...Finance Theory II (Corporate Finance) Katharina Lewellen February 5, 2003 1 Today Preliminaries Introduction to the course Corporate finance Types of questions Course outline Course requirements Case of Unidentified Industries 2 Preliminaries Texts − Brealey & Myers, Principles of Corporate Finance, 7th edition − Higgins, Analysis for Financial Management, 7th edition − Case and Readings Packet Professor − Katharina Lewellen 3 Introduction Corporate finance Investment policy How the firm spends its money (real and financial assets) Financing and payout policy How the firm obtains funds (debt, equity) and disposes of excess cash 4 Balance sheet view of the firm Assets Liabilities Current Liabilities Current Assets Long-term debt Fixed Assets 1. Tangible 2. Intangible Shareholders’ Equity 5 Introduction, cont. But we also need to understand… Capital markets Types of securities (stocks, bonds, options…) Trade-off between risk and return Pricing Taxes and government regulation 6 Financial markets Firms Curr assets Fixed assets Debt Equity Financial Markets Individuals Financial Intermediaries Government 7 Introduction, cont. Finance is really about value Firms Projects and real investments Securities Common characteristic Invest cash today in exchange for cash (hopefully) in the future Central question How do we create value through investment and financing decisions? 8 Types of questions Investment...
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...THE CASE OF THE UNIDENTIFIED INDUSTRIES The analysis of the balance sheets and financial ratios enable us to match five different industries with respect to the corresponding financial structure reflected in the balance sheet. The low collection periods make B or E either one of GM retail, or apparel. That leaves Automobile, Electric Utility and Automated Test Equipment / Systems at A,C or D. Discounted general merchandise corresponds to B. The low collection periods make it one of B or E. However, the business cannot be negatively profitable. Hence it’s not E. The fast nature of the goods being sold at the retailer gives rise to quick inventory turnover. Thus matching industry is one of B. The low margin high volume gain that is common strategy in the industry gives rise to marginal profitability (1.5%) and a higher asset turnover ratio (3.25) resulting in economies of scale and rapid growth. This puts discounted general merchandise to most closely match to B. The investment in property and equipment is also second highest, owing to the investments in real estate and tools and equipment to manage the fast moving nature of the goods being sold. Additionally, this contributes to the lowest collection periods of 4 days, since the collection is upfront against the purchase of goods. Upscale Apparel : The matching industry is E. Also, the industry faces stiff competition and companies need to innovate continuously to remain profitable. This snapshot from 2009 may be representative...
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...Natalie Trivino May 21, 2016 Current Trends in Leadership Reflective Journal Week 3 As of now, I just finished reading the chapter called, “Toffees, Tennis Balls, and the Buddhas of Swat”, in the book “I am Malala”. The book is getting into greater detail of how the Taliban gained its power and the effects to the people in the villages. It all started by listening to a guy in the radio during certain times of the day. He was known as the Mullah and he started stating his beliefs of what is good and what is bad. Not only did he state his beliefs, but he also provided his reasons behind them which made much more sense. This increased more people to listen to his radio talks and that’s how he gained so much power. At this point of the book, I tried to analyze how the Mullah gained so much power. Sometimes his beliefs were way out of hand to me. For example, he stated that girls or women were not allowed to be outside unless they were accompanied by a man who is their relative. If a woman does dare to go outside with her male relative, she must be covered completely except for her eyes. I thought this went out of hand because it sounds like the Mullah was degrading the women and not men. It’s completely unfair, but the Mullah gained so much power in a matter of time because people believed in his opinions. When he does state his opinions, he gave out the reason behind it and people believed in those opinions. He believed that the earthquake had happened because girls were...
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...from electricity and natural gas sales which are a form of natural emissions in one way or another. Plant and equipment tends to be high in this industry as there is heavy machinery in power plants used to convert natural gas into electricity/ transform energy into usable power. It happens to be 60% of total assets. Another figure that leads to our decision is long-term debt of 32%, which is quite high compared to other industries, which makes sense given their high plant and equipment percentage. This tells us most of their financing comes from borrowings, making this a highly leveraged industry. Also, their inventory turnover ratio of 2.3 correlates with their low inventory percentage of 3%, which essentially tells us, they are not incurring many costs of goods sold. Moreover, the profit margin here is at .09, which is higher than most of the other industries, and it is safe to say that is due to the fact there is not much competition within this industry. A. Column A gives us data matching that of an Online Retailer. To begin, their inventory is at 19% of assets, which is higher than majority of the other industries mentioned. This can be easily explained by the fact that they are selling products to generate revenue, whether to customers or businesses. Managing inventory can sometimes be difficult in the online retailer industry because much in depth and tracking of sales is necessary as you are more than likely carrying a wide variety of products. Plant and equipment is...
