BUS 311 Checkpoint Project
Dr. Feng
The checkpoint discussion can be extended around a series of questions from the perspective of owners, managers, short-term creditors, long-term creditors, market, and investors. Financial ratios are important tools to answer those questions and interpret the financial health of the company.
You can organize the checkpoints project writing through the answers on the relevant questions. Note that your grade will be based on both the financial calculations and the interpretation.
Usually, financial analysis should be conducted both along the time and against peers or industry benchmarks.
a. The website http:
finance.yahoo.com provides 4-year financial history for US public listed companies.
. The industrial benchmark data are available from sources like http:
www.bizstats.com/. It provides the cu
ent update through a paid subscription. You can use the free delayed data for practice or reference.
Our study does not require industry benchmark comparison. You can focus ratio changes over time, the underlying business decisions and transactions that caused the change, and their implications upon the financial health and investment value of the company
STEP 1:
Q0: Conduct an environmental scan, indicating future prospect for a company.
Q0-1. Short description of the company background.
Q0-2. Industry analysis on the Strength / Weakness / Opportunities / Threats of the company
Strength
Weakness
Opportunities
Threats
Q1: Overview of the company financials
Q1-1. What is the size, revenue, profit, revenue, and free cash flow for the last 5 years?
Q1-2. How the stock performed over the recent 5 years?
2015
2016
2017
2018
Total assets
Total liabilities
Total equity
Revenue
Net income
Free cash flow
Price
Total return
Question:
· Is the company of large, small, or medium size?
· Is the company profitable?
· Does the company generate positive free cash flow to investors?
· Does the market return reflect positive on the company performance?
Q2. From shareholder or investor perspective
2-1. How well has management utilized the company’s assets?
2-2. How well is the return over the stockholder’ equity?
Return on Assets = Net Income / Total assets
Return on Equity = Net Income / Equity
2013
2014
2015
2016
2017
Return on Assets
Return on Equity
Question:
· Is the company profitable?
· How has the profitability changed over time?
· Any reason for such a change?
2-3. Cash flow analysis
Free cash flow = Cash flow from operation – CAPEX
2014
2015
2016
2017
Cash flow from operating
Cash flow from investing
Cash flow from financing
Effect Of Exchange Rate Changes
Net change in Cash
CAPEX
Free cash flow
Questions
· Is the company operations profitable?
· Is there any financing need? For what purpose, investment or financing?
· Is there any major investment spending? For what purpose?
· Does the company provide healthy free cash flows to investors?
· Cash is the “King”. How does the cash flow situation related the stock performance?
Q3. From Manager’s perspective
3-1. DuPont Identity
DuPont Identity decompose the ROE into three different sources: profitability, management efficiency, and financial leverage.
Net profit margin = Net Income / Sales
Total asset turnover ratio = Sales / Total assets
Equity multiplier = Assets / Equity
Return on Equity = (Net Profit Margin) * (Total asset turnover) * (Equity Multiplier)
2014
2015
2016
2017
Net profit margin
Total asset turnove
Equity multiplier
Return on Assets
Return on Equity
Questions:
· Profit margin: Are profits high enough, given the level of sales?
· Total asset turnover: Are sales higher enough, given the level of assets?
· Equity multiplier: How did the financial leverage change the return on equity?
· What has been the main driving factors for the change of ROE in recent years, profitability, asset turnover, or financial leverage, or mix of the three?
3-2. Management efficiency
2014
2015
2016
2017
Account collection period
Inventory holding period
Account collection period = (Account Receivable) / (Credit Sales / 365)
Notes: If there is no data on “credit sales”, use “sales” data instead.
Inventory holding period = (Inventory) / (Cost of goods sold / 365)
Questions:
· Are receivables coming in too slowly?
· Is there too much cash tied up in inventories?
3-3. [Cost-volume analysis for EBDAT
eakeven]
How does cu
ent revenue compare with the
eakeven level?
VC = Variable cost = cogs
CFC = (Admin + marketing + other operating expense) + (interest expense)
R = Revenue
SR = Survival revenue = CFC / (1 – VC / R)
2014
2015
2016
2017
R: revenue
VC: cost of revenues
TC: Total operation expense
FC: fixed cost
VCRR: Variable cost revenue ratio
SR: Survival Revenue, FC / (1-VCRR)
When actual revenue > Survival Revenue, the company can achieve profit over the fixed and variable cost combined. The ratio of R/SR shows the overall profitability for the company.
Questions:
· Does the company operate beyond a
eak-even revenue level?
· How did the Revenue / Survival revenue ratio change recently?
