...Because growth was so rapid, Henry put most of his effort into capital budgeting. His approach to capital budgeting paralleled that of Chapter 12. He forecast cash flows for various projects and discounted them at the cost of capital appropriate to the beta of the blimp business. However, these projects have grown rapidly, in some cases becoming whole divisions. He now needs to evaluate the performance of these divisions to reward his division managers. How does he perform the appropriate analysis? Henry is aware that capital budgeting and performance measurement are essentially mirror images of each other. Capital budgeting is forward-looking because we must estimate future cash flows to value a project. By contrast, performance measurement is backward-looking. As Henry stated to a group of his executives, “Capital budgeting is like looking through the windshield while driving a car. You need to know what lies farther down the road to calculate a net present value. Performance measurement is like looking into the rearview mirror. You find out where you have been.” Henry first measured the performance of his various divisions by return on assets (ROA), an approach that we treated in the appendix to Chapter 2. For example, if a division had earnings after tax of $1,000 and had assets of $10,000, the ROA would be:1 $1,000 _______ ϭ 10%...
Words: 1743 - Pages: 7
...FINS3630 Group Project: Bank Performance and Risk Exposure Evaluation Executive Summary This report will aim to highlight the profitability of National Australia Bank (NAB) and Westpac in terms of Return on Equity (ROE) between 2003 and 2007. Using a Dupont analysis, ROE will be decomposed into Return on Assets (ROA) and the Equity Multiplier (EM). Additionally, it will further look at the various risk exposures that these banks may face such as credit risk, liquidity risk, capital risk and operational risk. Furthermore, this report will also compare the performance and risk exposures between the two banks over the past 5 years. Westpac’s Bank Performance Analysis ROE Figure 1 - ROE 25.00% 21.98% 20.00% ROE 15.00% 10.00% 5.00% 0.00% 2003 2004 15.65% 17.02% 17.97% ROE 20.11% nt 2005 2006 2007 Th ink sw Figure 1 summarizes Westpac’s Return on Equity (ROE) from 2003 through to 2007, which is one of the key determinants of profitability. Generally, one can observe an upward trend in value throughout the past 5 years, starting at 15.65% in 2003 and finishing at 21.98% in 2007. Furthermore, ROE has increased by a total of 6.33% over the last 5 years, averaging 1.5825% per year. From a shareholder’s perspective, it can be viewed that Westpac has performed consistently well and has been more profitable throughout the specified period. In order to further analyze Westpac’s increasing trend in terms of its ROE, it is essential to conduct a Du Pont analysis that...
Words: 6042 - Pages: 25
...ROE’s break down : ROE : Operating ROA + Spread x Net Leverage Because of the number of covenant which restrict the magnitude of the company future borrowing, Home depot is very limited to improve its financial leverage in order to increase its performance. In addition the gearing (debt net to equity) is already very high. Related to this we can assume that if in any case the bank accepted to rise a new debt, the marginal cost of this new debt might be more important than the operating ROA. Therefore, this debt rising would have an opposite effect on the company performance and the ROE would decrease. In order to increase the company’ performance, we advise Home Depot to be focus on its Operating ROA. Operating ROA : EBIT/Sales x Sales/Assets Sales/Assets : Sales/ Fixed Assets + Sales/NWC (Sales/Inventory + Sales/accounts receivable – (Sales/accounts payable) First, we advise the company to slow its growth in order to reduce its Assets. In order to do it the company should be focus on its NWC management by purchasing with suppliers for a longer delay of payment or implementing a new payment policy for its customers. Inventory would be difficult to reduce due to the business model of Home Depot. Also the company can reduce its fixed assets with a sell and leaseback transaction. In addition to increase the company’s performance, the sales and leaseback transaction would give the opportunity to get some cash and invest in new projects. Second, Home depot should increase...
