In addition, an annual report may contain information about the company's products, facilities, strategies or other topics at management's discretion. This case is an analysis through the fundamental financial statements of two companies. You will want to calculate a number of financial ratios, to analyze the basic financial statements and to highlight significant points underlying trends. In order to understand many of these points you will have to study management's discussion of financial condition and results of operations as well as the notes to the financial statements. Included in this case is the analysis of three companies in the retail business.
In order to give the advices on how the purchase of PacifiCorp affects the value of shares in Berkshire Hathaway, I will analyze some critical issues related to this case. Intrinsic Value The return on equity and the cost of equity must be determined to calculate the appropriate intrinsic value of PacifiCorp. Table 1 shows the appropriate intrinsic value of PacifiCorp. I assume the initial investment of $9.4 billion is discounted for the 10 year time horizon. During 10 years, the investors will reinvest all the cash flows into the company, so maintaining the growth of 7.45% each year.
The company web site will often provide you with the latest fiscal reports in the "investor relations" section. Structure your compositon to include a summary of the recent earnings report. Cite financial numbers, such as those that appear on the earnings statements, balance sheets, and statement of cash flow. Relay financial ratios that we discussed in the previous unit, such as profit margin, dividend yield, and debt/equity ratio . Describe the significance of these numbers- what do they indicate?
The assets on the sheet are company holdings. The liabilities are the salaries, accounts payable, and notes payable. The balance sheet is a quick look at the company as a whole at any time which is usually over a specific period of time. The balance sheet should be available on demand for accounting managers to make decisions on where the company stands on dispensable cash and what can be used to purchase materials for inventory. The statement of cash flow tracks all the cash moving in a company during a specific accounting period.
As a result of the increase of cost of goods sold, income before taxes declines and Walgreen’s pays less income tax than if they were to use the first-in, first-out method. Traditionally, companies using LIFO are valued more highly than those who use FIFO during periods of rising prices. Walgreen’s also offers analysts the LIFO Reserve, which is the difference between what the inventory is using LIFO as opposed to if FIFO was used. As of 2007 and 2008, Walgreen’s inventories would have been greater by $1,067 million $969 million respectively using a FIFO accounting method. Walgreen’s primary competitor, CVS, uses a combination of three inventory methods for each of their different business segments.
Low income tax payments are why one-third of U.S. companies use LIFO (Harrison, Horgren, & Thomas, 2010). LIFO also gives the company the most realistic net income figure because the recent costs of inventory are expensed. FIFO would use the oldest costs of inventory which is not a realistic measure of the inventory expense. The ending inventory under LIFO would be lower, due to the highest prices being expensed. If the company wants to lower its income at the end of the accounting period, they would buy more inventory and the cost of that inventory could be used for cost of goods sold.
FY96 sales projections of $5.5 show that if the percentage of sales were to remain constant in the balance sheet, they would need an additional $357K of funding (cash) to keep up with bill payment. In addition to the $357K in additional funding Clarkson would be required to roll in their current line of credit of $399K bringing the required amount to $756K. In short, if no changes are made to the management of short term assets Clarkson will be absorbing his funds into new assets at a faster rate than he can earn funds through profit margin by having high levels of inventory and an inefficient receivables turnover. It is clear that Clarkson Lumber will need an infusion of cash to sustain the current growth rate. As a banker I would not approve Clarkson lumber request without conditions.
Use the cost information Jennifer has assembled to construct a forecast of cost of goods sold and operating expenses for 2004 through 2009. Assume first that the Bernoulli will be introduced, with its new cost structure, one year from now, and then calculate a cost forecast assuming that the $18 million is not provided for development of the new product. 3. Using the information developed for Questions 1 and 2, develop a discounted cash flow analysis for the Bernoulli division for 2004 through 2009. Working's board has asked for net present value and internal rate of the return when making decisions in the past.
Under the guidance of Griffith, Zipcar's operating income rose to $one hundred million, which means this is a profitable, and the members are also increased. This will increase the new entrants, who may be compress the cost, thus reduce car rental prices. Bargaining power of customers (buyers): There are many car rental companies available, such as HERTZ, AVIS, so consumers make their choice depend on which company can give a discount and which is the cheapest one. This will influence zipcar’s profit. The consumer may ask more service, such as a more clean or new car, this will increase zipcar’s cost.
The rate Chan suggests is double the historical rate which throws Chan’s ethics into scrutiny. It appears that Chan hopes to depress profits through a larger expense although Chan should be concerned as to whether or not the receivables will be collected since the recession is a concern. The computer has only been in use less than half the year. I don’t believe its cost is being allocated properly at all. An amortization rate of 40% (for so short a period of use) seems very much full of determination in depressing profits and creating more expenses to minimize payouts to Baaz.