Please read the PNC case from the casebook and pick any three financial ratios/data of your choice from the company in 2004 (see Table 4 on the last page of the case). Explain how financial ratios/data of your choice may help financial managers make optimal financial decisions. Please be to the point. Make your explanation in about nine lines (for all). Do not describe how your financial ratios/data are calculated. We are just interested in the applications of your choice's financial ratios/data. Your report should be typed in double space in Word.
PNC Background Information 1 of 3 Background Information on POWERLINE NETWORK CORPORATION (PNC) (This Document provides background information for all cases in the PNC Series. It should be read in conjunction with each of the individual cases.' Powerline Network Corporation (PNC) was founded in southem Califomia in 1993, but since it now has customers all across the globe, it has worldwide operations. Its founder had developed a computer chip that permitted digital signals to be transmitted over electric power lines, thus converting a building's interior wiring system into a computer network. The founder needed funds to commercialize the chip, so he set up a corporation, raised some funds from friends and eventually a venture capital firm, then from the public in 1997. PNC's primary competition is wi-fi, which permits computers and other devices to be "untethered."2 Wiifi is better for laptop computers and other mobile devices. However, the powerline system has fewer security problems, operates over longer distances, has faster transmission speeds, and has fewer interference problems. PNC struggled in its early years. Its technology worked, but problems were encountered in manufacturing reliable chips. That led to higher costs and thus higher prices than wi-fi. However, in 2002 a Taiwanese contract chipmaker solved the manufacturing problems and brought PNC's costs down to a competitive level. At that point, equipment manufacturers began using PNC's chip to connect desktop computers, printers, TVs, stereo systems, and other devices, and sales and profits began to climb. However, the chip is not a one-size-fits-all product - different devices need somewhat different chips, so PNC's engineers must work with equipment manufacturers to design the optimal chip for different products. This customizing requires the company to spend continually on product development. Moreover, the rapid pace of technology forces PNC to maintain an ongoing research and development program to increase transmission speed and reliability. Because of these factors, the recent growth in revenues, profits, and free cash flow is expected to slow to a more sustainable level in coming years. Naturally, management wants to maintain growth at a high level, but it recognizes that the recent growth rate simply cannot be sustained. The Ray Reed, the founder and CEO, has assembled a well-qualified team of managers. Moreover, the board of directors consists of bright people, all of whom invested in the company in its early days and have useful backgrounds in technology-related matters. However, none of the directors has a background in financial management, which is a potential problem because the board must approve decisions that require the application of finance principles. Therefore, Ray asked his CFO, Bill Bostic, to set up a financial education program 'The PNC series of cases resulted from a program several University of Florida professors developed for a major NYSE-listed corporation. The firm was concerned that its senior people did not understand finance well enough to make proper decisions, so it brought us in to teach financial management to the directors, executives, and managers. It's also interesting to note that the Wall Street Journal, on June 21, 2004, put out a special section on Corporate Governance, and the lead article was entitled: "BACK TO SCHOOL: If directors are responsible for finding problems, first they have to know where to look. Many don't have a clue." The first sentence in the article was a question posed to directors of a NYSE-listed firm. "Do you know what WACC is?" Many of the directors did not, yet the WACC was central to most of the firm's decisions. Our point is that the issues discussed in this set of cases is generally recognized as being critically important for well-managed fims, hence equally important for finance students. 2 Wi-fi stands for "wireless fidelity." and that is the name commonly used for the networking chips used in laptop computers and other wireless devices. 1 FCF=EBIT(1T) - (Increase in net operating capital). All assets except s s securues are required in operations, and all current liabilities except notes payable are costiess. Tabli EEOY stands for End Of Year. BOY would indicate Beginning Of Year. PNC Background Information 1 of 3 Background Information on POWERLINE NETWORK CORPORATION (PNC) (This Document provides background information for all cases in the PNC Series. It should be read in conjunction with each of the individual cases.' Powerline Network Corporation (PNC) was founded in southem Califomia in 1993, but since it now has customers all across the globe, it has worldwide operations. Its founder had developed a computer chip that permitted digital signals to be transmitted over electric power lines, thus converting a building's interior wiring system into a computer network. The founder needed funds to commercialize the chip, so he set up a corporation, raised some funds from friends and eventually a venture capital firm, then from the public in 1997. PNC's primary competition is wi-fi, which permits computers and other devices to be "untethered."2 Wiifi is better for laptop computers and other mobile devices. However, the powerline system has fewer security problems, operates over longer distances, has faster transmission speeds, and has fewer interference problems. PNC struggled in its early years. Its technology worked, but problems were encountered in manufacturing reliable chips. That led to higher costs and thus higher prices than wi-fi. However, in 2002 a Taiwanese contract chipmaker solved the manufacturing problems and brought PNC's costs down to a competitive level. At that point, equipment manufacturers began using PNC's chip to connect desktop computers, printers, TVs, stereo systems, and other devices, and sales and profits began to climb. However, the chip is not a one-size-fits-all product - different devices need somewhat different chips, so PNC's engineers must work with equipment manufacturers to design the optimal chip for different products. This customizing requires the company to spend continually on product development. Moreover, the rapid pace of technology forces PNC to maintain an ongoing research and development program to increase transmission speed and reliability. Because of these factors, the recent growth in revenues, profits, and free cash flow is expected to slow to a more sustainable level in coming years. Naturally, management wants to maintain growth at a high level, but it recognizes that the recent growth rate simply cannot be sustained. The Ray Reed, the founder and CEO, has assembled a well-qualified team of managers. Moreover, the board of directors consists of bright people, all of whom invested in the company in its early days and have useful backgrounds in technology-related matters. However, none of the directors has a background in financial management, which is a potential problem because the board must approve decisions that require the application of finance principles. Therefore, Ray asked his CFO, Bill Bostic, to set up a financial education program 'The PNC series of cases resulted from a program several University of Florida professors developed for a major NYSE-listed corporation. The firm was concerned that its senior people did not understand finance well enough to make proper decisions, so it brought us in to teach financial management to the directors, executives, and managers. It's also interesting to note that the Wall Street Journal, on June 21, 2004, put out a special section on Corporate Governance, and the lead article was entitled: "BACK TO SCHOOL: If directors are responsible for finding problems, first they have to know where to look. Many don't have a clue." The first sentence in the article was a question posed to directors of a NYSE-listed firm. "Do you know what WACC is?" Many of the directors did not, yet the WACC was central to most of the firm's decisions. Our point is that the issues discussed in this set of cases is generally recognized as being critically important for well-managed fims, hence equally important for finance students. 2 Wi-fi stands for "wireless fidelity." and that is the name commonly used for the networking chips used in laptop computers and other wireless devices. 1 FCF=EBIT(1T) - (Increase in net operating capital). All assets except s s securues are required in operations, and all current liabilities except notes payable are costiess. Tabli EEOY stands for End Of Year. BOY would indicate Beginning Of Year
