1. Collect a most recent 10-K for at least three years of financial data, including financial statements, their footnotes, and management discussion for ONE of the following primary firms: (Note: DON’T print out 10-K.)
a. ConocoPhillips (COP)
b. Occidental Petroleum

Then, you need to find one major competitor of the firm you select above, and also download its most recent 10-K with at least 3 years of data. You need to explain why you select this firm as the competitor for your project study. In addition, you need to collect industrial benchmarks or ratios for the ratios you need to calculate (See 3 below), and to investigate what formulas from which these benchmarks are calculated. (5 points)

2. Summarize the management discussion and analysis. Pay close attention to the adjective terms in the description they use to excuse themselves from unsatisfactory performance. Do you think that the firm discloses its financial situation sufficiently? (10 points)

3. For the two companies (the primary and the competitor), do numerical analyses on: their common-size (vertical and horizontal) ratios, year-to-year ratios, liquidity of short-term assets and related debt-paying, activity efficiency, long-term debt-paying ability or coverage, and the firms’ profitability. Note: Do as many ratios as you can. (20 points)

4. Comments on the major findings of the primary firm based on the analytical results in Item 3 above, in comparison with those of the competitor and industrial benchmarks. (10 points)

5. Comment on the accounting treatments of the primary firms. To do this, you need to read management discussion and analysis and footnotes carefully. In general, your comments should concentrate on whether the firms are conservative or not for account classification and estimates, and whether there are accounting policy changes and why. If the firms use different accounting methods, such as for depreciation and amortization, you need to specify them. Your evaluation should be based upon the criteria we have learned in this course and the accounting quality hierarchy. Particularly, concentrate on the following issues: (25 points)

a. Do the firms recognize their revenue and related expenses properly? Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes)
b. Examine accounting quality for fixed assets and intangible assets. Pay close attention to the valuation and estimation methods used. Explain. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)
c. Review liability recognition and related expenses. Explain whether you agree or disagree with the treatment of the firms. (You need to support your evaluation with your understanding of management discussion and analysis, and the footnotes.)

6. Select one company from the two companies studied, and explain why you select this specific firm for possible investment. Your selection should be based upon your ratio analyses and comments. (5 points)

7. Do pro forma financial statements: Balance Sheet and Income Statement for the company you choose to invest in, and further do the ratio analysis (above Step 3) and explain (above Step 4) to confirm or refute your decision. (20 points)

Cosmetic work. Your report from the project should follow the typesetting requirements, as listed on the next page

Ratio Analysis – Occidental

Consolidated Balance Sheets – USD ($) $ in Millions Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016
CURRENT ASSETS
Cash and cash equivalents $ 3,032 $ 3,033 $ 1,672
Restricted cash and restricted cash equivalents 480 0 0
Trade receivables, net of reserves of $19 in 2019 and $21 in 2018 6,373 4,893 4,145 3,989
Inventories 1,447 1,260 1,246 866
Assets held for sale 6,026 0 474
Other current assets 1,323 746 733
Total current assets 18,681 9,932 8,270 8,428

INVESTMENTS
INVESTMENTS IN UNCONSOLIDATED ENTITIES 6,389 1,680 1,515 1,401

Property, plant and equipment, net 80,469 31,437 31,174
OPERATING LEASE ASSETS 1,385 0 0
LONG-TERM RECEIVABLES AND OTHER ASSETS, NET 2,406 805 1,067

TOTAL ASSETS 109,330 43,854 42,026 43,109

CURRENT LIABILITIES
Current maturities of long-term debt 51 116 500
Current operating lease liabilities 569
Accounts payable 7,017 4,885 4,408
Accrued liabilities 5,302 2,411 2,492
Liabilities of assets held for sale 2,010 0
Total current liabilities 14,949 7,412 7,400 6,362

Long-term debt, net 38,537 10,201 9,328 9,819

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 9,717 907 581
Asset retirement obligations 4,385 1,424 1,241
Pension and postretirement obligations 1,807 809 1,005
Environmental remediation liabilities 1,035 762 728
Operating lease liabilities 854
Other 3,814 1,009 1,171
Total Deferred Credits and Other Liabilities 21,612 4,911 4,726 5,431
Total Liabilities 75,098 22,524 21,454 21,612

EQUITY

Preferred stock 9,762 0
Common stock 209 179 179
Treasury stock (10,653) (10,473) (9,168)
Additional paid-in capital 14,955 8,046 7,884
Retained earnings 20,180 23,750 21,935
Accumulated other comprehensive loss (221) (172) (258)
Total stockholders’ equity 34,232 21,330 20,572 21,497

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 109,330 43,854 42,026 43,109