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...Environmental assessment of bio-based polymers and natural fibres Dr. Martin Patel*), Dr. Catia Bastioli**), Dr. Luigi Marini**), Dipl.-Geoökol. Eduard Würdinger***) *) Utrecht University, Department of Science, Technology and Society (STS), Copernicus Institute, Padualaan 14, NL-3584 CH Utrecht, Netherlands; Phone: +31 30 253 7634; Fax: +31 30 253 7601; E-mail: m.patel@chem.uu.nl **) Novamont, Via Fauser 8, I-28100 Novara, Italy; Phone: +39 0321 699 611; Fax: +39 0321 699 600; E-mail: bastioli@materbi.com, marini@materbi.com ***) BIFA (Bavarian Institute of Applied Environmental Research and Technology), Am Mittleren Moos 46, D-86167 Augsburg, Germany; Phone: +49 821 7000-181; Fax: +49 821 7000-100; Email: ewuerdinger@bifa.de Table of Contents 1. INTRODUCTION 2. HISTORICAL OUTLINE 3. METHODOLOGY OF LCA 4. PRESENTATION OF COMPARATIVE DATA 4.1 STARCH POLYMERS 4.1.1 Starch polymer pellets 4.1.2 Starch polymer loose fills 4.1.3 Starch polymer films and bags 4.1.4 Starch nanoparticles as fillers in tyres 4.2 POLYHYDROXYALKANOATES (PHA) 4.3 POLYLACTIDES (PLA) 4.4 OTHER POLYMERS BASED ON RENEWABLE RESOURCES 4.5 NATURAL FIBRES 5. SUMMARISING COMPARISON 6. DISCUSSION 7. CONCLUSIONS 7.1 7.2 SUMMARY AND FURTHER ELABORATION OF FINDINGS OUTLOOK AND PERSPECTIVES 8. ACKNOWLEDGEMENTS 1 9. REFERENCES ANNEX 1: OVERVIEW OF ENVIRONMENTAL LIFE CYCLE COMPARISONS FOR BIODEGRADABLE POLYMERS INCLUDED IN THIS REVIEW ANNEX 2:...
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...9-207-096 REV: APRIL 10, 2008 The Case of the Unidentified Industries—2006 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F265469 If you were asked to visualize (in income statement and balance sheet form) the financial structure of a typical firm in one particular industry, do you think you could do it? How close to your “vision” do you think the “reality” would be? What if you were asked to do the same experiment covering 14 firms drawn from 14 different industries? How many of the 14 do you think you would get right? You may be surprised by how much you already know! Exhibit 1 presents the balance sheets (in percentage form) and other selected financial data for 14 firms drawn from 14 different industries. While there are clear differences in the financial structures of different firms within a single industry, the firms selected have figures that are broadly typical of those in their industry. Try to match the 14 firms operating in the 14 industries named below with the 14 sets of financial data presented in Exhibit 1. Use any approach you find helpful. Advertising agency (about half of total revenue derived from commissions that equal 15% of media purchases for clients) Airline Bookstore chain Commercial bank (fitted into the most nearly comparable balance sheet and ratio categories of the nonfinancial companies) Computer software developer Department store chain (with its “own brand” charge...
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...1. Advertising Agency – E We believe the matching industry is Company E. As a service firm it does not containinventory. It will also have zero inventory turnover. Through research we learned that the media purchase is made on behalf of the client which means that the accounts receivable and accounts payable would be roughly equal to one another. In addition, the receivable collection period(RCP) is greater than 30 days which is common in business to business firms. Also, the firm hasa low debt to asset ratio and this is again because the advertising agency industry has noinventory. 2. Airline Industry-M We feel like industry M best suits this industry. Similar to the advertising industry the Airlineindustry the airline industry is also a service industry. Meaning the level of inventory is alsozero. More importantly however, this industry’s main assets include fleets of airplanes and this will reflect a high plant and equipment percentage. The receivables collection period (days) forindustry M is 12, because in this service industry the receivables collection period is short this.Also, most of the sales are processed quickly many in cash therefore their account receivableswill also reflect a low number. For this reason we feel that letter M fits the description for theairline industry. 3. Bookstore Chain-B The matching industry is B. Bookstore chains are part of the retail market and their plant andequipment is relatively high. Also, the inventory of the...