Words: 359 - Pages: 2
...Portfolio Management Control SystemsHoofdstuk 11: Performance Measurement | | Naam :Docent : Klas : | HOOFDSTUK 11: PRESTATIEMETING Gebruikte informatie bij Control Managers: Zijn verantwoordelijk voor de effectiviteit en efficiency van het werk. Managers beheersen niet de kosten, maar beïnvloeden activiteiten van mensen die verantwoordelijk zijn voor de kosten. Managementactviteiten zijn gebaseerd op: 1) Informele informatie Observatie, face-to-face, vergaderingen en management by walking around 2) Operationele (output) informatie 3) Budgetrapportages: verschil in verwachtingen, plafonds en bodems. 4) Non financials Key variables, strategische factoren, key en kritische succesfactoren, key performance indicators Prestatiemetingsystemen Hoofd doel van prestatiemeting is om een hulpmiddel te zijn om de strategie te implementeren. Als de KSF’s zijn verbeterd dan is blijkbaar de strategie geïmplementeerd. Balanced Scorecard Voorbeeld: balanced scorecard, mixt financiële met niet-financiële informatie. Functie van balanced scorecard: 1) goal congruence (alle neuzen één kant op) 2) communicatiemiddel, interne communicatie verbetert 3) bepaling van organisatiedoelen 4) terugkoppeling vanuit realisatie naar strategie Grootste waarde: ermee bezig zijn, over nadenken en communiceren Gevaar: immuun worden, te gemakkelijk aan de kant schuiven Opstellen van de balanced scorecard, een set maatstavenkiezen: ...
Words: 4198 - Pages: 17
...SRJIS/BIMONTHLY/ALBANUS MUNYAO (718-729) THE RELATIONSHIP BETWEEN CAPITAL BUDGETING TECHNIQUES AND FINANCIAL PERFORMANCE OF COMPANIES LISTED AT THE NAIROBI STOCK EXCHANGE, KENYA Albanus Munyao, South Eastern Kenya University P. O. Box 170-90200, Kitui-Kenya Fredrick Mukoma Kalui, Egerton University, P. O. Box 536, Njoro-Kenya Jacqueline Ngeta, South Eastern Kenya University P. O. Box 170-90200, Kitui-Kenya Abstract The general objective of the study was to find out the relationship between capital budgeting techniques and financial performance of companies listed in the Nairobi Stock Exchange. The specific objectives of the study were to determine the Capital budgeting techniques used in investment appraisal decisions amongst Companies listed at the Nairobi Stock Exchange. The study also aimed at establishing the relationship between Capital budgeting techniques and the financial performance of companies listed at the Nairobi Stock Exchange. The study employed a survey design to determine the capital budgeting techniques and their relationship with financial performance in companies quoted at the NSE. Primary data was collected through questionnaires which were dropped and picked from the respondents. Secondary data was collected from the published accounts of the companies. The target population consisted of all the 47 companies listed at The Nairobi Stock Exchange as at 30th June 2010. The choice of quoted companies was preferred because they represented...
Words: 3851 - Pages: 16
...Center Group 2 Araojo, Oscar Jan Asis, Alvin Magboo, Mike Raniel Manzano, Krystele Ann Peralta, Diana Marie Rodriguez, Jerelleen EXECUTIVE SUMMARY Quality Metal Service Center has shown its resilience in the industry through its century old existence banking on industry knowledge and high quality products. The company is doing well and would like to maximize its potentials by looking into its control system. Analysis has shown that potentially profitable projects may not be pushed through due to some inefficiencies in their performance evaluation and incentives system. The company is currently using ROA as the sole criterion of evaluation. However, ROA will be lower on companies with newer assets that those with older ones. This will lead managers to reject proposals of new projects with large capital outlay. The Economic Value Added is a more appropriate measure in this situation. In light of the application of the EVA, the issue with the Columbus District manager will be resolved, and the proposed project should be accepted. INDUSTRY ANALYSIS The Metal Distribution Industry is highly competitive and fragmented industry which composed of fewer companies because of the high costs of establishing and maintaining this kind of business. It is on its mature stage that improved efficiency on production is the priority in order to beat the competitors in the industry. End users still have different needs which are unmet by the market players. Processing capabilities should...
