PART ONE: The report based on the PART ONE information will analyze financial ratios for a selected company, uses the data to tell the financial story of that company, and concludes with a recommendation on whether the company would be a viable partner based on its financial condition.

Introduction

It is essential for financial advisers and upper management to know the financial condition of a company for a variety of reasons, including to improve its condition, to make decisions to increase shareholder value, and to know the true value of the entity. Such an analysis is important for any business, small, medium, or large.

Apply the skills from the financial management perspective to:

Tell the financial story based on financial statements.

Conduct a financial analysis and identify focus areas for enhancing shareholder value.

Interpret ratio computations that are meaningful and inform business decisions and strategies.

Scenario

Barb Cross is founder and president of BC Technology, a small technology company. She is considering being bought out by a larger publicly traded company so she can be rewarded financially for all of her entrepreneurial efforts. She calls you into her office and says:

Thank you for meeting with me today. I'd like to talk to you about the future of the BC Technology. I've been running this company for a long time now, and I think it's time for me to consider the next five to ten years. I want to find a buyer for this company who can take it to its full potential but with me still leading it. I still want to be a part of the journey, to see this company's growth, which means this potential buyer needs to be a high quality company with solid financial health. That's the only way we'll be sure there's going to be necessary funds and stability for the firm to grow.

You are ready to take on this project to assist Barb with her vision to find a buyer to take the company into the next phase. At your desk, you review these additional meeting notes:

The acquiring company does not need to be in the same industry, as Barb values financial strength over any synergistic benefits.

Barb wants you to select a company and then examine its financial condition by analyzing its financial statements and using financial ratio analysis. She indicated that using both trend analysisgoing back at least three yearsand industry average analysis would be helpful information for her.

From this analysis, Barb wants you to tell the financial story of the potential buyer/company by listing its financial strengths and weaknesses.

She expects you to provide a list of actionable decisions so she can understand if the company would be a potentially viable corporate partner.

Your Role

You are one of Barb's high-performing managers at BC Technology, and she trusts your work and leadership.

Requirements

After a few days of thinking about Barb's project request, you call a meeting with her in which you lay out the requirements below. You tell her that by meeting these requirements, you believe she will have the information she needs. Barb approves your plan and asks that you get started right away.

Here is what your report should provide for Barb on the selected company:

Provide a brief background and summary of the potential corporate partner in terms of its history, product lines, and geographic reach. (Remember that Barb is looking for a partner that is a publicly traded firm.)

Analyze the financial statements of the firm, which can be typically be found in the annual report in the investors' area of the corporate website, including the income statement, balance sheet, and statement of cash flows:

o Include a comprehensive financial ratio analysis, including multiple financial ratios in each of the following categoriesshort-term solvency or liquidity, long-term solvency, asset management or turnover, profitability, and market value ratios.

o Use the following tools to analyze these ratios: trend analysis (going back at least three years) and industry average ratio analysis. If industry average ratios are not available for the company, use an average of two of its nearest competitors.

1. Evaluate the financial statements and ratios of the firm to find its true condition and valuation.

o From the ratio analysis, identify and strengths and weaknesses of the company.

o Make conclusions on the current status of the firm based on its history and comparison to its competitors.

2. Make actionable items and conclusions, based on the data analysis, about the status of the company.

o Based on the analysis of the firm, identify any general actions that need to be made to improve the financial condition, and indicate the ease or difficulty of the firm doing so.

3. Tell the current financial story of the firm and indicate the overall health of the firm as it relates to current valuation and the future prospects of the company.

o Provide a clear picture of the financial condition and valuation of the company to shareholders, debt-holders, customers, and employees.

o Present information graphically and in narrative form, conveying a compelling snapshot of the company.

o Recommend whether the company would be a good match to enter into a buyout tender offer/agreement.

o Remember that it is not enough to just simply summarize numbers or data for your audience. Put yourself in their shoes and make the connections for them, tell them why it is important, and tap into their concerns and motivations.

Keep in mind that this is a document that will be for the eyes of the owner of the firm, so make sure it can be easily and quickly examined by a busy upper-management professional, with clear writing and understandable graphics and charts.

Deliverable Format

The report will tell the financial condition of a company and report should provide information on the following:

Analysis of the financial statements.

Evaluation of the true condition and valuation of the company.

Recommendation of actionable items for the company based on the financial analysis.

Executive Summary.

