Housingbubble

5. ANALYSIS PHASES
Step 1.  Acquire the company’s financial statements for several years.  These may be found in your assigned case study; in a recent annual report; in the company’s database; or from other sources.  As a minimum, get the following statements, for at least 3 to 5 years.
·          Balance sheets
·          Income statements
·          Shareholders equity statements·          Cash flow statements
Step 2.  Quickly scan all of the statements to look for large movements in specific items from one year to the next.  For example, did revenues have a big jump, or a big fall, from one particular year to the next?  Did total or fixed assets grow or fall?  If you find anything that looks very suspicious, research the information you have about the company to find out why.  Forexample, did the company purchase a new division, or sell off part of its operations, that year?  
Step 3.  Review the notes accompanying the financial statements for additional information that may be significant to your analysis.
Step 4.  Examine the balance sheet.  Look for large changes in the overall components of the company's assets, liabilities or equity.  For example, have fixed assets grownrapidly in one or two years, due to acquisitions or new facilities?  Has the proportion of debt grown rapidly, to reflect a new financing strategy?  If you find anything that looks very suspicious, research the information you have about the company to find out why. 
Step 5.  Examine the income statement.  Look for trends over time.  Calculate and graph the growth of the following entries over thepast several years. 
·          Revenues (sales)
·          Net income (profit, earnings)
Are the revenues and profits growing over time?  Are they moving in a smooth and consistent fashion, or erratically up and down?  Investors value predictability, and prefer more consistent movements to large swings.
For each of the key expense components on the income statement, calculate it as apercentage of sales for each year.  For example, calculate the percent of cost of goods sold over sales, general and administrative expenses over sales, and research and development over sales.  Look for favorable or unfavorable trends.  For example, rising G&A expenses as a percent of sales could mean lavish spending.  Also, determine whether the spending trends support the company’sstrategies.  For example, increased emphasis on new products and innovation will probably be reflected by an increased proportion of spending on research and development.  
Look for non-recurring or non-operating items.  These are "unusual" expenses not directly related to ongoing operations.  However, some companies have such items on almost an annual basis.  How do these reflect on the earnings quality?
If youfind anything that looks very suspicious, research the information you have about the company to find out why. 
Step 6.  Examine the shareholder's equity statement.  Has the company issued new shares, or bought some back?  Has the retained earnings account been growing or shrinking?  Why?  Are there signals about the company's long-term strategy here?
If you find anything that looks verysuspicious, research the information you have about the company to find out why. 
Step 7.  Examine the cash flow statement, which gives information about the cash inflows and outflows from operations, financing, and investing.  
While the income statement provides information about both cash and non-cash items, the cash flow statement attempts to reconstruct that information to make it clear how cashis obtained and used by the business, since that is what investors and creditors really care about.
If you find anything that looks very suspicious, research the information you have about the company to find out why. 
Step 8.  Calculate financial ratios in each of the following categories, for each year.  You may use the formulas found in your textbook, or other materials you have...