Words: 1548 - Pages: 7
...DIVISIONAL PERFORMANCE MEASUREMENT A. Objective: The objective is to develop performance measurement systems for divisions that are significant investment centers in large organizations. Such systems should: (1) provide information for economic decisions, (2) facilitate the control of division operations, (3) motivate managers to achieve high levels of divisional performance so as to further the objectives of the entire organization, and (4) serve as a basis for evaluating the performance of divisional managers. B. The nature of divisionalization 1. As a special case of decentralization, divisionalization represents the concept of delegated profit and, to some extent, investment responsibility. 2. Divisions usually perform many of the basic business functions themselves – planning, production, accounting, marketing, and some financing activities. 3. Definitions: A segment of a business is recognized as a division when it exercises responsibility for both producing (or purchasing) and marketing products or services. Normally a division has some control over both sources of supply and the customers served. A segment is recognized as an administered center when it is a captive customer of other units within the same economic entity. A division has more of an independent business unit than an administered center. C. Reasons for divisionalization 1. Work sharing is one very simple reason for delegating decision-making authority. As firms become larger...
Words: 2806 - Pages: 12
...ROE: ROE less the cost of equity capital (ROE – re). Organisations with positive abnormal ROE are able to invest their net assets to create value for shareholders and have price-to-book ratios greater than one. Organisations’ long-term ROEs are affected by such factors as barriers to entry in their industries, change in production or delivery technologies, and quality of management. These factors tend to force abnormal ROEs to decay over time. Beginning book value growth: the magnitude of an organisation’s price-to-book multiple also depends on the amount of growth in book value. Organisations can grow their equity base by issuing new equity or by reinvesting profits. If this new equity is invested in positive value projects for shareholders – that is, projects with ROEs that exceed the cost of capital – the organisation will boost its price-to-book multiple. Of course, for organisations with ROEs that are less than the cost of capital, equity growth further lowers the multiple. Price-to-earnings multiples The driver of both current and future P/E ratios is the sum of the change in abnormal earnings, scaled by the current period’s net income. As change can be positive or negative, only the direction and magnitude of the expected change matters. Change in abnormal earnings ∆RE2 = E2 – [E1 + r(E1 – D1)] E2 = Earnings earned in period 2 [E1 + r(E1 – D1)] = normal earnings expected to be earned in period 2 2. A | 4.4 | C | 3.9 | B | 1.0 | D | 1.0 | My reasoning...
Words: 563 - Pages: 3
...Abdelrahman Ahmed ELMarhoumy Registration no. 14220150 General Information Company Name: Emirates Telecommunications Group (ETISALAT) Company Purpose: Emirates Telecommunications Corp (known as: Etisalat) is a public company, listed on Abu Dhabi Securities Exchange (ADX) since June 2002. Etisalat operates within the Telecommunication Services sector focusing on Integrated Telecommunication Services. It has 29 subsidiaries operating across Southern and Central Asia, North America, Northern Africa, Eastern Africa, Western Africa, Southeast Asia and Middle East. Etisalat is based in Abu Dhabi, UAE and was established in January 1976. Company Establish Date01 January 1976 Emirates Telecommunications Corporation | Consolidated statement of profit or loss for the year ended 31 December 2014 | | 2013 (AED’000) | 2014 (AED’000) | Continuing operations | | | Revenue | 48,766,875 | 38,564,181 | Operating expenses | -31,832,583 | -24,397,205 | Impairment and other losses | -931,963 | -1,374,176 | Share of results of associates and joint ventures | -461,065 | 1,754,341 | Operating profit before federal royalty | 15,541,264 | 14,547,141 | Federal royalty | -5,333,084 | -6,115,016 | Operating profit | 10,208,180 | 8,432,125 | Finance and other income | 2,653,494 | 468,558 | Finance and other costs | -1,736,511 | -437,572 | Profit before tax | 11,125,163 | 8,463,111 | Taxation | -1,153,576 | -648,647 | Profit for the year from continuing operations...
