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MBA 542 | Managerial Finance Company Report | Finance

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Part 1: Background of your company (10 points each)

1. Company
1.1 Brief business description:

• What does your company do? Which industry/industries?
• What is the company’s business model? 
• What are the main activities through which your company generates revenue?
• You should get the company’s most recent annual report, and provide a pie chart on percentage of revenue coming from various business units/products, and a similar pie chart on various geographic areas where revenue is generated.

1.2 Life-cycle analysis: where is your company and its product in the life cycle? Explain your answers in detail.

2. PEST Analysis (A look at the overall environment)
• Please note that you should discuss all factors that are relevant to your company and discuss how each factor and its movement affect the company. You should also predict the future trend of the factors in order to identify opportunities and threats.
• Since PEST are the factors at geographic level, you should focus on the key markets (or countries) where your company operates, esp. if your company has a significant global operation.

2.1 Discuss all relevant political factors that may affect your company. Political factors include geo-political conditions, tax policy, environmental policy, trade restrictions, labor law, health & infrastructure policy, intellectual property regulation, privacy policy, consumer protection laws, and political stability. 

2.2
Discuss all relevant economic factors that may affect your company. You should discuss at least four economic factors (1) economic growth, (2) interest rates, (3) exchange rates, and (4) inflation rates. Note that you should put more effort if your company has a significant global operation.
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2.3 Discuss all relevant social factors that may affect your company. Social factors include demographic change and the related consumer habit, aging society & related problem, lifestyle trends, health consciousness, career attitudes, and emphasis on safety.
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2.4 Discuss all relevant technological factors that may affect your company. Technological factors include technology advancement such as artificial intelligence (AI), machine learning (ML), financial technology (FinTech), online retail, the Internet of Things (IoT), new manufacturing technology, and etc..

3. Industry analysis 
3.1 Industry overview: focus on the main industry your company operates on:

• Discuss the current size of the industry and its future: whether there is growth or decline, is there a ceiling on growth? Use numbers to support your argument. (I suggest that you do a Google search, or look it up in your company’s annual report).
• Discuss your company’s market share in the industry.
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3.2 Competitive Strategy: Position your company in the matrix below. Briefly discuss your answer:

3.3 Competition details: list the company’s top 2-3 main competitors. Comment on the company’s competitive advantage, focus on what the company does better than its competitors and how long you think the company will keep the competitive advantage (core competence). Or if the company is not doing better than its competitors, discuss the situation and whether you see the potential for your company to improve.
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Part 2: Financial Analysis (10 points each)


• First of all, get the financial statement of your company from the last 4 years, copy & paste balance sheet and income statement to an excel sheet. Then do all your calculations on the excel sheet for the past 3 years. Also find your company’s closest 2 competitors and download their last 4 years’ financial statement and calculate ratios for the last 3 years. This is to ensure that you track your company throughout the years and also compare with competitors.
• You should calculate all the ratios based on our lecture slides. You should not look for other formula from online sources.
• For stock price, just find the price at the financial statement report day. For instance, if the financial statement report day is July 31, 2018, use the stock price (closing price) on July 31, 2018.
• For each ratio,  you have to do the following:
1. List the ratio of your company for the three years, with your competitors’ 3 years, such as:                                    
2. Describe what it measures and what it says about your company,
3. Explain any trends that you have noticed in your company’s financial ratios over the past 3 years,
4. Explain how well the company is doing with the ratios compared to industry averages,
5. Explain what the company needs to do if they are underperforming with a given ratio.
6. You should also discuss certain aspects of your company by considering several related ratios together.
7. It should take approximately one or two paragraphs per ratio to cover these items.
8. You should calculate all the ratios based on my lecture, and you should not take the ratios directly from any online sources.

1. Short-Term Solvency:
1.1 Current and quick ratios:
1) Current Ratio
2) Quick Ratio
Comment on the ratios above and discuss your company’s general ability to pay off its current liabilities.
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1.2 Turnover ratios:

1) Inventory Turnover
2) Account Receivable Turnover (Assuming 100% Sales Are Credit Sale)
3) Account Payable Turnover
4) Cash Cycle
5) Defensive Interval Ratio (DIR)
Comment on the ratios above and discuss your company’s cash cycle in general and compare cash cycle with its DIR.
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1.3 Cash Cycle:
Discuss at least 5 ways through which your company could reduce its cash cycle. Please note that we discussed a complete list of ways to reduce cash cycle in class, but not all items would be applied to your company—choose the ones that will work for your company and discuss in details how each way could be achieved.
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1.4 Cash position:
Discuss the company’s cash position in general –is the company holding too much, right just, or not enough cash?). Your answer should be based on the ratios you calculated above and consider the company’s balance sheet, income statement, cash flow statement, and its business strategy. (Cash = cash & equivalent + ST investments)
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2. Long-Term Debt Policy:
2.1 Ratio:

