...Raju Sharma COMPARING AND ANALYZING FINANCIAL STATEMENTS TO MAKE AN INVESTMENT DECISION Case Study of Automotive Industry Business Economics and Tourism 2012 1 VAASAN AMMATTIKORKEAKOULU UNIVERSITY OF APPLIED SCIENCES Bachelor of Business Administration ABSTRACT Author Title Raju Sharma Comparing and Analyzing Financial Statements to Make an Investment Decision: Case Study of Automotive Industry. Year 2012 Language English Pages 72 + 5 Appendices Name of Supervisor Jukka Paldanius The purpose of the thesis was to evaluate and compare the financial statements of different companies to rate their performances. The emphasis was to be able to choose among several companies the best one to invest in. The aim of the study was met by comparing the risk of different companies, their rate of return, future trends and their strengths and weaknesses. In the theoretical section of the thesis different factors affecting the capital market were discussed, with the focus being on the risks of an investment. Basic financial statements and ratios were discussed briefly. Next cross sectional and time series techniques to compare the financial statements and ratios were revealed. Most of the information from the theories was later on used in the empirical part of the thesis. In the empirical study, initially the financial statements of different companies were taken to compute the ratios, risk, average return, to make trends and common size statements. Then a quantitative interpretation...
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...Nike Case Team 5 – Windsor Cohort (Heidi Limmonen, Oksana Simakina, Masayuki Kondo, Rui Dias, Andres Losada, Zsolt Makai) 1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? WACC is the rate that a company is expected to pay to debtors and creditors. A weighted average of the component cost of debt, preferred stock, and common equity. (Birgham & Houston, 2009) This is the minimum rate that a company must earn on its assets in order to satisfy the company’s shareholders (most importantly, the creditors and the owners). WACC is calculated as a weighted average, or composite, of the various types of funds used over time, regardless of the specific financing used in a given year. (Birgham & Houston, 2009) The WACC is a useful tool to measure how a company is financed and what the costs are of its capital. Furthermore WACC sets the minimum level that a company has to earn in order to satisfy creditors and owners (see above), therefore the model can be used as a benchmark figure (a minimum return rate) that a new project has to meet. The expected rate of return when evaluating such new projects has to be higher than the WACC (benchmark) in order to be profitable. We don’t agree with the way Joanna Cohen calculated the WACC. Her assumptions made to calculate the cost of equity by the CAPM were not accurate. She only made general assumptions about the general economic...
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...reported at fair value, but instead are measured according to historical cost. Also, there are certain resources, such as trained employees, an experienced management team, and a good reputation, that are not recorded as assets at all. Therefore, the assets of a company minus its liabilities, as shown in the balance sheet, will not be representative of the company’s market value. Question 3-3 Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed during one year, or within the normal operating cycle of the business if the operating cycle is longer than one year. The typical asset categories classified as current assets include: — Cash and cash equivalents — Short-term investments — Accounts receivable — Inventories — Prepaid expenses Question 3-4 Current liabilities are those obligations that are expected to be satisfied through the use of current assets or the creation of other current liabilities....
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...Executive Summary Joint venture is method or an approach which allows companies to further their interest internationally without taxing their resources b having a partner who is compatible to work on the project albeit in short term or long term project. Joint venture allows companies to pool their resources together and benefit each of the companies in reaching their potential. Apart from that, joint venture also allows company to complement each other short coming with what they do best. This is evidently shown when discussing Daicel Evonik Ltd where Daicel Chemical Industries Ltd and Huels AG complement each other in term market knowledge and technological capabilities know-how among them. But then, joint venture does have limitation where culture plays an important barrier to achieve success. In Danone Co. Ltd and Wahaha Co. Ltd which will be discussed further, the dissolution of ventureship between these two companies can be attribute to communication particularly in conflict management. Thus, managing cultural differences is important especial in term of managing conflict among the partners. Conflicts are parts of life and may appear in any organization. They particularly often occur in hybrid organizations whose parents coming from different cultures, different countries with different ways of thinking and doing things. Knowing how to management conflict with proactive approach (minimize conflicts to happen) and reactive approach (resolve conflicts) is crucial for firms...
