“My Company” Case: Not-for-Profits (NFP)
Note: These instructions are for not-for-profit (NFP) entities only. If your “company” is a for-profit entity then the separate “My Company” Case version of the instructions (rather than these instructions) for the assignment.
(a) For this assignment, you need the following: Balance Sheets for the three most recent fiscal year-ends; Income Statements, Cash Flow Statements, and Statements of Stockholders’ Equity each for the three most recent fiscal years; and the set of Notes to the financial statements. This likely will mean that you will need the “company’s” annual financial report (e.g., SEC Form 10-K for publicly traded companies) for the two most recent years so that you have all the financial statements required.
(b) If your “company” is a publicly traded U.S. company, then use its SEC annual report, Form 10-K. The financial statements and notes are under Item 8 or Item 15 in the 10-K. The Management Discussion and Analysis (MD&A) section is Item 7 in the 10-K; information about the Business is Item 1 in the 10-K; the entity’s Risk Factors are under Item 1A in the 10-K; and you might want to examine the Selected Financial Data (Item 6 of the 10-K) and Controls and Procedures (Item 9A of the 10-K). (Note: A Form 10-K is illustrated in the “Data Sources” video and extended slides.)
(c) Some public financial information on municipal-related entities can be found on Emma.msrb.org; search for the “company” by name and look for its regular filings.
(d) For other NFPs, it is likely that financial report information may only be available directly from the entity itself and/or perhaps on its website. And if the annual report information does not include all of the information in the last sentence of (a) above, then also see Section E, #4 and #5 below.
(e) While unlikely, if the NFP is registered with the SEC, then its annual report may take the form of the Form 10-K, which can be downloaded from the SEC’s database at www.sec.gov (see directions on the last two pages of “Data Sources” video). The financial statements and notes are under Item 8 or Item 15 in the 10-K. Also, see (b) above.
(d) You may use additional resource materials if you believe they are relevant, but be sure to cite (i.e., reference the source of) any such materials you use in your write-up.
(1) ASAP: Submit by 11:59pm on Sunday, Feb. 21st (first-come, first-served) the name of the company you are requesting to use for the “My Company” Case. (See the Syllabus, for more details.)
Do this even if it is the company you work for.
(2) The case must reflect your individual work. Direct any questions/comments only to Prof. Flaiz-Windham.
(3) Specific requirements are stated in each section below in this document.
(4) Submit: (a) your completed case write-up, plus (b) the most recent Form 10-K (or the equivalent financial report) of your “Company” – all through Canvas by Noon on Tuesday, March. 16th, 2021.
State “My Company” Case on the cover sheet.
Late submissions will be penalized to be fair to all.
Note: This case is meant to be a first-pass look-through of the “company’s” financial reports. It should be a careful examination of all the questions asked but not an in-depth dissertation.
The case write-up must be no more than a TOTAL of 12 typed pages, which includes a title page, your well-written, typed, double-spaced text, and any and all attachments (tables, calculations, etc. that you choose to append or imbed in the text). Your write-up should be to the point and concise.
Be sure to answer the questions in the order asked and label each answer by the question number; you do not need to type out each question.
To ensure Academic Integrity and a fair game for all, you may not discuss this individual graded assignment with anyone (except Prof. Flaiz-Windham). Thus, you may not receive help from your group members or from anyone else. You may ask the TA, general questions but not specific questions about the case.
- Overview (19%)
Identify and discuss the “company’s” core activities, its goals and strategies, its business risks and opportunities based on its annual report information (or equivalent). Specifically:
1. Begin by stating your “company’s” name, the location of its headquarters, and the location(s) of its primary operations.
- Where in the life cycle is your “company” (introductory, growth, mature, decline)? Briefly explain.
- Using your “company’s” annual report (or equivalent) information, provide an overview of its:
(a) Core activities, i.e., the entity’s main focus.
(b) Primary goal(s) and the main strategy (or strategies) being pursued to achieve the goal(s).
(c) Primary opportunities and risks associated with the goal(s) and strategy(ies).
- If your “company” is a state or local municipality, what is its size relative to other such states or local municipalities? Or, if it is some other form of NFP, what “industry” is it in and is it an “industry” leader? Briefly discuss.
- Trend Analysis (12%)
Review your “company’s” statement of the excess of revenues over expenses (a.k.a. Statement of Operations). You will find it useful to prepare common-size income statements, at least in answering parts of the questions in the case (although you do not need to include the common-size statements in your write-up). You should base your analyses on the most recent three fiscal years of income statements (e.g., 2017 through 2019, if fiscal 2019 is the latest year’s income statement available to you). Based on your analyses, identify and comment on the major trends in your “company’s” revenues and net income, including the following (be specific and provide support for your answers):
- Growth in Revenues – Was your “company’s” revenue growth consistent or inconsistent over the three-year period? Do you see signs of acceleration or deceleration in its recent growth rates? How does the “company’s” revenue growth compare to the revenue growth of related NFPs (i.e., that have similar activities)? Do you believe your “company’s” revenue trends over the past few years will continue over the next two to three years? Why or why not?
- Excess of Revenues Over Expenses – Has the excess of revenues over expenses grown at the same rate, faster, or slower than the change in its revenues? What factors (for example, program service revenue, fundraising expenses, etc.) account for the trend you have identified? Is any of the excess of revenues over expenses from major activities that your “company” generates subject to some form of “tax”? If so, why is it subject to some form of “tax”? Briefly explain. If not subject to some form of “tax,” why isn’t it?
- Analysis of Functional Expenses and Revenue Ratios (14%)
First, use data for three years from your “company’s” annual financial reports to analyze your “company’s” functional expenses and revenue ratios. Second, answer the questions in 1 and 2 below.