Words: 1836 - Pages: 8
...Sanjin Slavuljica Professor Farooqi Corporate Finance March 16, 2016 MID TERM EXAM ALL DOLLAR AMOUNTS FOR APPLE ARE IN THOUSANDS PART 1: Financial Position Statements – ON EXCEL (Under Balance Sheet, Income Statement, and Statement of Cash Flows) PART 2: Financial Ratios and Charts– ON EXCEL (Under Balance sheet) PART 3: Industry average of ratios Apple falls in many different categories for industry type. The most common and according to Yahoo finance, Apple is in the electronic equipment industry. Following will be the industry average for all of the ratios found in part 2. Electronics Equipment average Ratios: -Current Ratio= 3.45 times -Return on Equity (ROE)= 4.16 percent -Return on Assets (ROA)= 10.14 - Profit Margin= 3.80 percent -Shares Outstanding= 47.14 million -Price to Earnings= 60.36 times -Price to Book=2.35 times -Price to Sales= 2.19 times -Revenue= $882.51 million -Gross Profit= $459.38 million -EBITDA= $106.44 million -Net Income= $33.54 million -Total Debt= $309.96 million -Debt-to-Equity= .38 -Book Value Per Share= 17.41 times -Cash Flow from Operations= $65.1 million -Short Ratio= 6.76 times -EPS= .70 -Price to Earnings to Growth .98 times -Total Asset 1.46 Billion -Market Capitalization -Current Assets= $828.48 million -Current Liabilities= $240.33 million Quick Ratio= .47 times -I could not find a cash ratio for the electronic equipment industry. -Inventory Turnover= 12.29 -Days’ Sales in inventory=...
Words: 3994 - Pages: 16
...Introduction………………………………………p.3 Overview of AT&T………………………………p.4 Overview of China Mobile (HK) Ltd…………….p.5 Overview of Hutchison…………………………..p.6 Overview of New World Mobility……………….p.7 Overview of SmarTone…………………………..p.8 Overview of Sunday……………………………...p.9 Overview of Verizon…………………………….p.10 Financial Ratio Analysis…………………..…p.11-19 Conclusion…………………………………...p.20-22 INTRODUCTION In this project, we aim to find out the most outstanding telecommunications company for investors to invest on by using financial ration analysis. The seven firms under investigation in this project are AT&T (US), China Mobile (Hong Kong) Ltd., Hutchison Telecommunications Ltd., New World Mobile Ltd., SmarTone-Vodafone, Sunday Communications Ltd., Verizon Communication (US). We are going to begin our analysis by a series of overviews on each firm and related processed data. It is then followed by a clear analysis on the financial ratio of each firm and finally a well-supported conclusion will be provided to end up this project. This project is carried out under certain assumptions. It is presumed that there are only 7 firms in the telecommunication market for our investor to make accurate calculation and recommendation. There is also an elimination of all other resources except the financial records, which are taken under consideration in this analysis. The conclusion generated is only based on one method of evaluation- financial ratio. AT&T The...
Words: 4787 - Pages: 20
...Service Center? Yes, the purpose of a company is to maximum the profit, and as Elizabeth Barret suggested, it can help company to make more profit. So the capital investment proposal described in Exhibit 3 is an attractive on for QMSC. Investment in machine: $540,000 10 years cash inflow: $286,000 PV of cash inflow: $39,182 The project evaluation seems to be beneficial to the company: A. Payback period: 4.5 years less than the company’s criterion of 10 years B. Internal rate of return: 21.8% c. Net present value (at 15% cost of capital): $286,000 The proposal seems to be an attractive one due to the fact that there seems to be a need in the district, for this particular district to have the ability to perform some preproduction processing which is beneficial to local customers. The investment seems to be within company parameters and sounds attractive. 2. Should Ken Richards sent that proposal to home office for approval? Basing Ken’s decision on his incentive bonus, I would think that he would toss the proposal in the trash. But if he looks into it further he may see an alternate decision. Exhibit 5 only reflects marginal effects of project implementation-that is, an addition of earnings before taxes of $40,000 and an addition to assets of $720,000. Otherwise, the Exhibit assumes that other district operations meet targets exactly in 1992. I would hope that Ken could be a little more visionary and maybe research how much the customers in his district needs them to have...