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...EXERCISE 5-3 (15-20 minutes) | | | |Financial | | |Classification |Monetary |Instrument | | |1. | | | | |2. | |X | | |6. | | | | |1. | | | | |6. | | | | |4. | | | | |1. |X |X | | |6. |X |X | | |1. |X |X | | |6. |X |X | | |5...
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...Table of content Introduction………………………………………………………………………………........ 3 1.1 How budgeting can assist BBC capacity building Institute in planning…………………..3 1.2 Describing BBC Master budget and its detailed content……………………………………..4 2.1 Tools used for making a sound and justified strategic investment decision…………….7 3.1Comparative balance sheet and income statement of BBC for 2012, 2011..………….9 3.2 Calculated Liquidity, Solvency and Profitability Ratios for both years…………..........……10 3.3 Conclusions and best recommendations……………………………………………………11 Sources……………………………………………………………………………………….13 Introduction Finance is considered one of the most important aspects (units) of any institution, as it pertains to the arts and science of managing money (Khan & Jain 2007). There are major areas of finance including; * Financial services; which deal with the delivery of advice and financial products to businesses, individuals etc within the areas of banking. * Financial management; which deals with the duties of financial managers, and the said managers are responsible for budgeting, financial forecasting, cash management etc (Khan &Jain 2007). Applicably therefore, without financial help, or without a budget, it will be impossible for BBC capacity building institute to implement any plans and strategies, no matter how good they are. This is so because budgeting entails planning and control, and without these BBC is bound to crash. ...
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...Disney Financial Statement Debt and Investments The Walt Disney Company reported debt in a number of ways on their financial statements. The first place debt securities are shown is under Current Liabilities on the Consolidated Balance Sheet. The Current Portion of Borrowings, at $2,342 billion, lists that portion of debt that is due to be paid within the next year. The second place that debt appears on the Consolidated Balance Sheet is under Borrowings. Disney shows over $12.676 billion in long-term debt. Therefore, Disney’s total borrowings are approximately $14.8 billion. Upon further analysis, nearly 92% of Disney’s debt includes the issuance of U.S. medium-term notes with a weighted-average coupon rate of 2.73% and maturities that occur from 2015 through 2023. Additionally, Disney indicates another $5.9 billion in other long-term liabilities. According to Disney’s 10k filing, “Other long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Commission upon request” (The Walt Disney Company. 2014). The balance sheet also shows Investments as part of the reporting of Assets. For the fiscal year ended 2014, Disney reported $2.696 billion in investments. Nearly 92% of the investments are shown as “Equity Basis” investments. More specifically, Disney reports that the equity investments “primarily includes media investments such as AETN, CTV Specialty Television...
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...Competition 11- Differentiating factor 12- Financial Outlook 13- Financial statement 14- References Current Scenario at Apple, Inc: As of the end of financial year 2011, Apple incorporation has no long term debt in their balance sheet. Company is funded by its own cash and the equity capital that company has strengthened over the years. The market portfolio of the company has seen huge success and this has been the reason for company utilizing its cash for both shareholders wealth and also for keeping the increased investment and innovation going. It is very interesting to have a look at the patterns in which the company has managed its capital budgeting. Capital budgeting is an important decision for any corporation and same is the case with Apple Inc. Organization now needs to evaluate its future strategy on the basis of capital budgeting decision that it makes. Introduction to Capital Budgeting: The exercise conducted by business enterprises to determine whether projects like construction of a new plant or investment in a long-term venture would result in profitable gains is called capital budgeting. Projects which have long gestation periods are evaluated based on their future returns, unless, the project is purely for social welfare. Thus, businesses would make their investment decisions based on the future viability and capacity of a project to earn profits. It is advisable to calculate the estimated returns of the project, so that the business enterprise...
