Running head: FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis Learning Team B has chosen ADP, Embraer, and Lowes for our three companies. As a team, we will calculate the current and quick liquidity ratios, profit margin, asset utilization, DuPont ratio, and financial leverage for each. A distinction will be made between cash and accrual basis accounting. Also, an illustration will be shown as to how the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) conferences influence presentations. In addition to the other information, Learning Team B will explain the differences as to what happens when a company uses cash basis accounting versus accrual basis. Financial Analysis Computations ADP The original outsourcer, Automatic Data Processing (ADP) has still got it. ADP is one of the largest payroll and tax filing processors in the world, serving about 550,000 clients. Employer services (payroll processing, tax, and benefits administration services) account for the majority of the company's sales, and its PEO (Professional Employer Organization) services are provided through ADP Total Source. ADP also provides inventory and other computing and data services to some 25,000 auto, motorcycle, truck, and recreational vehicle dealers. Other offerings include accounting, auto collision estimates for insurers, employment background checks, desktop support, and business development training services (www.dailyfinance.com). Embraer Embraer is the second company Team B has chosen. Embraer is a Brazilian industrialized business that has developed into one of the three main civil aircraft manufacturer on the globe. It has produced more than 5,000 aircraft that operate in 92 countries on five continents, and it is the market leader for commercial jets with up to 120 seats. Embraer manufactures some of the best

Running head: FINANCIAL STATEMENT ANALYSIS executive jets in operation, and is now entering a new level in the defense segment (Embraer, n.d.). The current ratio for 2009 year is 204% and Embraer has decreased in inventory. The companys Quick ratio is 119%, which means there is a decline in account receivable. It is

significant to note that the Brazilian accounting standard is changing and International Financial Reporting Standards (IFRS) will become Brazils accounting standard. Nevertheless, the management report includes US GAAP financial statements. Lowes Lowes is a discount retail company that was created in United States. The current ratio for Lowes is 1.3%. This states that Lowes is in a strong cash situation. Lowes Quick ratio is 0.20% and reflects less liquidity than the current position. The relationship of current assets to current liabilities is the current liquidity ratio. The company ability to pay back short-term liabilities with the short-term assets is the main purpose for the use of current liquid ratio. It means that the company is capable of paying back its obligations when there is a high current ratio. The indication of the relative liquid health of a company is based on the numbers that are computed using the current liquid ratio (Accounting For Management, 2011). Difference between FASB and IASB The accounting standards provide a set of principles and similar practices in the investment marketplace across the globe and are governed by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). To see if a companys standards are globally accepted, the FASB or IASB will use their present principles, in association with the objective of normal practices and rules, of accounting. In spite of the common connection of doctrine, for actual accounting in business firms and the financial

Running head: FINANCIAL STATEMENT ANALYSIS

operations, there are still several distinctions between principles of FASB and IASB (Financial Accounting Standard Board, 2002). The IASB is founded in London, England and is responsible for maintaining the International Financial Reporting Standards (IFRS) and is independent and funded privately. The Generally Accepted Accounting Principles (GAAP) approach is borrowing costs and segment reporting, which was adapted by the non-profit FASB. The FASB, based in the United States, is concerned with the interest of the public. Even though there are differences in the IASB and the FASB, the IFRS and GAAP are considering reducing the differences by further developing the accounting standards (Financial Accounting Standard Board, 2002). Cash Basis versus Accrual Basis Realistically, if a company was to utilize the cash basis of accounting, the financial statement would reflect only when there is a direct exchange of cash. This would better be described as when the company receives monies and pays out cash. In contrast, most companies believe the best framework when utilizing financial statements, to illustrate the relationship between accomplishments (revenue) and efforts (expense), is to conform to the accrual basis accounting (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, 2008). However, on the financial statements this process shows up when the revenue and expenses occurs, instead of when the cash is paid out. Conclusion Every company is affected by changes in the economy; however, they must continue to abide by the rules of accounting. Money, rather gained or lost, should be accounted for at all times. ADP, Embraer, and Lowes are in different sectors, but face the same set of standards. The IASB and the FASB govern these principles, in order to keep the public knowledgeable of

Running head: FINANCIAL STATEMENT ANALYSIS

their investments. Overall, the goal is to maintain ethical practices and keep information streamlined.

Running head: FINANCIAL STATEMENT ANALYSIS

References: Accounting For Management. (2011, February 27). Liquid or Liquidity or Acid Test or Quick Ratio. Retrieved February 27, 2011, from Accounting For Management,: http://www.accountingformanagement.com/liquid_ ADP data Retrieved from the wide world web on February 27, 2011 from http://www.dailyfinance.com/company/automatic-data-processing-inc/adp/nas Embraer. (n.d.). Embraer. Retrieved from http://www.embraer.com/en-US/Pages/Home.aspx Embraer. (n.d.). Embraer. Retrieved from http://www.embraer.com/enUS/ConhecaEmbraer/tradicaohistoria/Pages/Home.aspx Embraer. (n.d.). EMBRAER - Management Report 2009. Retrieved from http://ri.embraer.com.br/Embraer/default.aspx?linguagem=en Financial Accounting Standard Board. (2002, October 1). Convergence with the IASB. Retrieved February 27, 2011, from Financial Accounting Standard Board: http://www.fasb.org/intl/convergence_iasb.shtml Horngren, C.T., Sundem, G. L., Stratton, W.O., Burgstahler, D. & Schatzberg, J. (2008). Introduction to Management Accounting (14th ed). Upper Saddle River, NJ: Pearson Prentice Hall http://www.stock-analysis-on.net/NYSE/Company/Lowes-Cos-Inc/Ratios/Liquidity http://media.lowes.com/article_display.cfm?article_id=3045 http://ycharts.com/companies/LOW/asset_utilization http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=LOW