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Your parents have been left a substantial amount of money and want to invest in a company

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Your parents have been left a substantial amount of money and want to invest in a company. Your father trusts you to make a recommendation, but also wants to see the reasoning behind your choice.

You have an idea of which company to choose and you decide to prepare three sets of documents for your parents to consider: business analysis, combined income and cash flow statement, and trend analysis.

Business analysis

Select a public company that trades on either the NYSE or the NASDAQ. Perform a business analysis (both external and internal) for your company using various sources of information. Possible sources include the following:
- Annual report and/or Form 10-K
- Magazine or newspaper articles
- Company website
- Government information
- Industry information
- Value Line, Standard & Poor's, Moody's, etc.
- Analyst reports
- Internet articles

Combined income and cash flow statement

Download the company's annual report from its website, or the company's Form 10-K from the U.S. Securities and Exchange Commission (SEC) website [www.sec.gov].

- Confirm that the firm's income, dividends, and other capital transactions explain the change in equity for the most recent year. (You may need to consult the statement of shareholders' equity.)
- Confirm that the firm's cash flow statement begins with the same net income amounts found in the income statement.
- Confirm that the firm's cash flow statement shows a change in cash that is equal to the difference between cash shown on the balance sheet at the beginning and end of the year. In Excel, construct a combined income statement and cash flow statement.
- Write a piece that answers the following: what would you do if you found there was a huge difference in the net income amounts and the reported cash flow amounts? How could technology limit the likelihood of this happening again?

Trend analysis

Finally, prepare a trend analysis of operating ratios for at least three years' worth of financial data. Prepare the analysis in Excel. You may wish to create a common-sized income statement first, but it isn't required.
If you adjusted for any nonrecurring items in step (1), explain the adjustments in a separate Word document. Use any other information in your company's annual report to explain the change in revenues, gross margin percentage, and operating margin percentage. Add this information to the Word document.