Archive for category: Finance

Choose a Multinational Enterprise (MNE) listed on an internationally recognised Stock Exchange (including for example, London, Dublin, New York or Paris). You are required to:

Critically discuss two recent developments in the international financial environment appear to have impacted on your chosen company’s recent performance and development. Analyse how these two developments are likely to impact on the company in the near future.

Discuss the following key elements of the MNE’s international financial and/or risk management strategy (and how they appear to have affected the financial performance of your chosen company):

• Sources of finance
• Dividend policy

With reference to your chosen Multinational Enterprise (and using the most recent annual report published), analyse the financial performance (in terms of profitability, liquidity, efficiency and investment) of the company in the two most recent consecutive financial periods ( e.g. 2016/17 or 2017/18, ) using 8 different accounting ratios (prior year comparative figures will be available in the annual report).

You will demonstrate your competency in the term paper by evaluating whether or not
you believe a public company of your choice has a capital structure and financing
strategy that is appropriate for its business model. The company you will be evaluating is “Tesla Inc” Stock Ticker: TSLA

1) The first criterion is financial analysis, including ratio analysis and risk analysis. Are you evaluating this company from a macro-economic or big-picture perspective in which you look at broad-based economic and industry trends in relation to how the company will capitalize on those trends OR are you examining the company from an operating / on-ground perspective and it’s individual business prospects and financial outlook (with less importance accorded to
macro-trends)? Is it a high risk, low risk or medium risk situation? For example, a company that focuses on growth and reinvests all its profits into the core business typifies a growing, risktaking enterprise. An example of a conservative operation is a company that generates surplus cash [pays a dividend if publicly traded] and is noted for stable, steady growth

2) The second criterion is qualitative research. For example, determine if there is a future for
the company’s core business. If the company is in the midst of either a corporate or financial
restructuring or launching a new product, what are the strategic objectives for such measures?
What is the management style of the company?

3) The third criterion is financial research. You’ll need to find any research about the industry
your company is in from analyst recommendations found in Value Line, Dun & Bradstreet, Morningstar, etc. If you are studying a private business entity, then analyst reports on publicly traded comparable firms may provide an applicable standard of comparison by which you are able to arrive at your appraisal of the capital structure and financing for the business model you are studying.

4) The executive summary should begin with the conclusion (i.e., your findings). Is it
adequately financed? Why or why not? [If publicly traded, then you must include published industry norms regarding capital structure and financing mix between debt versus equity.] The rest of the paper should fully explain the reasons for your evaluation. A table of contents may also be included if the report is lengthy or has multiple sections and subheadings.

5) Calculations and support documentation should be included in the appendix, but relevant
statistical support (i.e., bottom line figures such as rates of return, valuation, and so forth)
should also be included in the body of the text.
Statistical tables, graphs, and charts can either be incorporated into the body of the text
or referenced in your text and placed in an Appendix

This module focuses on business investment concepts. Understanding how compound interest works will help you get the biggest return on your investment. One way of looking at the investment is to calculate the future value of your money at the end of a given number of years from an initial lump sum investment at a given interest rate. Another way is to say you want a certain amount by a given time, perhaps at some point in the future when you know, you will want to expand your business. What lump sum present value and the interest rate would you need to get your desired amount? In this Assessment, you will use the skills you learned in this module to investigate making large purchases for your business.

Write an essay discussing how you, as a business owner, can use annuities to achieve business goals. Financial decisions require careful planning and prioritizing, especially when large, capital-intensive purchases are involved. As you establish a process to achieve your company goals, you will need to demonstrate your math skills, consider different investment options, and describe how different investment vehicles can be used effectively to accomplish business goals.

Scenario:

As the owner of a vinyl fencing company, you are making plans for two large purchases in the next 3 to 5 years to achieve your business goals.

Purchase 1:
You plan to expand your vinyl fence company in the future and must purchase a new warehouse facility to achieve this goal. Your insurance company is offering you two very attractive investment options, an ordinary annuity, and an annuity due, both compounding quarterly and paying 8% annual interest over 5 years. Your 5-year budget includes saving $2,500.00 each quarter. To evaluate which option will benefit the business most, you must evaluate both annuity options by calculating the future value of each option and explain how the investment will help you to carry out your goals.

