TEAM BUILDING SKILLS (AACSB)
Taking Stock of Ratios
Your class has been told that each group of three students will receive a share of stock in one of three companies in the same industry. But there’s a catch: each group has to decide which of the companies it wants to own stock in. To reach this decision, your team will use ratio analysis to compare the three companies. Each team member will analyze one of the companies using the ratios presented in this chapter. Then, you’ll get together, compare your results, and choose a company. Here are the details of the project:
1. The team selects a group of three companies in the same industry. Here are just a few examples:
- Auto manufacturers. Ford, General Motors, Toyota
- Airlines. Southwest, United Airlines, American Airlines
- Drug companies. GlaxoSmithKline, Eli Lilly & Co., Bristol Myers Squibb
- Specialty retailers. Bed Bath & Beyond, Pottery Barn, Pier 1 Imports
- Computers. Hewlett Packard, Gateway, Apple Computer
2. Every team member gets a copy of one company’s most recent annual report (which includes its financial statements) from the company’s Web site (investor section).
3. Every member calculates the following ratios for the company for the last two years: gross profit margin, net profit margin, inventory turnover (if applicable), return on assets, current ratio, debt to equity, and interest coverage.
4. Get together as a group and compare your results. Decide as a group which company you want to own stock in.
- Write a report indicating the company that your team selected and explain your choice. Attach the following items to your team report:
- A brief explanation of each ratio (how to calculate it and what it means)
- Detailed calculations showing how each ratio was determined
- A chart comparing the ratios for the three companies