Note: ratio definitions are assumed to be as described in the Easton textbook and the course videos; if you use a different ratio definition, state the definition and briefly justify it. (Be specific and provide support for your answers.) Also, recall that there is no GAAP for financial ratios, except for EPS. For averages, such as average assets, sum the beginning and ending balances and divide by 2 to get the average for a year. If the data needed to compute an average are not available, then simply use the ending balance or the beginning balance, rather than the average, stating how you did the computations.
- Functional expenses: Calculate and in one paragraph report the relative proportion of expenses over three functional expense categories: for example, program service expenses, management and general expenses, and fundraising expenses (or another important expense). Have these proportions remained consistent over the last three years? For each of the functional expenses, also discuss its trend over the past three years and whether the trend indicates improvement or deterioration in operating efficiency. Also, what is your “company’s” percentage of administrative costs-to-revenues? Is the percentage a useful input in gauging the operating efficiency of your “company” relative to other like “entities”?
- Revenue ratios:
(a) Calculate and in one paragraph explain what the following revenue ratios reveal about your “company.” Include an explanation of each of the applicable types of revenue. What is your conclusion regarding your “company’s” ability to generate revenue?
Revenue ratios: Revenue source / Total revenue. Consider the two most important revenue sources from the sources listed in the next sentence in order to establish what proportion these revenue streams contributes to your “company’s” total revenues. These sources likely include: public contributions, government grants, program service revenues, dividends and interest, net sales, membership dues, special events, tax receipts, fee receipts. (If your “company” has a different set of revenue sources, then use those.)
(b) Trends: Provide an analysis of Revenues, Bad debt expense, and the Allowance for doubtful accounts. Are they moving in concert?
- Analysis of Cash Flows (16%)
Refer to your “company’s” statement of cash flows. (Be specific and provide support for your answers.)
- During the most recent three fiscal years, what were your “company’s” two largest sources of cash? What were your “company’s” two largest uses of cash? Be specific. Note: the largest sources and uses of cash must be specific items, not total cash flows from operations, nor total cash flows from investments, nor total cash flows from financing.
- For the past three fiscal years, has your “company’s” net assets or fund balances been adequate to fund its growth initiatives? State the basis for your answer. If its net assets or fund balances have not been sufficient to cover its growth initiatives, then state how your “company” has funded the shortfalls in CFO to obtain growth?
- Based on your understanding of the history of your “company,” how did it obtain its assets (for example, taxes, bond funding, donations, for-profit company turned non-profit, or some other ways)? How does your “company” plan to grow in the future?
- During the most recent three fiscal years, did your “company” change the classification of any of its net assets (for example, change from temporarily restricted assets to unrestricted assets)? If so, why did your “company” change the classification of its assets?
E Accounting Policies (27%)
Companies typically disclose their significant accounting policies and accounting issues in the notes to the financial statements. (Be specific and provide support for your answers to the following questions.)
- First, identify two important economic activities of your company. Second, describe the accounting policy that is employed to account for each of those activities. Third, state your thoughts on the appropriateness of these two accounting policies – i.e., do each of these accounting policies serve to best reflect you “company’s” underlying economic activities? Why or why not?
- In light of the earlier discussion about your “company’s” core activities, goals and strategies, discuss why you believe each of two accounting policies you identified as significant are especially important for the “company.”
- In general, do you think “your company” does a satisfactory job of discussing its accounting policies? Briefly explain why or why not.
- This question is to be answered only if your “company” prepares a Management Discussion and Analysis (MD&A, or equivalent) section in its annual report. (If it does not, then skip to the next question.) Read the MD&A or equivalent section in your company’s” most recent annual report. Do you think your “company” does an adequate job of discussing its operations, financial position, and cash flow issues? Briefly explain why or why not.
- If your “company” does not prepare an MD&A (or equivalent), then do the following:
- Interview your “company’s” chief financial officer (or equivalent) about your “company’s” operations, financial position, and cash flows as well as it significant accounting policies.
- State his/her title.
- Based on your assessment of the information the chief financial officer provides you as well as your own examination of your “company’s” financial reports, does your “company” do a satisfactory job of discussing its operations, financial position, and cash flows and its accounting policies? Briefly explain. (Your answers will not be shared with your “company’s” officials.)
F Own Question (12%)
- Be explicit: (a) State your own question about your “company.” Note: you will earn more credit if the question reflects some aspect of the Merage School’s Digitally Driven World initiative, which applies to new as well as to legacy entities. (b) State why it is interesting or important to ask (i.e., why it’s worth asking). (c) And provide an answer or outline what you would do to fully answer your question.
 The “company” annual report generally only includes balance sheets for the two most recent fiscal year-ends, but for this assignment, you will need balance sheet information for the three most recent fiscal year-ends. This means you will almost certainly need to get the two most recent annual reports for your “company” to get the three year-end balance sheets you will need (as well as the flow statements).
 There should be 2 files submitted: (i) The first file should be your case write-up, including any attachments; for example, if you have an Excel spreadsheet, please imbed it in your case write-up document (i.e., in Word). The maximum page limit is 12 pages including the title page and any and all attachments. (ii) The second file should be the “company’s” most recent financial report (e.g., 10-K, 20-F, private firm reports, etc.).
 If it happens that the fiscal 2020 annual report is available, then of course use it and thus the information for fiscal years 2018, 2019, and 2020. However, I assume that for most students, the fiscal 2019 annual report will be the latest annual report available, and thus that your write-up will be based on the annual reports for fiscal 2017, 2018, and 2019. If for some reason, the “company’s” fiscal 2019 annual report is not yet available, then use fiscal 2018 annual report as the latest data available. However, in that case, it might be useful to also review and incorporate, as needed, available fiscal 2019 quarterly report information.