· What is the implication?
Q4. Short-term Creditors
4-1. Does this customer have sufficient cash or other liquid assets to cover its short-term obligations?
The Cu
ent Ratio and Quick Ratio measure the short-term liquidity of the firm?
The Cu
ent Ratio [Cu
ent Assets / Cu
ent Liabilities]
The Quick Ratio [(Cu
ent Asset – Inventories) / (Cu
ent Liabilities)]
2014
2015
2016
2017
Cu
ent Asset
Cu
ent liabilities
Inventories
Cu
ent ratio
Quick ratio
Questions:
· Is the company facing liquidity issues for operation?
· How the company liquidity situation changed over time?
Q5. Long-term creditors
Debt-to-Equity (D/E) = [Total liabilities] / [Total Equity]
The Times Interest Earned (TIE) [Income + (Interest + Taxes)] ÷ [Interest Expense]
2014
2015
2016
2017
Total assets
Total liabilities
Total stockholders' equity
Debt ratio
Debt / Equity ratio
EBIT
Interest expense
Interest coverage ratio
Questions
· As a potential or present long-term bo
ower, how heavy is debt financing over equity financing?
· Are earnings and cash flow sufficient to cover interest payments and provide for some principal repayment?
Q6. Market
6-1. How is the financial performance priced in the financial markets?
Price-book ratio = [price per share] / [book value per share]
Price-earnings ratios = [price per share] / [earnings per share]
Dividend Yield = [Dividend per share / [price per share]
2014
2015
2016
2017
Price per share
Book value per share
Earnings per shares
Dividend per share
Price-book ratio
Price / earnings ratio
Dividend yield
Questions:
· How has the financial health changed over time, better or worse, for the past 5 years?
· Is the market reacting favorably to the company’ business performance?
6-2. Market value added
Market value added = (Price per share – book value per share) * (# of shares)
2014
2015
2016
2017
Price per share
Book value per share
# of shares
Market value added
Q7. Potential investors
Note: for this section, no detailed calculations are needed.
Questions:
· Research at least two the recent investment initiative taken by the company.
· How such initiatives could affect the company’s future cash and value?
· What are the potential risks associated with the investment activities?
· What are the implication for investors?
STEP 2:
Q8. Cost of capital (to be finished in step 2)
Note: if there is no allocation to prefe
ed stocks, you can ignore the component from prefe
ed stocks.
8-1 Weighted average cost of capital
amount
%
before tax cost
after tax cost
cost component
Debt
??
??
??
??
??
Equity
??
??
??
??
??
Prefe
ed
??
??
??
??
??
tax rate
??
Total Capital
??
WACC
??
What does the WACC mean?
1) The average cost of financing or hurdle rate for the business
2) The average return required by the capital providers
3) The opportunity cost for the capital providers
8-2. Economic value added
The business need to make higher return than the WACC to be profitable. The wacc is the opportunity cost of the capital from the capital providers.
The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added.
EBIT = ??
Assume T = Tax rate = 35%
Total capital from financing = (Debt + Prefe
ed + Equity)
Economic value added = EBIT * (1-T) – (Total capital) * WACC.
tax rate
30%
EBIT
644.00
EBIT * (1- T)
450.80
WACC
11.18%
Investor supplied capital
120,205.00
Economic value added
-12,990.90
Question:
· Is the economic value added positive or negative?
· What is the implication from the result?
Q9. Summary (detailed analysis is required)
9-1. List your overall conclusion on the financial analysis.
9-2. Were the financial ratios and indicators accurate reflection of business performance?
9-3. Comment on the company’s financial condition: excellent, healthy, or ill.
9-4. Is the stock over, under, or fairly-priced?
9-5. Is the stock a good investment candidate? Buy or Sell?
Running head: Sony analysis 1
Sony analysis 8
Sony Analysis
Luis Maldonado
Lynn University
Sony Analysis
Executive Summary
This report will give the extensive research and analysis on Sony Corporation. Valuation of Sony is primarily based on multiple growth factors, which drives the revenue and earnings of the company. Moreover, DCF and FCFF valuations are based on some assumptions, which is explicitly mentioned in the report. I would recommend to investors to keep a closer eye on the stock as it is undervalued by the market. Furthermore, the value of the stock is going down because of trouble in the world due to COVID-19 scare, problems with cu
ency, economic crisis all across the world.
1 Company Overview
Japanese based multinational organization headquartered in Konan, Tokyo, Sony today is one of the most well known organization in the world. Established in 1946 by Masaru Ibuka and Akio Morita,