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...Question 1 Using this case and the cultural dimensions explored in this chapter, discuss some of the way in which Australian and New Zealand are members of cultures very different from any other in Asia. Differences in the behavior of individuals and groups within an organisation in foreign subsidiaries can be a result of differences in societal or sociocultural variables of culture such as religion and language. These variables affect cultural dimensions. Which in turn affect an individual’s motivation and expectations in the work place. The predominant religion in Indonesia is Islam, while Australia is considered to be Mixed Christian and New Zealand Roman Catholic (Deresky 2014). Companies operating in Muslim countries or that have a large Muslim workforce are expected to make provisions for pray time and religious commitments such as Ramadan. In Australia and New Zealand Christianity employees typically have a number of day off during religious holidays, and the respect for people not wanting to work on Sundays (Deresky 2014). The official language in Indonesia is Bahasa Indonesia (Riza 2008), and in Australia and it is English (Australian Bureau of Statistics 2011) The GLOBE project investigates how cultural variables are related to organizational practices. GLOBE dimension scores of Australia and Indonesia are as follows. Assertiveness: Australia 4.28 Indonesia 3.86 Future orientation: Australia 4.09 Indonesia 3.86 Performance orientation: Australia 4.36 Indonesia...
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...regulating authority because of the changing circumstances. (Drucker 2011, p. 107). The report analyses the different postures that an institutional investor assumes, depending on the situation at hand. The report also examines the reasons behind activist investing and establishes that an institutional investor is quite ambitious in her quest. The reason behind this is the high expectations of the contributors who have entrusted the institution with their funds. The report goes further to apply its own finding in analyzing the relationship between Hermes and Total and arrives at the conclusion that the former should go ahead in pressuring the latter to offer a level of accountability that reflects their expectations. In a nutshell, the report proposes that an institutional investor should be actively involved in the strategy process of the company that they invest in (Drucker 2011, p. 107). Table of Contents Executive Summary 1 Summary of recommendations 3 Introduction and brief history 4 Strategic audit 5 Consultants report: Equipment 7 Management and planning 7 Consultant's Report: Services 9 Managing Finance 9 Issues and alternatives for the future 10 Information 11 Reference list 12 Summary of recommendations Institutional investors are organizations which accumulate large amounts of finances and invest them in real property, securities and other investment opportunities like assets. They are non-bank organizations that deal...
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...balance sheet, “current assets are assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer. For most businesses, the cut off for classification as current assets is one year from the balance sheet date” (Kimmel, Weygandt, & Kieso, 2011, p. 49). The company can use these assets to support its routine operations. For example, the company can use the assets to pay their current expenses. The common type of current assets consist of cash, marketable securities, inventory, accounts receivable, prepaid expenses and additional liquid assets that the company can quickly convert into cash. However, according to Kimmel, Weygandt, and Kieso, 2011, companies normally arrange their current assets in the order in which they anticipate to convert them into cash. Therefore, the proper order for a company to have its assets listed under the current assets is as follows: “cash, (2) short-term investments (such as short-term U.S. government securities), (3) receivables (notes receivable, accounts receivable, and interest receivable), (4) inventories, and (5) prepaid expenses (insurance and supplies)” (Kimmel, Weygandt, & Kieso, 2011, p. 50). PepsiCo register its assets in the proper order under their current...
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...Introduction “Show me the money!” said Cuba Gooding Jr’s in movie “Jerry Maguire”. That’s what financial statements do. It shows where a company’s money came from, where it went, and where it is now. There are four main financial statements - balance sheets, income statements, cash flow statements and statements of shareholders’ equity. * Balance sheets show what a company owns and what it owes at a fixed point in time. * Income statements show how much money a company made and spent over a period of time. * Cash flow statements show the exchange of money between a company and the outside world also over a period of time. * The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in the interests of the company’s shareholders over time. Task 1 Financial statements There are two main purposes of financial statement: first of all, to report on the financial position of an entity; secondly to show how the entity has performed over a particular period of time. Throughout the existence of a business many requests will be made for its financial statements. Financial statements are intended to provide information on the recourses available to management, how these recourses were financed, and what the company has accomplished with them. Financial statements are formal presentations of the flow of money into, through and out of a business. Financial statements are comprised of four main areas - balance sheets, income statements...