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...A – Online Book Seller A would be the online book store because it has high inventories and low account recievables. An online bookstore E - Advertising agency The letter E has been assigned to the ad agency. It does not have an inventory hence there is no inventory turnover ratio. F- Computer Software Developer F is the computer software developer because it has low inventories, low plants and equipment G - Commercial Bank G is a commercial bank because I has no inventory. Along with that it has a high accounts receivable and accounts payable. It also has a high revenue to total assets ratio. At 2.067 with the latter ratio and no inventories, this would be a commercial bank. I – Bookstore Chain L- Electric and Gas L is Electric and gas utility services because it has a large amount for Plant and equipment on its balance sheet. Along with that it has a revenue/total assets ratio of 0.423. The large P&E account along with a low revenue/total assets ratio suggest that it is an electric and gas utility company. M - Airlines The Letter M has been assigned to airlines mainly because of 2 factors. First it has no inventories and therefore having an inventory turnover ratio is not applicable. And second, it has a very low accounts receivable. That is characteristic of an airline since most of its sales are done on a payment basis. N - Health Maintenance Organization N is a health maintenance organization because it has no inventory. Along with that it has a very high...
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...| The Case of the Unidentified Industries-2006 | | In this case, a summary sheet which contains 14 sets of financial data from 14 different industries is provided. The task is to match 14 different firms with 14 industries by distinguishing the differences (e.g. sources of financing, profitability, the inventory turnover and the accounts receivable collection period) in the financial structures. 1. Advertising agency: the matching industry is E. As a service firm, it does not contain inventory, so first of all, it can be narrowed down to E, G, M, and N. And generally B to B firms provide credit terms to their customers which result in receivables collection periods(RCP) is larger than 30 days, therefore it can be further narrow to E,G,N. Furthermore, based on the given hint, the media purchase is made on behalf of the client, which means the account receivable and account payable should be roughly equal, since the agency does not pay for the media services until their client pays. 2. Airline: the matching industry is M. Similar to Ad agency, it is a service firm, so its inventory is zero as well (G, M, N), and moreover, it is also a Business to Customer firm, its RCP is relative short(less than 30 days), so only M (RCP=12) is left which matches the description. 3. Bookstore chain: the matching industry is B. Retail firms like bookstore chain are likely to have shorter RCP (less than 30 days), which means only A, B, H, I, K and M match this description...
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...The Case of the Unidentified Industries-2006 | | In this case, a summary sheet which contains 14 sets of financial data from 14 different industries is provided. The task is to match 14 different firms with 14 industries by distinguishing the differences (e.g. sources of financing, profitability, the inventory turnover and the accounts receivable collection period) in the financial structures. 1. Advertising agency: the matching industry is E. As a service firm, it does not contain inventory, so first of all, it can be narrowed down to E, G, M, and N. And generally B to B firms provide credit terms to their customers which result in receivables collection periods(RCP) is larger than 30 days, therefore it can be further narrow to E,G,N. Furthermore, based on the given hint, the media purchase is made on behalf of the client, which means the account receivable and account payable should be roughly equal, since the agency does not pay for the media services until their client pays. 2. Airline: the matching industry is M. Similar to Ad agency, it is a service firm, so its inventory is zero as well (G, M, N), and moreover, it is also a Business to Customer firm, its RCP is relative short(less than 30 days), so only M (RCP=12) is left which matches the description. 3. Bookstore chain: the matching industry is B. Retail firms like bookstore chain are likely to have shorter RCP (less than 30 days), which means only A, B, H, I, K and M match this description. Furthermore...
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...The Case of the Unidentified Industries-2006 1. Advertising Agency –E We believe the matching industry is Company E. As a service firm it does not contain inventory. It will also have zero inventory turnover. Through research we learned that the media purchase is made on behalf of the client which means that the accounts receivable and accounts payable would be roughly equal to one another. In addition, the receivable collection period (RCP) is greater than 30 days which is common in business to business firms. Also, the firm has a low debt to asset ratio and this is again because the advertising agency industry has no inventory. 2. Airline Industry-M We feel like industry M best suits this industry. Similar to the advertising industry the Airline industry the airline industry is also a service industry. Meaning the level of inventory is also zero. More importantly however, this industry’s main assets include fleets of airplanes and this will reflect a high plant and equipment percentage. The receivables collection period (days) for industry M is 12, because in this service industry the receivables collection period is short this. Also, most of the sales are processed quickly many in cash therefore their account receivables will also reflect a low number. For this reason we feel that letter M fits the description for the airline industry. 3. Bookstore Chain-B The matching industry is B. Bookstore chains are part of the retail market and their plant...
