There's More to Us Than Meets the Eye! "Scott, the board of directors' meeting is scheduled two weeks from today, and l'm depending on you to come up with a realistic and honest appraisal of our company's position," said Tom, to his assistant Scott Beasley. "I'm sure that 'there's more to us than meets the eye!" he quipped. "But those darn analysts are still punishing us for Roger's accounting jugglery'!" he said with a frown. "Why don't you prepare a detailed financial performance analysis of the firm for the most recent three years, complete with industry comparisons and a DuPont Analysis? It will help me make the case to the rating agencies that they need to raise our rating. "After that, l'd like you to prepare a 12 -month pro-forma forecast using a scenario analysis. Use our current average compound growth rate in sales as the base estimate and vary that up and down by 10% for the best case and worst case scenarios respectively. This will help us figure out how much additional funds we are going to have to acquire over the next year. The Production folks tell me that we are currently operating at 90% of capacity, so we should be able to support some growth without additional plant and equipment," he added looking rather stressed. Tom Anderson, the new CEO of The Premier Paper Co, was hired last year to replace Roger Holland. Roger was fired because the firm had come under Federal investigation for non-compliance of the . Under Roger's watch, the stock had plummeted to its all-time low despite reasonably strong sales and income growth. Tom implemented various measures to bring the firm in compliance with the . The firm's sales had been increasing steadily due to its excellent commitment to quality. However, the stock market analysts had been unforgiving in that the stock price was still hovering around its all time low of \$12. The significant growth rate that the firm had been experiencing had necessitated the infusion of more capital. But lenders were reluctant to lower the interest rates due to their suspicions about the firm's past reporting practices. Tom had a hunch that the company could save a bundle in interest costs if the markets were convinced that the firm's accounting and reporting practices were clearly within the Sarbanes-Oxley guidelines. He knew that an upward hike in the firm's credit rating would help expedite the process. Moreover, when he took over from Roger, Tom realized that there was no formal policy of conducting long-term planning and forecasting in place. Most of what Roger did was based on his gut feelings regarding the economy. Being an old veteran, Tom was fully aware that haphazard growth could be a recipe for disaster. He was determined to set things straight and he knew that the market would take note. One of the first things that Tom did upon joining Premier was to lure his assistant, Scott Beasley, away from their prior employer, Eastern Paper. Scott had been working for Eastern for over 10 years. When the opportunity came up, Scott initially hesitated. He was enjoying a fairly comfortable lifestyle and the city had a lot to offer. But Tom made him an offer that he found very hard to refuse. The remuneration package included a very attractive stock option plan as well as a signing bonus. Moreover, Scott knew that Tom was an honest, ethical person and he enjoyed working for him. "I'll get on it right away, Tom," promised Scott. "We'll show those analysts just how wrong they are!" Scott had the folks in accounting send him the firm's financial statements for the past three years along with the aggregate financial statements for the select group of 6 firms that were their main competitors. In addition, he collected data regarding the firm's sales history, its beta estimate, and other market information. Scott was fully aware that the firm's stock price and capital cost structure depended on his analysis and he was determined to present a comprehensive and convincing appraisal of the firm's performance to the board. Q1: Using a cash flow statement for the most recent year, explain how Scott would sum up the company's cash position. Statement of Cash Flows \begin{tabular}{l} Operating Activity \\ \hline Net Income Availat \\ Add Depreciation \end{tabular} There's More to Us Than Meets the Eye! "Scott, the board of directors' meeting is scheduled two weeks from today, and l'm depending on you to come up with a realistic and honest appraisal of our company's position," said Tom, to his assistant Scott Beasley. "I'm sure that 'there's more to us than meets the eye!" he quipped. "But those darn analysts are still punishing us for Roger's accounting jugglery'!" he said with a frown. "Why don't you prepare a detailed financial performance analysis of the firm for the most recent three years, complete with industry comparisons and a DuPont Analysis? It will help me make the case to the rating agencies that they need to raise our rating. "After that, l'd like you to prepare a 12 -month pro-forma forecast using a scenario analysis. Use our current average compound growth rate in sales as the base estimate and vary that up and down by 10% for the best case and worst case scenarios respectively. This will help us figure out how much additional funds we are going to have to acquire over the next year. The Production folks tell me that we are currently operating at 90% of capacity, so we should be able to support some growth without additional plant and equipment," he added looking rather stressed. Tom Anderson, the new CEO of The Premier Paper Co, was hired last year to replace Roger Holland. Roger was fired because the firm had come under Federal investigation for non-compliance of the . Under Roger's watch, the stock had plummeted to its all-time low despite reasonably strong sales and income growth. Tom implemented various measures to bring the firm in compliance with the . The firm's sales had been increasing steadily due to its excellent commitment to quality. However, the stock market analysts had been unforgiving in that the stock price was still hovering around its all time low of \$12. The significant growth rate that the firm had been experiencing had necessitated the infusion of more capital. But lenders were reluctant to lower the interest rates due to their suspicions about the firm's past reporting practices. Tom had a hunch that the company could save a bundle in interest costs if the markets were convinced that the firm's accounting and reporting practices were clearly within the Sarbanes-Oxley guidelines. He knew that an upward hike in the firm's credit rating would help expedite the process. Moreover, when he took over from Roger, Tom realized that there was no formal policy of conducting long-term planning and forecasting in place. Most of what Roger did was based on his gut feelings regarding the economy. Being an old veteran, Tom was fully aware that haphazard growth could be a recipe for disaster. He was determined to set things straight and he knew that the market would take note. One of the first things that Tom did upon joining Premier was to lure his assistant, Scott Beasley, away from their prior employer, Eastern Paper. Scott had been working for Eastern for over 10 years. When the opportunity came up, Scott initially hesitated. He was enjoying a fairly comfortable lifestyle and the city had a lot to offer. But Tom made him an offer that he found very hard to refuse. The remuneration package included a very attractive stock option plan as well as a signing bonus. Moreover, Scott knew that Tom was an honest, ethical person and he enjoyed working for him. "I'll get on it right away, Tom," promised Scott. "We'll show those analysts just how wrong they are!" Scott had the folks in accounting send him the firm's financial statements for the past three years along with the aggregate financial statements for the select group of 6 firms that were their main competitors. In addition, he collected data regarding the firm's sales history, its beta estimate, and other market information. Scott was fully aware that the firm's stock price and capital cost structure depended on his analysis and he was determined to present a comprehensive and convincing appraisal of the firm's performance to the board. Q1: Using a cash flow statement for the most recent year, explain how Scott would sum up the company's cash position. Statement of Cash Flows \begin{tabular}{l} Operating Activity \\ \hline Net Income Availat \\ Add Depreciation \end{tabular}