Company Background.

Financial Analysis.

o Financial Ratio Analysis.

o Trend Analysis.

o Industry Average Analysis.

Conclusion.

Recommendations.

Appendix (including additional data, reports, charts to support the analysis).

PART TWO

An Excel spreadsheet based on the PART TWO information should display capital budgeting tools used to determine the quality of 3 proposed investment projects, as well as a detailed report that analyzes your computations and recommends the project that will bring the most value to the company.

Introduction

As one of the basic functions of the finance manager: allocating capital to areas that will increase shareholder value is vital. There are many uses of cash managers can select from, but it is essential that the selected projects are ones that add the most value to the company. This means forecasting the projected cash flows of the projects and employing capital budgeting metrics to determine which project, given the forecast cash flows, gives the firm the best chance to maximize shareholder value.

As a business professional, you are expected to:

Use capital budgeting tools to compute future project cash flows and compare them to upfront costs.

Evaluate capital projects and make appropriate decision recommendations.

Prepare reports and present the evaluation in a way that finance and non-finance stakeholders can understand.

Scenario

You work as a finance manager for Bostonites, Inc., a mid-sized manufacturing company located in Massachusetts. Three capital project requests were identified as potential projects for the company to pursue in the upcoming fiscal year. In the meeting to discuss capital projects, the director of finance (and your boss), Karen Clawson, gives you a synopsis of the projects along with this question: Which one of these projects will provide the most shareholder value to the company?

She also tells you that other than what is noted in each project scenario, all other costs will remain constant, and you should remember to only evaluate the incremental changes to cash flows.

The proposed projects for you to review are as follows.

Project A: Major Equipment Purchase

A new major equipment purchase, which will cost $10 million; however, it is projected to reduce cost of sales by 5% per year for 8 years.

The equipment is projected to be sold for salvage value estimated to be $500,000 at the end of year 8.

Being a relatively safe investment, the required rate of return of the project is 8%.

The equipment will be depreciated at a MACRS 7-year schedule.

Annual sales for year 1 are projected at $20 million and should stay the same per year for 8 years.

Before this project, cost of sales has been 60%.

The marginal corporate tax rate is presumed to be 25%.

Project B: Expansion into Europe

Expansion into Western Europe has a forecast to increase sales/revenues and cost of sales by 10% per year for 5 years.

Annual sales for the previous year were $20 million.

Start-up costs are projected to be $7 million and an upfront needed investment in net working capital of $1 million. The working capital amount will be recouped at the end of year 5.

Because of the higher European tax rate, the marginal corporate tax rate is presumed to be 30%.

Being a risky investment, the required rate of return of the project is 12%.

Project C: Marketing/Advertising Campaign

A major new marketing/advertising campaign, which will cost $2 million per year and last 6 years.

It is forecast that the campaign will increase sales/revenues and costs of sales by 15% per year.

Annual sales for the previous year were $20 million.

The marginal corporate tax rate is presumed to be 25%.

Being a moderate risk investment, the required rate of return of the project is 10%.

Your Role

You are a finance manager at Bostonites, Inc., who plays a major role in reviewing capital project requests.

Requirements

Karen reiterates that your report is critical for the company to select the project that will bring the most value to shareholders. Your calculations and report should address these items for her and other stakeholders:

1. Apply computations of capital budgeting methods to determine the quality of the proposed investments.

o Use budgeting tools to compute future project cash flows and compare them to upfront costs. Remember to only evaluate the incremental changes to cash flows.

o Demonstrate knowledge of a variety of capital budgeting tools including net present value (NPV), internal rate of return (IRR), payback period, and profitability index (PI). The analysis of the capital projects will need to be correctly computed and the resulting decisions rational.

2. Evaluate the capital projects using data analysis and applicable metrics that align to the business goal of maximizing shareholder value.

o Evaluate capital projects and make appropriate decision recommendations. Accurately compare the indicated projects with correct computations of capital budgeting tools and then make rational decisions based on the findings.

Select the best capital project, based on data analysis and evaluation, that will add the most value for the company.

Your appropriate evaluation report should be complete, using sound research and data to defend your decision.

o Justify your decision with a clear analysis showing the findings of the analysis and which project has the best chance to increase shareholder value.

o Use your calculations and data to provide a clear picture of why your recommendation is the right one. This goes beyond just regurgitating the data. Think about how the data can tell the story that will be meaningful to the readers.