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...The Case of the Unidentified Industries - 1995 Solution: In order to find out the exact firm by analysing the financial structure of typical firms, first we need to separate those firms which have zero inventory turnover (A, B, F and H) from those firms which have zero debt ratio which in our case are (E, H and J) and we use the information to narrow down the possibilities of each firm. In this case there are three groups of companies: 1) Firms having zero inventory turnover. 2) Firms having zero debt. 3) Firms having all financial ratios given. 1) Firms having zero inventory turnover: Under the category of zero inventories, there are four companies. The nature of these companies show that they are not involved in any production, but they provide services to the people and from services they generate cash. Each one with the name and reason is mentioned below. Firm A. Commercial Bank: The financial structure of (A) firm shows that it has zero inventory turnover and high receivables collection period. Banks usually have a large amount of receivables because they lend money to the individual people and a company due to which the average number of days, which in this case is very high, requires to convert receivables into cash is very high. Its financial structure also shows that the firm has borrow money from outside to pay debt to its customers. Firm B. Advertising Agency: This firm has very high receivables and payables due to one reason or the...
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...Best Practice Series Guidelines for Best Practice in the Use of Job Analysis Techniques Contents 1. 2. 3. 4. 5. 6. 7. Introduction Job analysis in practice Job analysis techniques The application of job analysis information: the generation of competencies Social and organisational issues Future trends in job analysis A final word Page No 1 5 6 10 12 16 17 18 19 20 21 Glossary SHL services References Further reading 1. Introduction Because job analysis is an important precursor to many Human Resource activities, SHL is committed to promoting and maintaining quality practices in this area. These guidelines are based on best current professional opinion and are intended to provide an account of best practice. They are supplied to clients, and should be used for guidance only. They are NOT intended as a substitute for a recognised training course. 1.1 What is job analysis? Job analysis is a systematic process for collecting and analysing information about jobs. Job analysis provides information about the work performed and the work environment. It also identifies the knowledge, skills, abilities and personal competencies people need to perform their work well. In short, it is a method that provides a description of the job and profiles the competencies people need to be successful. Most definitions of job analysis identify three key points: • Job analysis is not a single methodology - it is a generic term which refers to a range of techniques, including observation...
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...Although different industries have their own characteristic, we can see some common features in certain industries. Thus we divide them into 4 kinds: Service, retail trade, manufacturer and online seller. List as below: Classification of Different Industries and their features 1. Service (Table 1) Advertising agency (AG) Commercial bank Health maintenance organization (HMO) →Their services are based on human resources. They do not need a lot of PP&E or inventories and lots of money (like long-term debt). Since they provide their service first and the customers always pay at the end of the service, their account should be high. So now we want to find an industry that is zero inventories, low PP&E, high accounts receivable and low long-term debt. See the table 1, we find E, G and N each has a very high accounts receivable, low inventories and PP&E. It shows that they are all service industries. Now we have to look deeply to find the difference among these three industries. First, N has an extremely high accounts receivable (90%) and the longest receivables collection period (4,071 days). And their biggest part of liabilities is notes payable. It really meets the features of Commercial bank. So N is Commercial bank. What the different between E and G? We find that their percentages of balance sheets are almost the same. So we have to find some clues from selected financial data. It shows that their Receivables collection period and Revenue/total assets are pretty...
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...would have a fairly high turnover. Another characteristic that was assessed was the accounts receivable and collection periods. It was determined that wholesale companies would have a higher collection period than retailers. The first of the service industry matched was the advertising agency with Company E. This was recognized for reasons beyond zero inventories. Because advertising companies usually get paid when the project is complete, they have higher collection times. This type of company also has a higher percent of other assets because this is the category where commissions fall. Another characteristic matching these together is that the payables and receivables are very close, 39 to 37 respectively. This would be likely for an advertising agency as it would be making purchases on the customer’s behalf. The HMO company fits with Company G. Again, there is no inventory. They also have low plant and equipment. They really only need some office space. Because they rely heavily on insurance payments, they have a high collection time. Their accounts receivable are large because they charge on the day of service. This type of company would also have a high revenue per assets ratio. UNIDENTIFIED INDUSTRIES 3 The airline is determined to go with Company M because no inventory and the large amount of plant and equipment. Of the companies with no inventory, this makes sense to be the airline. The commercial bank would...
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