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Case study · CASE:financial-statement-analysis/beacon-harbor-year-5-performance-review

Explain Beacon and Harbor's Year 5 return difference

Prepare a controlled comparative memo that separates margin, asset use, leverage, return, and operating cash evidence for two fictional packaging companies.

Updated Aug 7, 2026 Review due Nov 7, 2026
On this page
  1. Your role and decision
  2. Evidence packet
  3. Required work
  4. Calculation appendix
  5. Memo
  6. Constraints
  7. Evaluation
Decision brief

Your assignment

Role: Analyst preparing a joint controller and finance-committee comparison of Beacon Packaging LLC and Harbor Packaging LLC

Deliverable: A three-page comparative memo plus a one-page calculation appendix that traces source controls, averages, ROA and ROE decompositions, operating-cash bridges, bounded conclusions, and next evidence requests.

Evidence basis: fictional

Visible standard

Evaluation criteria

  • technical accuracy and reconciliation (30%): Computes every average, ratio, identity, equation check, equity rollforward, and operating-cash bridge correctly without premature rounding.
  • scope comparability and evidence (25%): Documents entity, period, units, definitions, basis, version assumptions, denominator policy, exclusions, and stop conditions before comparing outputs.
  • driver analysis and judgment (25%): Separates margin, turnover, leverage, and operating-cash drivers from unsupported causal, quality, persistence, risk, or valuation claims.
  • audience specific communication (20%): Gives the controller reproducible accounting controls and the finance committee a concise interpretation with specific next evidence rather than a ratio ranking.

Your role and decision

Beacon's controller and a finance committee are comparing Beacon Packaging LLC with Harbor Packaging LLC. A draft dashboard highlights Harbor's 30% ROE over Beacon's 24% and recommends Harbor's financing model. Another reviewer points out that both companies earn the same $24,000 net income and asks whether the dashboard has confused operating performance, leverage, and cash conversion.

Your task is to replace the ranking with a reproducible Year 5 analysis and a clear statement of what can—and cannot—be concluded.

Evidence packet

Use the fictional Beacon and Harbor Year 5 performance facts. The packet stipulates the same Year 5 fiscal period, USD currency, whole-dollar scale, net-sales definition, and aggregate reporting basis for two comparable nonpublic nonfinancial packaging companies.

It contains:

  • Year 5 net sales, net income, and operating cash flow;
  • beginning and ending total assets, liabilities, and equity;
  • owner contributions and distributions for the equity rollforward; and
  • depreciation plus opening and ending Accounts Receivable, Inventory, and Accounts Payable for an indirect operating-cash bridge.

The packet excludes preferred equity, noncontrolling interests, acquisitions, divestitures, restatements, foreign currency, unusual-item or non-GAAP normalization, market data, forecasts, valuation, banks, insurers, and covenant definitions.

Required work

Calculation appendix

  1. Document entity, period, units, definitions, basis, version, and denominator conventions.
  2. Verify each opening and ending accounting equation and equity rollforward.
  3. Compute average assets, liabilities, and equity for each company.
  4. Compute net profit margin, total asset turnover, direct ROA, and decomposed ROA. Reconcile the two ROA results.
  5. Compute the equity multiplier, average liabilities-to-equity cross-check, direct ROE, and three-step DuPont ROE. Reconcile direct and decomposed ROE.
  6. Compute each operating-cash-minus-income gap and the conditional ratio. Reconcile both indirect bridges from the supplied operating balances.

Memo

  • Explain how equal net income and ROA coexist with different margin and turnover.
  • Attribute the ROE difference to the supported mathematical driver without calling all liabilities debt.
  • Compare operating cash with income without assigning a one-year earnings- quality label.
  • Give the controller two data or reconciliation controls to retain.
  • Give the finance committee at least four specific items of missing evidence needed to investigate operations, financing risk, and persistence.
  • Identify one changed fact that would make the simple average weak and one denominator condition that would stop an ordinary ratio.

Constraints

Do not invent pricing power, collection failure, obsolete inventory, favorable supplier terms, management intent, financing cost, default risk, forecast, market value, or investment recommendation. You may pose those as questions and name the evidence needed to answer them.

Use full precision in the appendix. Display percentages and multipliers to two decimal places only after the identities reconcile. Convert percentage factors to decimals before multiplying—10% is 0.10, not the whole number 10—and include this scale check in the appendix. Keep absolute USD gaps next to ratios.

Evaluation

Technical accuracy and evidence control carry 55% of the score. Driver analysis and communication carry 45%. A memo with correct ratios but no source controls, reconciliations, denominator policy, or interpretation limits is incomplete.