...Assignment 9: Business Finance (16.0 points) 1. Choose an example of a type of new company you could start, and then use this company idea to answer the questions below. You might choose to open a hair salon, a babysitting service, a record store, or many other things. This can be the same type of company you chose in assignment 8, or it can be different. a. Describe the type of company you chose. (1-2 sentences. 0.5 points) b. If you needed to get funding for your company, would you prefer to get debt funding or equity funding? Explain why you would prefer this type. (2-4 sentences. 2.0 points) c. If you needed to get funding for your company, describe at least two sources of funding that you would prefer. Explain why you would prefer these sources of funding. (2-4 sentences. 2.0 points) d. List at least four operating costs your business might have. (1.0 points) e. Consider the industry of your company and the current economy, and then explain how these factors might impact your company’s sales. If you do not think these factors would impact your sales, explain why they wouldn't. (2-4 sentences. 2.0 points) f. If you had $5,000 to start this company, which department would get the most funding? Which department would get the least funding? Which phase of the business would be the most expensive? (2-4 sentences. 2.0 points) 2. Review the Financial Statements: Income Statement from Section 9, Lesson 2 of this course. Use the information...
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...University Miami Gardens, FL Term A3/ Summer 2011 June 2, 2011 Table of Contents Issues.......................................................................................................................................1 Facts.........................................................................................................................................1 Analysis.....................................................................................................................................1 Conclusions/Solutions/Recommendations...............................................................................3 I Issues: 1. What do you think is happening at Lloyd’s and The Emporium? 2. What financial ratios and questions raised in your analysis of the two companies’ financial statements support your opinions? II Facts: 1. In March 2002, Richard Allen, an assistant credit analyst for the quality Furniture Company, was concerned about changes in two of the Quality’s accounts in Minnesota – Lloyd’s, Inc., of Minneapolis and The Emporium department store in St. Paul. 2. Lloyd’s had been a customer of Quality Furniture for over 30 years and had previously handled it’s affairs in a most satisfactory manner. The Emporium was a comparatively new customer of Quality’s, having established an account in 1993. 3. Both accounts were sold on terms of 2%, 10, net 30, and although was not discounting, had been paying invoices promptly until...
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...Accounting Information and Predicting Financial Performance Financial ratios are often relied upon as a leading indicator of future financial performance by businesses. These accounting ratios and other company specific accounting information can be especially good predictors in the short run, but as the time horizon extends beyond a few years, these metrics lose predictive value. There are simply too many macro and external factors that the hard numbers cannot account for over the long-run. One way in which these accounting ratios have been tested with regards to predicting future financial performance is by back testing firms that entered bankruptcy. In his study of Italian corporate firms over a 3 year periods, Marco Muscettola used 32 accounting ratios to test the ability of those ratios to forecast future defaults. The two groups of ratios he found to be most predictive were capital structure ratios and debt coverage ratios. This is a logical conclusion as these ratios focus on liquidity and the ability for a company to meet its future obligations. The capital structure ratios evaluate the various ways a company uses debt to create assets by dividing long-term liabilities, debt, and payables by total assets to assess leverage. Debt coverage ratios seeks to evaluate the cost of financing by measuring interest expense as a percentage of total debt and sales and evaluate how total debt compares to sales and current liabilities. Muscettola surmises that it is...
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...project Identify and evaluate sources of debt financing A company's debt, liabilities and risk are very important factors in understanding the company. Boeing Company's total debt has increased over the past five years. The company reported a five-year low of $7.512 billion in 2008 and a five-year high in 2009 at $12.924 billion. The company's 2011 reported total debt of $12.371 billion is an increase of 50.55% over 2007. Debt Ratios 3. Total Debt to Total Assets Ratio = Total Debt / Total Assets 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently in good financial condition 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently in good financial condition 2009 - $12.924 billion / $62.053 billion = 0.21 2010 - $12.421 billion / $68.565 billion = 0.18 2011 - $12.371 billion / $79.986 billion = 0.15 As Boeing's total debt to total assets ratio is well below 1, this indicates that Boeing has many more assets than total debt, ensuring that the company is currently...
