockholders equity, what is the equation for changes in retained earnings for the most recent year?

Notes to the Financial Statements

47. How many notes to the financial statements are presented for the most recent year?

48. The first note to the financial statements lists and describes significant accounting policies.

Identify and summarize two accounting policies.

49. Choose two of the notes and briefly summarize them.

Report of Independent Public Accountants (Auditors)

50. What accounting firm audited the company’s financial statements?

51. What is the auditor firm’s responsibility with respect to auditing them?

52. What type of opinion did the independent auditors issue on the financial statements? What does it mean?

53. The auditor firm should have investigated the internal control system of the company. Please describe what is communicated in the letter reporting on this investigation. What was the auditor’s opinion on the internal control system?

What is meant by “Internal control systems” What are the components of internal control systems?

Management’s Discussion and Analysis

54. Provide a description (200-300 words) of the MD&A.

Corporate Governance and Corporate Social Responsibility

55- What is corporate governance? What are the basic elements of corporate governance? In one page, comment on the corporate governance practices in your company.

56- What does corporate social responsibility mean? Does your company have a CSR section in their report? Provide a description (350-500 words) of this material and the message it communicates. Does it impress you?

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