Consolidated Statements of Operations – USD ($) $ in Millions

REVENUES AND OTHER INCOME
Net sales $ 20,393 $ 17,824 $ 12,508
Interest, dividends and other income 217 136 99
Gains on sale of equity investments and other assets, net 622 974 667
Total 21,232 18,934 13,274
COSTS AND OTHER DEDUCTIONS
Oil and gas operating expense 3,246 2,761 2,427
Transportation expense 621 152 175
Chemical and midstream cost of sales 2,791 2,833 2,938
Purchased commodities 1,679 822 54
Cost of Sales Excluding Dep, dep, amo 8,337 6,568 5,594

Selling, general and administrative 882 585 546
Other operating and non-operating expense 1,425 1,028 878
Depreciation, depletion and amortization 5,981 3,977 4,002
Asset impairments and other charges 1,361 561 545
Taxes other than on income 707 439 311
Anadarko acquisition-related costs 1,647 0 0
Exploration expense 246 110 82
Interest and debt expense, net 1,066 389 345
Total 21,652 13,657 12,303

Income (loss) before income taxes and other items (420) 5,277 971

OTHER ITEMS
Gains on interest rate swaps and warrants, net 233 0 0
Income from equity investments 373 331 357
Total 606 331 357

Income from continuing operations before income taxes 186 5,608 1,328

Income tax expense (693) (1,477) (17)
Income (loss) from continuing operations (507) 4,131 1,311
Loss from discontinued operations, net of tax (15) 0 0
NET INCOME (LOSS) (522) 4,131 1,311
Less: Net income attributable to noncontrolling interest (145) 0 0
Less: Preferred stock dividends (318) 0 0
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (985) $ 4,131 $ 1,311

PER COMMON SHARE, BASIC
Income (loss) from continuing operations—basic (in dollars per share) $ (1.20) $ 5.40 $ 1.71
(Loss) from discontinued operations—basic (in dollars per share) (0.02) 0 0
Net income (loss) attributable to common stockholders—basic (in dollars per share) (1.22) 5.40 1.71
PER COMMON SHARE, DILUTED
Income (loss) from continuing operations—diluted (in dollars per share) (1.20) 5.39 1.70
(Loss) from discontinued operations—diluted (in dollars per share) (0.02) 0 0
Net income (loss) attributable to common stockholders—diluted (in dollars per share) (1.22) 5.39 1.70
DIVIDENDS PER COMMON SHARE (in dollars per share) $ 3.14 $ 3.10 $ 3.06

Net cash provided by operating activities 7,375 7,669 4,861
Net cash used by investing activities (29,027) (3,206) (3,079)
Net cash provided (used) by financing activities 22,193 (3,102) (2,343)
Increase (decrease) in cash, cash equivalents, restricted cash 541 1,361 (561)
Cash and cash equivalents — beginning of year 3,033 1,672 2,233
Cash, cash equivalents, restricted cash — end of year 3,574 3,033 1,672

Capital expenditures (6,355) (4,975) (3,599)
Cash dividends paid (2,624) (2,374) (2,346)

Working Capital 3,732 2,520 870
Current Ratio 1.25 1.34 1.12
Inventory Turnover 10.58 8.42 9.09
Days in nventory 34.50 43.37 40.17
Accounts Receiivable turnover 3.62 3.94 3.08
Average collection period 100.82 92.54 118.68

Debt to Assets ratio 69% 51% 51%
Cash debt coverage 15% 35% 23%
times interest earned 0.73 15.42 4.85
Free cash flow (1,604) 320 (1,084)

Gross Profit Margin rate 70% 59% 77%
Net Profit Margin rate -5% 23% 10%
Return on Assets -1% 10% 3%
Assets Turnover 27% 42% 29%
Financial Leverage 2.76 2.05 2.02
Payout Ratio -266% 57% 179%
Return on Common stockholders equity -4% 20% 6%

Conoco Philips ratio Analysis
Formulas 2016 2017 2018 2019
Net income -3615 -855 6257 7189
Shareholders Equity 34974 30607 31939 34981
Total Assets 89772 73362 69980 70514
Sales 23693 29106 36417 23567
Current Assets 8609 16512 13724 16913
Current Liabilities 6909 9397 7395 7043
Total Liabilities 54546 42561 37916
Account receivables 3249 4179 3920 3267
Inventory 1018 1060 1007 1026
COGS 17637 19507 17164
Purchase commodities 9994 5322 5213 5162
Accounts payables 4009 3863 3176
Net Cash provided by Operating activities 4403 7077 12934
Long term Debts 26186 17128 14856 14790

