Each student is to select a publicly traded company which restated its financial statements or committed fraud within the last 10 years.  Once you determine the date of the fraud (restatement) you want to concentrate your analysis on the two year period prior to this date.  If you are looking at a firm that restated their financial statements make sure you examine the original financial statements prior to the restatement.  To reiterate, the two year examination period should precede the reported fraud or financial statement restatement due to an accounting irregularity.  For example, if the firm’s fraud was discovered on March 3, 2018, you would examine the prior two year period, 2016 and 2017. 

The company you choose should also have a clear industry peer for comparative purposes.  The peer firm should also be examined for the same pre-fraud (restatement) period. 

Students should then compare their firm to the peer firm along three dimensions. 

ØThe first is using ratios to analyze the following four areas of performance: profitability, liquidity, solvency, and market performance.  Your explanation should demonstrate a clear understanding of what the ratios communicate as well as relevant comparisons.  Please reference the in-class lecture, book material, and/or outside material for more information on financial statement / ratio analysis.  Do not define the ratio in the write-up, assume your audience knows how to calculate ratios.  See Appendix A for more details about the ratios.

ØThe second is an analysis of the external environment as reported by analysts.  Specifically, use analysts’ reports to compare and contrast your firm to its peer.  Just like in any paper, direct quotes from the analysts’ have the most impact.  If you can’t find analysts’ reports and you use stock recommendations instead make sure you mention what the recommendation was and why it was made by the analyst.

ØThe final piece of your paper should be an analysis of the internal environment as reported by top management.  Specifically, based on press releases, conference calls, management forecasts, etc., what was management saying about its own firm?  Again, compare and contrast the two firms.  A last resort resource for management discussion is the Management Discussion and Analysis section of the 10-K report.

Your paper should conclude by assessing the overall performance of the firm during the two year reporting period compared to its peer. Specifically, after looking at three dimensions of the firm which would have been the better investment?