Words: 460 - Pages: 2
...EXECUTIVE EDUCATION PROGRAMME – EEPSM 04 MFSA – PROJECT B; GROUP-2 |Prepared by |Jyothy Subashchandra Bose - EEPSM-04-019 | | |Flex Rajan - EEPSM-04-012 | | |Godavarma C K - EEPSM-04-014 | | |Kulkarni Dilip Shridhar – EEPSM-04-022 | | |Krishnan N - EEPSM-04-021 | | |Kamaleshwaran S- EEPSM-04-020 | | |Hena Damodaran - EEPSM -04- 015 | | |Jupudi Venkata Narasimha Rao –EEPSM-04-018 | | |Jaspreet Kaur Rekhi – EEPSM-04-016 | Objective: The objective of this project is to examine, find out the relationship between...
Words: 3448 - Pages: 14
...Science Technology company case After reviewing the financial forecast from Science Technology Company and Semiconductor industry market situation, I concluded that 30% annual growth is not feasible, optimistic growth forecast is 15% .Because world semiconductor shipment kept growing, but not just semiconductor market but electronic products market was also dominated large market by Japanese manufacturers. If the company carried on with the same profit/cost structure, the company’s ROA would be 5% more or less in next 5 years, EPS would be 0.44 – 0.97 and stock price would goes down to less $10 – less $20. I can assume that there is no additional stock issuance. As of 1984, the ROA is 5.6%, EPS 0.57 and stock price $13-$37. 1. Background Main business Design and manufacture tester and test software for printed circuit boards with worldwide sales and service network, was headquartered in Minneapolis and had plants in Minnesota, Colorado and Arizona. Leading manufacturer of ATE (automated test equipment), 31% market share and semiconductor test operation which uses more than $1million systems 2nd large business Total sales revenue $227 million in 1984 Object ATE market by $84 billion dollar business 2. Semiconductor Market Situation High technology, intensive large capital required for production asset, periodic production line update need according to new chip development in quick cycle. During 1975-1984 swiftly and dramatically technologies change, inspired the development...
Words: 951 - Pages: 4
...Bachelor of Finance & Banking Thesis -------------------------------------- The impact of capital structure on profitability of listed construction companies on Hanoi Stock Exchange from 2008 to 2013 FALL 2014 Instructor Mr. Tran Viet Dung Group members Nguyen Thi Thanh Tam (FB00464) Nguyen Thi Viet Chinh (FB00405) Hoang My Linh (FB00073) Dang Thi Hong Hanh (FB00253) Nguyen Thi Kieu Trang (FB00078) Hanoi, December 2014 Table of Contents List of tables 3 List of figure 4 Abstract 5 Chapter 1: Introduction and Thesis Outline 6 1. Background 6 2. Research objective 8 3. Research question 8 4. Data and methodology 8 4.1 Data 8 4.2 Methodology 9 5. Thesis outline 9 Chapter 2: Literature Review and theoretical models 10 1. Theorem review 10 1.1. Modigliani- Miller theorem review 10 1.2. Agency theory 12 1.3. Trade-off theory 14 1.4 Pecking Order Theory 19 1.5 Market-timing theory 20 2. Variable review 22 2.1. Return on Asset and Return on Equity 22 2.2. Capital structure 23 3. Empirical studies 24 3.1. Relationship between capital structure and firm performance 24 3.2. Empirical studies of relationship between determinants of capital structure and profitability 28 4. Summary of the empirical studies 30 Chapter 3: Methodology 31 1. Introduction 31 2. Data collection methods 32 2.1. Sampling techniques 32 2.2. Data collection procedure 34 3. Variables and hypotheses 34 3.1. Dependent...
Words: 20311 - Pages: 82