Purchase 2:
After careful review of your maintenance log, you also realized that you will need to replace a fence post molding machine that sells for $45,000.00. You estimate that you will need to purchase a new machine in 3 years as this machine reaches the end of its useful life. You plan to save for this purchase using a sinking fund that compounds semi-annually and earns a 12% annual rate.

Calculate the future value of both the ordinary annuity and the annuity due options being offered by your insurance company. Explain the differences between these two investment options. Select the best annuity option for your business and explain why that option is preferable.
Calculate the sinking fund payment required for the fence post molding machine.
Compare and contrast the shorter timeframe and higher interest rate of the sinking fund with the longer-term warehouse annuity option you chose. Be sure to calculate and report how much interest you will earn from the annuity chosen for the warehouse and the amount of the sinking fund investment.
Develop a plan to prioritize these two purchases, and discuss the potential impact that these will have on the future of your business. For example, is expanding your business more important than saving for and paying cash for a fence post molding machine? Remember, you could borrow money to finance the fence post molding machine when it eventually breaks, but financing will cost the business in finance charges.

Target Corporation describes itself as “an upscale discounter that provides high-quality, on-trend merchandise at attractive prices in clean, spacious and guest-friendly stores.” Target has over 350,000 employees and operates over 1,700 stores in the United States. The firm recently opened stores in Canada, and—like Walmart (see chapter 14 in your text)—it has an online business component. Target also offers branded proprietary credit and debit cards.

For the fiscal year ending January 31, 2012, Target’s EBIT was $5,322,* and its tax rate was 34.3 percent. Its short-term borrowings were $3,786, and its long-term debt was $13,697. In addition, the firm’s book value of equity was $15,821.

 

1. Estimate Target’s return on invested capital or ROIC.
2. Compare it with Walmart’s. Are you surprised at the difference?

 

* All amounts related to Target are in millions of dollars, unless otherwise noted.

For the fiscal year ending January 31, 2012 (2011), Target had total revenues of (in millions) $69,865 ($67,390) and net earnings of $2,929 ($2,920). Its total assets were $46,630 ($43,705) and its equity was $15,821 ($15,487).

 

1. Estimate Target’s return on equity (ROE) for each of these two years, using the DuPont decomposition to indicate the profit margin, the asset turnover, and the firm’s financial leverage.
2. Why has the ROE changed?
3. How would you compare the ROE drivers for Walmart and Target?

According to its annual report, as of January 31, 2012, Target’s borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent. A research report estimated Target’s cost of capital at 10.5 percent. The firm had interest-bearing debt of $17,483. Moreover, Target’s stock was trading at $50.81 per share, and there were 679.1 million shares outstanding. Now, let’s assume Target’s amount of debt is also a market value estimate of the debt. Let’s also assume the current debt and equity values are at Target’s optimal capital structure.

1. Based on market value estimates, what is Target’s cost of capital?
2. How does it compare to Walmart’s, and what explains the difference?

This article is entitled The Big Market Delusion: Valuation and Investment Implications was written by Bradford Cornell and Aswath Damodaran in the FAJ in 2020.

The complete article is attached as a pdf file (“Cornell & Damodaran FAJ 2020 The Big Market Delusion Valuation and Investment Implications.pdf”)

Once you have read the article, please write a one page article review that answers the following three questions:

1. What is the main point of the article?

2. How does the article connect to or extend what we have studied?

3. What impact does the article have on how you will make your own financial decisions in your job or regarding your own investments?

Attached several supplemental PowerPoint presentations that we have studied. It is very important that you review them and see how they can relate to the article. Specifically, the attachments:

1) “Chapter 5_Bonds, Bond Valuation, and Interest Rates.ppt”
2) “Chapter 7_Valuation of Stocks.ppt”
3) “Chapter 18_Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks.ppt”