Financial Statements Analysis

EXECUTIVE SUMMARY

Description of the business and Overview of the system

Much of the financial information available has been prepared timely and transparent but there is so much out there (e.g. Annual reports were approximately 10,000 words in 1995 and now they average 60,000 words. Furthermore there are more than 500 unique SEC filings) that is hard to distinguish the relevant from the irrelevant in order to make informed business decisions. 

The purpose of our project was to automate all the hard work process of sorting through all the information to summarize the profitability (in terms of operational and non-operational activities), probability of bankruptcy, and the quality of their earnings in just one click. Furthermore we provide charts associated with the key ratios to identify trends and opportunities.

For this project we used sophisticated frameworks of three outstanding financial experts. The Penman Decomposition, created by Stephen Penman and Doron Nissim, helps investors to dig into a firm’s financial statements by separating the profitability into the core operating performance and the financing effects. The Beneish Model, created by Professor Messod Beneish, is based in eight financial ratios to describe the degree to which the earnings of a company have been manipulated. The Altman’s Z-score, created by Edward Altman, is based in five financial ratios to calculate the
likelihood of bankruptcy of a manufacturing company in a two-year span.

This program can be used by securities analysts, investors, lenders, investment bankers, management consultants, corporate managers, and others who want to be informed about the financial health of any company listed in the financial markets.

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