Retrn on Equity ROE Net income -2.6% 20.0% 21.5%
Av.shareholder’s equity
Asset Turnover AT Sales 35.6% 51.0% 33.5%
Av.total Assets
Return on Assets ROA Net income -1.1% 8.7% 10.2%
Av.total Assets
Financial leverage Av.total Assets 2.48 2.29 2.09
Av.shareholder’s equity
Profit Margin Net Income -2.94 17.18 30.5
Sales
Current Ratio CR Current Assets 1.76 1.86 2.4
Current Liabilites
Account receivable turnover Sales 7.83 8.99 4.51
Av.Current Liabilities
Days receivable outstanding 365 46.61 40.6 40.28
Ac.Receivable turnover
inventory Turnover AT COGS 16.97 18.87 16.88
Av. Inventories
Days Inventory outstanding 365 21.5 19.34 21.62
inventory turnover
Account Payable Turnover Purchases 1.32 1.46
Av.Ac.Payables
Days payable Outstanding 365 276.51 250
Ac.Payable turnover
Account Payable Turnover Purchases 1.32 1.46
Av. Ac.Payables
Days payable Outstanding 365 276.51 250
Ac.Payable turnover
Operating Cash flow to total liabilities Cash Flow from Operation 0.145 0.321
Av.total Liabilites
liability to Assets ratio total Liabilites 0.58 0.54
Total Assets
debt to Equity ratio Long Term debts 0.55 0.46 0.43
Shareholders Equity

conoco Philips ratio Analysis
Formulas 2016 2017 2018 2019
Net income (3,615) (855) 6,257 7,189
Shareholders Equity 34,974 30,607 31,939 34,981
Total Assets 89,772 73,362 69,980 70,514
Sales 23,693 29,106 36,417 32,567
Current Assets 8,609 16,512 13,724 16,913
Current Liabilities 6,909 9,397 7,395 7,043
Total Liabilities 54,546 42,561 37,916 35,464
Account receivables 3,249 4,179 3,920 3,267
Inventory 1,018 1,060 1,007 1,026
COGS 24,482 25,463 23,254
Accounts payables 4,009 3,863 3,176
Net Cash provided by Operating activities 4,403 7,077 12,934 11,104
Long term Debt 26,186 17,128 14,856 14,790

Retrn on Equity ROE Net income -2.6% 20.0% 21.5%
Av.shareholder’s equity
Asset Turnover AT Sales 35.7% 50.8% 46.4%
Av.total Assets
Return on Assets ROA Net income -1.0% 8.7% 10.2%
Av.total Assets
Financial leverage Av.total Assets 2.49 2.29 2.10
Av.shareholder’s equity
Net Profit Margin Net Income -2.9% 17.2% 22.1%
Sales
Current Ratio CR Current Assets 1.76 1.86 2.40
Current Liabilites
Account receivable turnover Sales 7.84 8.99 9.06
Av.Accounts Receivables
Days receivable outstanding 365 46.57 40.59 40.27
Ac.Receivable turnover
inventory Turnover AT COGS 23.56 24.64 22.88
Av. Inventories
Days Inventory outstanding 365 15.49 14.81 15.96
inventory turnover
Operating Cash flow to total liabilities Cash Flow from Operation 0.15 0.32 0.30
Av.total Liabilites
liability to Assets ratio total Liabilites 0.58 0.54 0.50
Total Assets
Long term debt to Equity ratio Long Term debts 0.56 0.47 0.42
Shareholders Equity

Occidental ratio Analysis
Formulas 2016 2017 2018 2019
Net income 1,311 4,131 (985)
Shareholders Equity 21,497 20,572 21,330 34,232
Total Assets 43,109 42,026 43,854 109,330
Sales 12,508 17,824 20,393
Current Assets 8,428 8,270 9,932 18,681
Current Liabilities 6,362 7,400 7,412 14,949
Total Liabilities 21,612 21,454 22,524 75,098
Account receivables 3,989 4,145 4,893 6,373
Inventory 866 1,246 1,260 1,447
COGS 9,596 10,545 14,318
Accounts payables 4,408 4,885 7,017
Net Cash provided by Operating activities 4,861 7,669 7,375
Long term Debt 9,819 9,328 10,201 38,537

Retrn on Equity ROE Net income 6.2% 19.7% -3.5%
Av.shareholder’s equity
Asset Turnover AT Sales 29.4% 41.5% 26.6%
Av.total Assets
Return on Assets ROA Net income 3.1% 9.6% -1.3%
Av.total Assets
Financial leverage Av.total Assets 2.02 2.05 2.76
Av.shareholder’s equity
Net Profit Margin Net Income 10.5% 23.2% -4.8%
Sales
Current Ratio CR Current Assets 1.12 1.34 1.25
Current Liabilites
Account receivable turnover Sales 3.08 3.94 3.62
Av.Accounts Receivables
Days receivable outstanding 365 118.68 92.54 100.82
Ac.Receivable turnover
inventory Turnover AT COGS 9.09 8.42 10.58
Av. Inventories
Days Inventory outstanding 365 40.17 43.37 34.50
inventory turnover
Operating Cash flow to total liabilities Cash Flow from Operation 0.23 0.35 0.15
Av.total Liabilites
liability to Assets ratio total Liabilites 0.51 0.51 0.69
Total Assets
Long term debt to Equity ratio Long Term debts 0.45 0.48 1.13
Shareholders Equity

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