BUSI 2506
GROUP PROJECT ON FINANCIAL STATEMENT ANALYSIS
Fall 2020
DESCRIPTION
Each group will play the role of a loans officer at a large Canadian bank, which has recently received a
large loan application from a public company (each group’s company of choice). The loans officer will
analyze the most recent year-end financial statements (either 2019 or 2020) and related documents of
the company, prepare proforma financial statements and make a recommendation to the loans
manager to either approve or deny the company’s loan application recently received. Each group will
also have to recommend at least three terms that should be contained in the loan contract in case the
loans manager approves the loan application (e.g. interest rate, security, term, etc.).
DELIVERABLE
Each group will write a report with the body of the report not exceeding 3,500 words plus exhibits of
quantitative nature. The report should provide the background, assumptions and analysis to support the
recommendation or either to approve or deny the loan application of the company and why the three
identified terms in the loan contract are of importance.
ESSENTIAL COMPONENTS OF ANALYSIS
1. Prepare common-sized (both vertical and horizontal) balance sheet, income statement and cash
flow statement for the assigned company for the two years included in the financial statements and
comment on whether the financial position, profitability and changes in cash flows have improved or
worsened from the prior year. For the benchmark amount for the cash flow statement, use the sum of
the absolute value of the subtotals for the three categories of cash flows.
2. Calculate a minimum of 10 ratios for the most recent year spanning the four main categories of
profitability, solvency, liquidity and efficiency for the assigned company, competitor company and
industry data where available. One of the ratios must be the price-earnings ratio.
3. Explain whether the assigned company performed better or worse than a direct competitor
company and its industry for each of the ratios and on an overall basis.
4. Identify and explain why three changes should be made to the assigned company’s most recent
year-end financial statements to make their policies more realistic and/or more comparable to the
policies of a competitor company. For example, you could adjust from FIFO to average cost, straight-
line depreciation to units based, etc. Prepare an excel spreadsheet to show the impact of the new
policies on the assigned company’s balance sheet and income statement for the most recent year. There
should be a separate column for each of the three changes in policies.
5. Recalculate the ratios from 2) above for the assigned company using the revised financial
statements. Then, explain whether the assigned company’s revised financial statements make the
company look better or worse for each of the ratios and on an overall basis.
6. Prepare proforma financial statements for the third year considering all information obtained
about the entity (i.e. after reading the MD&A, the most recent annual reports, press releases, etc.). The
starting point for the proforma financial statements is the unadjusted most recent year-end financial
statement of the assigned company. The proforma statements should include the balance sheet, income
statement and statement of retained earnings. Notes to the financial statements are not required. A
bonus of 5 marks is available for completing a realistic pro forma cash flow statement.
Assumptions should be explicitly stated and supported for the following inputs to the proforma
statements:
a. Inflation rate
b. Growth rate
c. Interest rate
d. Capital reinvestment rate
e. Dividend payout rate
One expense item should be specified as primarily variable and one expense item should be specified as
primarily fixed.
PRESENTATION
Upon completing your analysis, each group will prepare a formal presentation that will be presented to
the loans manager with your analysis and overall findings and recommendations as to whether to
approve or deny the company’s loan application. The presentation should be no longer than 15 minutes
in length and it is mandatory for each group member to speak in the presentation. Student’s can use
their creativity and originality for presentation of the findings, it does not need to follow a standard
format.
KEY DATES
September 30, 2020
Each group sent an email to the Instructor to indicate their company selection.
November 13, 2020
Each group will send an email to the Instructor and TA ([email protected]) to indicate the
competitor company of choice for the assignment.
December 3, 2020 on or before 11:59 PM
Each group will post their report & presentation of findings to the submission folder on CuLearn for
grading.
QUESTIONS
A discussion forum for the Group Project has been set up on CuLearn. The Group Project & Student
Introduction forum should be used to post questions or comments for other students to respond. If you
do not get a satisfactory response from other students within 12 hours, then you can use the “General
Course Questions & Answers” forum to ask the Instructor/TA to respond.


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