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...For the exclusive use of B. Zhang, 2015. 9-104-060 REV: MARCH 28, 2005 DAVID F. HAWKINS Bond Ratings 1 The two major bond-rating services are Moody’s Investors Service, Inc., and Standard & Poor’s Corporation. These two companies rate public and private corporate bond issues, commercial paper, preferred stock, and some large debt offerings of foreign companies and governments. Other rating agencies are Duff and Phelps, and Fitch’s. The information provided by the rating agencies is one of the factors that the marketplace uses to determine the appropriate yield on debt securities. Since many institutional investors can only own bonds above a certain rating, the rating also determines who will or will not buy the issue. A bond rating may also influence the value of a company’s common equity, since some common stock rating services take bond ratings into account when they rate stocks. A committee of the rating agency is responsible for ratings. Initially, in the case of corporate bonds, the company seeking a rating for a new issue makes a presentation to the rating agency. Based on these and other data, such as company visits, a bond analyst employed by the rating agency prepares a report on the company that measures the probability of trouble or loss for the investor, especially from default and poor marketability of the bonds. In this report, the analyst assesses the likelihood of earnings declining or turning negative, the likelihood of a company’s...
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...9-911-412 R E V: MAY 2 8 , 2 0 1 2 ________________________________________________________________________________________________________________ Professor Thomas Piper prepared the original version of this note, “Assessing a Firm’s Future Financial Health,” HBS No. 201-077, which is being replaced by this version prepared by the same author. This note was prepared as the basis for class discussion. Copyright © 2010, 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. Assessing a Company’s Future Financial Health Assessing the long-term financial health of a company is an important task for management as it formulates goals and strategies and for outsiders as they consider the extension of credit, long-term supplier agreements, or an investment in a company’s equity. History abounds with examples of companies that embarked on overly ambitious programs and subsequently discovered that their portfolios of programs could not be financed on acceptable terms. The outcome was frequently the abandonment of programs mid-stream at considerable financial, organizational, and human cost. It is the responsibility of management to anticipate a future...
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...9 -9 1 1 -4 1 2 REV: MAY 28, 2012 Assessing a Company’s Future Financial Health Assessing the long-term financial health of a company is an important task for management as it formulates goals and strategies and for outsiders as they consider the extension of credit, long-term supplier agreements, or an investment in a company’s equity. History abounds with examples of companies that embarked on overly ambitious programs and subsequently discovered that their portfolios of programs could not be financed on acceptable terms. The outcome was frequently the abandonment of programs mid-stream at considerable financial, organizational, and human cost. It is the responsibility of management to anticipate a future imbalance in the corporate financial system before its severity is reflected in the financials, and to consider corrective action before both time and money are exhausted. The avoidance of bankruptcy is an insufficient standard. Management must ensure the continuity of the flow of funds to all of its strategically important programs, even in periods of adversity. Figure A provides a conceptualization of the corporate financial system, with a suggested step-bystep process to assess whether it will remain in balance over the ensuing 3 to 5 years. The remainder of this note discusses each of the steps in the process and then provides an exercise on the various financial measures that are useful as part of the analysis. The final section of the note demonstrates ...
