Utilize the outline below and complete an analysis for two companie...

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QuestionQuestion

Utilize the outline below and complete an analysis for two companies.
Prepare an Excel spreadsheet for the items listed below for the two companies for 4 years.
Make sure you clearly indicate denominations when appropriate.
Income Statement Analysis Items used by Buffett:

1. Gross Profit Margin –

Income Statement
($ in millions)

Revenue                    $XX      
Cost of Goods Sold       $XX
Gross Profit                   $XX

• Consistency
• Higher than other firms in the industry. Why?
• 5 year analysis
• > 40% - competitive advantage
• < 20% - no competitive advantage

2. Selling, General and Administrative Expenses - % of gross profit
• Consistency? Why?
• < 30% - fantastic
• 30 to 80% - possible competitive advantage

3. Research and Development Expenses - % of gross profit
• low or no R & D expense? Why?
• compare to industry? Why?


Balance Sheet Analysis Items used by Buffett:

1. Cash and Marketable Securities –

Balance Sheet/Assets
($ in millions)

Cash & Short-Term Investments           -       $XX      
Total Inventory                                                       $XX
Total Receivables, Net                                           $XX
Prepaid Expenses                                                    $XX
Other Current Assets, Total                                    $XX
Total Current Assets                                              $XX

• large amounts generated by operations
• 4 year analysis

2. Inventory
• calculate % increase in inventory = ((current year-previous year)/previous year)
• calculate % increase in net earnings = ((current year-previous year)/previous year)
• is there a corresponding rise in net earnings? Why?
• long-term consistency? Why?

3. Net Receivable - % of gross sales

Balance Sheet/Assets
($ in millions)

Cash & Short-Term Investments           -       $XX      
Total Inventory                                                       $XX
Total Receivables, Net                                           $XX
Prepaid Expenses                                                    $XX
Other Current Assets, Total                                    $XX
Total Current Assets                                              $XX


• consistent? Why?
• lower than competitors? Why?

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Analysis
It can be seen that the gross margin of Toyota has been close to 20% which means that it does not have competitive advantage.
On the other hand, Tesla had gross amrgin of 56% for 2015 which means that it has some competitive advantage. Over the period, its gross margin has been higher than 20%.
The Selling, general & administrative expenses have been higher for Tesla than Toyota over the period.
Tesla has been investing in research, while Toyota is not. This is a strength for Tesla.
The interest expenses have been consistently lower for Toyota which is a source of strength for Toyota...

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