Deliverable Format

1. An Excel spreadsheet showing the required cash flow forecasts and capital budgeting tool calculations for each project. Use the same spreadsheet but create separate tabs for each project.

2. A detailed report providing an analysis of the computations, the project selection decision, and justification for the decision, as well as its impact on the value of the firm. The project selection decision must have an analytical rationale to support it.

PART THREE: The report will be based on the PART THREE information in which you examine a major public company and provide a recommendation on how shareholder value could be enhanced, with resulting impact on the firm's capital structure and stock value.

Introduction

Illustrate potential financial strategies can be employed by firms to impact company valuation and how they should be financed. This is a relevant concept for both large and small companies. Applying the expected financial management perspective skills, the reviewer should be able to:

Utilize financial strategies that will increase the price of stock.

Calculate WACC and capital structure.

Evaluate how financial strategies impact the capital structure.

Examine a major public company and provide recommendations on how shareholder value could be enhanced, with resulting impact on the firm's capital structure and stock value. Estimate the firm's current WACC.

Scenario

You are now a Chief Financial Officer of a large, publicly traded company at CarGurus. Using CarGurus, conduct extensive research on the current situation of the company using resources like the Wall Street Journal, Bloomberg, GuruFocus, Yahoo Finance, and EDGAR. As the CFO, you have been given a project by the CEO and Board of Directors to issue a report on ways to financially engineer the company to increase stock price.

From the company's website, go to the financial section and examine the financial statements (income statement, balance sheet, and statement of cash flows) and 10K and 10Q reports, and conduct a financial ratio analysis including the following: current ratio, debt to equity ratio, return on equity (ROE) ratio, dividend yield, earnings per share (EPS or the last 4 quarters), price to earnings ratio (P/E), and market to book ratio. Compare these ratios to those of the company's nearest competitor.

Assume that the objective of upper management is to maximize shareholder value by increasing the price of the stock. Describe the subjective impacts (threats, opportunities, competitive edge) that are unique to the firm and its industry that you found in your research.

Based on the ratio results and research, from the following list of ways to financially engineer an increase in stock price, evaluate each method, examine its pros and cons, and then select the best ways for the firm to increase the stock price. Be as specific as you can by using qualitative assessments without proprietary company information:

1. Capital expendituresnew equipment, plant, machinery, marketing/advertising campaign, computer infrastructure (only choose if your research of the firm has discovered some specific opportunity here).

2. Merger/acquisition of a competitor.

3. Stock repurchases.

4. Dividend policy changeincrease, decrease, stock split, stock dividend.

5. Reduction of debt.

6. Expansion into a new geographic market.

7. Introduction of new products/services.

Your Role

You are the Chief Financial Officer of CarGurus.

Deliverable Format

The report to the CEO should meet these expectations:

1. Evaluate strategies used to increase stock prices and shareholder value.

o Analyze strategies to employ cash to potentially increase shareholder value and the impact on financial risk of the entity, such as capital expenditures, mergers/acquisitions, stock buybacks, dividend increases, reduction of debt, expansion into a new geographic area, and introduction of new projects.

2. Analyze financial statements and ratio analysis to determine the optimal strategies.

o Describe the subjective impacts that are unique to the firm and its industry through ratio analysis of the financial statements and qualitative research.

o Relate the analysis to the strategies.

o Identify the pros and cons regarding each strategy. Use behavioral models and theories to support your analysis and evaluation. Determine the best strategies, and describe how earnings and stock price can be increased by these choices. Comment on how the efficient market hypothesis may impact stock price with the recommendations.

3. Recommend the best strategies to gain the most optimal performance.

o Provide justification and rationale for your recommendation.

o Align your recommendation with analysis and data.

o Provide examples and analysis to defend recommended strategies.

o Connect the recommendation to methods and models of financing and investing.

4. Evaluate how the recommendation will be financed and how it will impact the capital structure and the risk of the company and the WACC.

o Calculate the firm's current WACC and capital structure (percentage of assets financed by liabilities versus percentage of assets financed by shareholder equity).

o Determine whether the firm has sufficient finances to fund your recommendation internally (with cash) or if it needs to raise funds externally.

o If external financing is required, decide between common stock and debt (bonds) and explain the rationale for your decision.

o Examine how your strategy recommendation will potentially impact WACC, capital structure, the overall risk of the company stock, and the effect on the stock price.