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...9-913-517 OCTOBER 22, 2012 W. CARL KESTER CRAIG STEPHENSON Hill Country Snack Foods Co. The Chief Executive Officer of Hill Country Snack Foods had never enjoyed analyst conference calls, but in late January of 2012, Howard Keener was yet again asked about the company’s cash balances, capital structure, and performance measures. One analyst complained that Hill Country’s growing cash position, absence of debt finance, and large equity balance made it difficult for a company in a mature industry to earn a high rate of return on equity, and recommended a more aggressive capital structure. “Maybe I don’t fully understand capital structure theory and practice,” replied Keener, “but I have observed that companies don’t get into trouble because they have too much cash; they get into trouble because they have too much debt.” Hill Country had seen its sales and profits grow at a steady rate during Keener’s tenure as CEO, and at the end of 2011 the company had zero debt and cash balances equal to 18% of total assets and 13% of market capitalization. Having just celebrated his 62nd birthday, Keener was approaching retirement, creating speculation by investors and analysts that the company might change to a more aggressive capital structure in the near future. Company Background Hill Country Snack Foods, located in Austin, Texas, manufactured, marketed, and distributed a variety of snacks, including churros, tortilla chips, salsa, pretzels, popcorn, crackers, pita...
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...Case 2-1 1. (a) What are management’s responsibilities pertaining to the independent audit? In accordance with AU 110, management’s responsibilities pertaining to an independent audit include the financial statements and their presentation. This entails not only the accounting policies used but also conforming to GAAP. Management sets the guidelines for the accounting process from how the transactions are recorded and processed to the internal controls implemented to protect the company. It is also management’s responsibility to have direct knowledge and control of the transactions. (AU 110.03) (b) What are the auditor’s responsibilities pertaining to the independent audit? The responsibility of the auditor in an independent audit is to plan and perform an audit in order to be able and offer an opinion about the company’s financial statements and whether they were presented fairly in accordance with GAAP. Another responsibility of the auditor is to provide reasonable assurance to stockholders and creditors pertaining to the credibility of the client’s financial statements and that they are free of material misstatements. The auditor must have sufficient evidence to back up his findings. (AU 110.02) 2. Assume you have a meeting tomorrow with Stephen F. Lamar. List the top three issues, in order of importance, that you will discuss with him, and briefly describe why you believe each issue is important. If I were meeting with Stephen F. Lamar tomorrow I would...
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...profitability. If we take a look at Target’s 10K, the first risk factor they mention is the ability of differentiate the business from other retailers by creating attractive value propositions through a careful combination of price, merchandise assortment, convenience, guest service and marketing efforts. Another risk that all companies in this sector face is the macroeconomic condition of the country and the impact this has in their consumers. This lead us to the financial risk the company might have. One of the financial risks we have to consider in any type of company is the debt to total capitalization ratio. Based on financial information of their 2011 report, we can calculate the debt to total capitalization ratio in the following manner: Total debt: 15,726 million Total stockholder’s equity: 15,487 million, therefore: 15,726 / 31,213= .50 or 50% Comparing their debt to total capitalization ratio with industry average, Target’s is too high. The industry...
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...exclusive use Universidad Panamericana, 2015 Harvard Business School 9-101-029 September 5, 2000 Financial Statement and Ratio Analysis Financial ratios are a popular way for users of financial statements to develop insights into the financial performance of companies. By controlling for the effect of firm size on the level of performance, ratios enable financial statement users to examine how a firm has performed relative to its peers and relative to its own historical performance. A firm’s ratios can differ from its peers or its own historical performance because it has selected a different product market strategy, because its management team has become more effective at implementing its strategy, or because it has selected a different financial strategy. Of course, as we have seen throughout the course, sometimes firms can appear to perform differently because they have selected different accounting methods for reporting the same underlying economic events. For this reason, a precursor to effective financial ratio analysis is the development of a clear understanding of how a firm’s accounting decisions compare with those of its competitors, or with its own decisions in prior years. If there are important differences in accounting decisions, it may be necessary to make adjustments to the affected firms’ financial statements to ensure that ratio comparisons isolate differences in strategy or performance. Common adjustments include: treating operating leases as capital...
