Case 2 – Financial Statement Analysis Case
20 points
This case is designed to show you how the items we have discussed this semester would actually be reported in a company’s financial statements filed with the SEC.
Use the 10-K Report for Hewlett Packard (you can locate the report at:
http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-irhome
) to answer the questions below. You will need to use the entire report, including the Management Discussion and Analysis section as well as the footnotes and related disclosures.
NOTE: DO NOT PRINT THE ENTIRE 10-K. The document is too big. Search through the document by reading in the appropriate locations for each question to be answered. Use the table of contents and associated links to help you access this information more quickly. (You can also use the search/find feature)
Required:
Copy and paste the 16 questions listed below into a word document. You can then answer the questions directly on the word document by simply adding lines in between each question. Your final paper should be typed and include a cover sheet (or you can use a memo format) that includes each of the names of your group participants. Only one member of your group needs to submit the final copy of your report.
1. Who was the Auditor and what type of opinion did they render? Did HP have any changes in or disagreements with accountants on their accounting and financial disclosures?
2. In accordance with Sarbanes-Oxley, to what did management attest in the Management Report on Internal Control over Financial Reporting?
3. In the section, “Qualitative and Quantitative Disclosure About Market Risk” of MD&A the company should discuss several risks they face. What risks does HP face? What could negatively impact your company?
4. Does the company have any discontinued operations, change in accounting principles or extraordinary items? What caused the company to record these items?
5. What is HP’s Revenue Recognition policy? Specify the 4 elements HP describes as the pervasive evidence that must exist to allow HP to recognize revenue. Identify and describe two issues regarding revenue recognition that exist in a business like HP’s.
6. How does the company report Comprehensive Income? (i.e. one continuous statement of income and comprehensive income or two separate statements?) What items were reported as OCI? Where else is this information on changes in equity due to OCI items reported?
7. The company reports Cash & Cash Equivalents on their balance sheet. What does HP classify as “Cash Equivalents”?
8. Has the company pledged, assigned or factored any receivables? If so, discuss these transactions? If they have been factored, do they qualify as a sales transaction?
9. Does the company have any securities held as investments? If so, how does the company classify them? At what value does the company record these securities? Did the company disclose what level in the hierarchy was used to derive these values?
10. What inventory method does the company use? How would inventory be affected if the company changed inventory methods (assuming rising prices)? Did the company record any reductions to the cost of inventory in the current year (or three-year comparative) for excess, obsolescence or impairment?
11. The company reports Purchased Intangibles. What are these assets composed of?
12. Did the company record any impairments on long-lived tangible or intangible assets? If so, what was the reason for the impairment?
13. What was the company’s goodwill balance as of October 31, 2012? Was any goodwill acquired in the current year? If yes, from what purchase was the goodwill acquired?
14. What is the company’s dividend policy and what was the total value of the dividends paid in fiscal year 2011-2012? List the financial statements this affected and the associated 2012 ending balances in the affected accounts.
15. HP reported a Net Loss in the current year. In your opinion, what was the single most significant event that caused HP to report a loss for their fiscal year ended October 31, 2012? Was this event separately disclosed on their income statement?
16. When a company reports a Net Loss on their income statement, could they also report a strong cash flow from operations in the same fiscal year?