1) Debt to Asset Ratio
2) Equity Multiplier
3) Interest Coverage Ratio
Comment on the ratios above and discuss your company’s overall financial leverage.
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Please note that you need to first list the ratios for your company and competitors for the past 3 years, see my example for 1 Short-Term Solvency

2.2 Based on Higgins 5-Factor Model of Financing Decisions, analyze your company against each of the 5 factors, and weigh the relative importance of these five factors. Should the company use high or low level of debt? (read Chapter 6)
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2.3 Give advice to the company in terms of its debt policy—should the company reduce its debt, issue more debt, or stay in the current situation, explain your answers in details.
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3. Asset Utilization:
3.1 Ratios:

1) Total Asset Turnover
2) Working Capital (WC) Turnover
3) Fixed Asset Turnover
Comment on the ratios above and discuss your company’s turnover ratios.
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3.2 If you see any problem with the company’s total asset turnover, WC turnover, or fixed asset turnover, identify the problem and suggest two ways through which the company could improve its asset utilization. If you do not see any problem, also suggest two ways through which the company could maintain its current position.
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4. Profitability:
4.1 Ratios:

1) Gross profit margin
2) Operating margin
3) Net profit margin
4) Effective tax rate
Comment on the ratios above and discuss on your company’s overall profitability.
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4.2 Are the company’s margins changing? Why and what are the underlying business cause—changes in competition, changes in input costs, or poor overhead cost management?
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4.3
Now look at the company’s SG&A: is the company managing its overhead and administrative costs well? What are the business activities driving these costs? Are these activities necessary?
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4.4 Discuss the company’s tax planning strategies and whether it strategically locates certain operations in tax havens, (hint: you can find the information on the company’s annual report). Is the company’s effective tax rate affected by the US tax cut?
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4.5
Suggest two ways through which the company could improve its net profit margin, if necessary; or if you think the company’s current net profit margin is fine, you can also suggest two ways specifically to keep it or even further increase it.
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5. Return on Investment: 
5.1 Ratios:

1) ROA
2) ROE
Comment on the ratios above and discuss your company’s return on investment.
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5.2 Conduct the DuPont analysis by breaking ROE into profit margin, asset utilization, and equity multiplier, comment on it throughout time and compare with competitors. Suggest two ways through which the company could improve its ROE, if necessary; or if you think the company’s current ROE is fine, you can also suggest two ways specifically to keep it or even further increase it.
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6. Market ratios:
6.1 P/E Ratios:

1) P/E
2) Price to Sales
3) Market to Book
Comment on the ratios above and discuss your company’s overall market valuation.
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6.2 Growth Ratios:

1) EPS Growth Rate
2) PEG Ratio
3) Dividend Payout Ratio
4) Sustainable Growth Rate
Comment on the ratios above and discuss your company’s overall growth.
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6.3 Based on your company’s sustainable growth rate, revenue growth rate, EPS growth rate, stock price growth rate, PEG, and P/E ratio; look at your company and its competitors, is your company’s stock overvalued, undervalued, or correctly valued?
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7. Creditors’ decision:

If you work for a bank and the company approaches you for debt financing. Which ratios are important considerations? Will you issue loans to the company? Why?
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8. Weighted Average Cost of Capital (WACC)
8.1

1) Beta
2) Cost of equity
3) Credit rating (if credit rating not available, show synthetic rating)
4) Weighted average cost of capital
Comment on the numbers above and discuss your company’s overall cost of capital.
Please note that you need calculate and discuss above numbers of your company, and its two competitors.

8.2 Where do you see the company’s WACC going, increasing, decreasing, or remaining at the same level? Why?
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8.2 Discuss two ways to improve the company’s WACC, your answers should relay to the general market condition, as well as the company’s debt structure & policy.
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9. Others
Discuss one more thing that’s not discussed above but you find worth noticing from the company’s income statement, balance sheet, or cash flow statement.
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Part 3: Managers’ Perspectives & Actions (20 points each)
1. From a CEO/CFO’s perspective, summarize the company’s overall strengths and weaknesses in (1) operation, (2) investment, and (3) financing. What is your company’s overall core competence? Does it have a wide or narrow economic moat?
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2. From a CEO/CFO’s perspective, understand your value drivers and various ratios and suggest how the company could increase its value. Your analysis here should be based on both your ratio analysis and valuation.
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3. What are some ways that your company can further its growth? (hint: you can read Chapter 4 but please apply it to your company specifically; you can also draw on your analysis above on PEST, industry trend, and firm-specific factors)
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