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...Case Analysis of Nike, Inc.: Cost of Capital (CON) Cost of Equity The cost of equity is comprised the cost of preferred stock and common stock. In this case, I am willing to focus on the cost of common stock because Nike did not pay any dividend after June 30, 2001(see Exhibit 4). The cost of common stock is the return needed on the stock by shareholders in which investors discount the expected dividends of the firm to ascertain its share price. To perceive this definition, let me bring you an example: Assume you want to invest on the stock of Nike, Inc. Your expected return is 12% for one year. The current share price is $42. Your benefit of the investment to purchase one share will be $5.04. If the company pay the dividend of $2.04 per share annually, the share value should increase to $45 in the next year to secure your benefit ($5.04). Therefore, the cost of equity is to cope with the risk of share price’s changes and the dividends paid by the company. There are two techniques to obtain the cost of equity as follows: 1) Capital Asset Pricing Model (CAPM) As you know, the Capital Asset Pricing Model (CAMP) establishes a rational relationship between Non-Diversifiable risk and return of all assets due to all companies can eliminate or decrease Diversifiable risk by playing on the type and return of assets. Here is the formula of CAPM: Rs = Rf + [ b * (Rm – Rf)] Where: Rs: Cost of equity Rf: Risk – free rate of return (commonly measured by the return...
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...power. Both time trend and peer group analyses are utilized to highlight the company’s strengths as well as weaknesses. Certain observed changes are noted and explanations are provided based upon the data collected. Johnson & Johnson (J&J) serves as the basis for the peer group analysis. Stock Price Movements In the past five years P&G has demonstrated a general upward trend in its stock prices. Towards the end of 2009, the market was just beginning to move out of the recession and P&G’s stock was at its five year low. As indicated in Chart A, the S&P 500 was also at its five year low around the same time. Until October of 2011, P&G trended more or less similarly with the S&P 500. However, after this point P&G’s progression slowed against the S&P. J&J’s growth however, better matched the growth of the market during this time. Despite the slowed growth since 2011, P&G demonstrates stability. In “Proctor & Gamble Is On The Right Track To Future Growth”, it is suggested that P&G’s standing as a giant in developed markets does not offer much room for accelerated growth. Whereas emerging markets offer much greater opportunity in that regard. The recent lags in P&G’s performance can be...
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...Investment Summary An Analysis of Hotel and Tourism Industry Tajamouat for Touristic Projects vs. Zara Investment Holding (ZARA) Prepared By: Rasha Alazzeh Khaled Al-Shareef Marwa Jarkas Kamal Odeh May Hirzallah Nedal Khouri Valuation results | Tajamouat for Touristic Projects | Zara Investment Holding (ZARA) | Risk Characteristic | | | Beta | 0.7 | 0.02 | Jensen Alpha | -0.45% | -1.34% | R squared | 0.0873 | 0.0011 | Investment Performance | | | ROE – COE | -153.40% | -1.14% | ROC – WACC | -338.02% | -190.75% | EVA (Millions) | 91952595 | 166466611 | Capital Structure | | | Current Debt ratio | 48.07% | 38.62% | Optimal Debt Ratio | 92.57% | 62.91% | Change in WACC | N\A | N\A | Dividend Policy | | | Dividends (Millions) | 0 | 0 | FCFE (Millions) | -19678413.00 | -75373182.24 | Valuations | | | Value/share | 0.92 | 1.332 | Price/Share | 0.59 | 1.05 | Table of Contents Introduction: 3 Overview of Performance, Corporate Governance: 3 Tajamouat Business: 3 Zara Investment Business: 4 Corporate Governance: 5 Risk Profile: 6 Investment Return Analysis: 7 Investment Returns: 8 Dividends Policy: 11 Cash flow choice: 12 Growth pattern choice: 13 Valuation: 14 Weighted Average Cost of Capital – WACC: 14 Value enhancement:...
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