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...decisions. Thus, firms in different industries exhibit different financial characteristics, and, hence, report different financial ratios. For example, “old economy” businesses with large amounts of tangible assets may have higher leverage ratios. Service or trading firms may have large amounts of intangible assets such as knowledge assets or a large and loyal customer base, and, hence, have low leverage ratios because “growth options” can evaporate. On the other hand, companies within the same industry tend to exhibit similar financial characteristics, as measured by financial ratios. With some knowledge of the different operating, investing, and financing decisions across industries, financial ratios can be used to identify an industry (see Exhibit 1 for the definition of ratios used). Balance sheets and income statements for the most recent three years are provided for 10 companies from 10 different industries. Common-sized balance sheets (all items scaled by total assets), common-sized income statements (all items scaled by net sales), and selected financial ratios for the most recent three years are also provided. Since unusual deviation from target values may occur in any given year, the values for the items were averaged over three years. The three-year average common-sized balance sheet, common-sized income statement, and financial ratios are reported in Exhibits 2, 3, and 4, respectively. The 10 companies are drawn from the following 10 different industries: • ...
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...available capital in their existing homebuilding markets and opportunistically entering new markets. They have been actively been involved in evaluating homebuilding acquisition opportunities as they arose, some of which resulted in acquisitions and contributed to growth in their business. They have enhanced their leverage on general and administrative activities, and this has allowed greater flexibility to compete for greater market share in the markets. Liquidity Analysis A company's liquidity is its ability to meet its near-term obligations, and it is a major measure of financial health. In my analysis, I have provided Current ratio, Quick ration and cash. The current ratio is the most basic liquidity test. It signifies a company's ability to meet its short-term liabilities with its short-term...
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...Guy Hachey. Lofty goals but from the examination of the current data, Bombardier may be close to achieving this objective. a. The Current Ratio is 2. b. The Debt Ratio is 45.38. c. The Return on Investment is 10.06% The statements show an increase in net revenue from $707 to $769 in a time when the global economy is experiencing a down turn. Dassault’s business Objectives are stated as expansion through acquisition. “At the top line, total revenue of EUR410 million increased 29% in constant currencies. New licenses revenue was up 28% in constant currencies. The revenue dynamic was good in all three geographic regions. At the bottom-line earnings were up 47% demonstrating our operating leverage.” – Bernard Charles II. The Three Most Important Ratios for my companies are: d. The Current Ratio e. The Debt Ratio f. The Return on Investment III. Relevant Ratios and Comparison to Industry show. Ratio | Bombardier | Dassault | Industry | Analysis | The Current Ratio | 2 | 4.5 | 1 | Both of the companies being considered are above the industry average when it comes to current ratio. Bombardier is lower because of their aggressive expansion into alternative product lines. Regardless both companies have sufficient reserves to meet their current obligations. | The Debt Ratio | 45.38 | 70.20 | 48.5 | Bombardier is in line with the industry average. Dassault is almost twice the industry average but their expansion philosophy...
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...Case 4.5 Xerox Corporation 1. Xerox VS. HP Xerox Corporation has been calling itself “the document company” in its annual reports. The company is a leader in global document market. HP has been one of the major competitors of Xerox. HP is a provider of computing and imaging solutions and services for business and home. Through the period of 1997 to 2000, Xerox provide a full line of product and maintenance services of printing and copying equipment to businesses. Its document technology segment offers desktop monochrome and color printers, multifunction printers, copiers, digital printing presses, and light production devices; and production printing and publishing systems for the graphic communications. HP provides products and services to both businesses and individuals. Its printing segment provides consumer and commercial printer hardware, supplies, media, scanning device, software and services; and LaserJet, inkjet and printing, graphics, software and web services. Compare with HP’s wide range of product selections, Xerox offers more in-depth products in copying and printing area. Horizontal analysis is the comparison of historical financial data or financial ratios over a series of reporting periods. A horizontal analysis was conducted for Xerox and HP for the period of 1997 to 2000. Some noticeable differences were found in comparison of the two companies’ results. First, Xerox’s revenue decreased while HP’s revenue increased dramatically over the four years. Xerox...
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