With modern facilities it is possible to extend the theoretically given efficient frontier of a supply chain (Chopra/Meindl, 2007, pp. 44-45) and to achieve additional “supply chain surplus”, which at the end is supporting strongly the company’s financial performance. 2. Inventory During 2006 Rolls-Royce raised its inventory with the clear intention to increase the responsiveness of its supply chain (growth in output; stock for aftermarket support; stocks of rare raw materials). A higher inventory always means to have some financial capital bounded.
Capital structure is the means by which a company finances its assets through a combination debt and equity. After analyzing the information for the capital structure, the recommendation is 50% preferred (5%, $50 par) and 50% common stock. This decision is based on the continued growth in net income coupled with the increasing growth of the EPS. This capital structure in year 9 had an EPS of 2.7%, year 10 3.2%, year 11 3.9%, year 12 4.8% and year 13 5.7%. The 50% Preferred and 50% Common Stock indicates a favorable trend.
1.How well is Jones Electrical Distribution performing? From coverage ratio analysis we can see Jones electrical distribution’s business is stable business as a retailer. Sales increase 18% and 17% in 2006 and 2007 respectively, with estimation in 2007 will be 20.4%. Shareholder’s equity is around 30%. Jones sustainable growth rate: g*=RT*ROA, so compare with actual sales growth, we can make the conclusion Jones well managed its growth through year of 2004 to 2007.
Does this source appear on the financial statements? 1. Looking at the historical income statements, we can see that income from operations is down, interest expense is up, interest income is down income before taxes is low. If you are anticipating a business to grow, these things should be growing, rather than declining as they are on the income statements. When looking at earnings per share, we can see that between May 2003 and August 2004 they issued more shares, probably because of their expansion.
“D’ Roulhac Custom Baskets financial goal is to obtain a moderate percentage of the industry market share locally. Another goal is to branch out nationally and secure a larger percentage of the market share. To accomplish this, the company will need to institute low cost initiatives such as reducing the cost of capital in relation to that of competitors and industry. Additionally, “D’ Roulhac Custom Baskets will need to leverage its position; use alternate financial strategies such as sale and leaseback options on the building and equipment (Pearce & Robinson, 2004). “D’ Roulhac Custom Baskets expects to have a two to six percent increase in return on capital investments over the next three years.
The business strategy of the Thomas J. Lipton Company entails reinforcing its position as a market leader in the tea trade, and other industries where it trades. It also ensures to maintain at least its present sales levels, in sectors where growth possibilities are minimal. Sales growth has been projected to grow by 10.5% yearly and Net Profit after Tax margin is forecasted to increase to 6%. It strives to achieve a 15% after tax return on average capital invested (denoted as Assets – current Liabilities). Some of its other objectives include maintaining AA bond ratings, minimizing interest expenses on debts, and maximizing future possibilities of borrowing to enable continual growth.
Southern Comfort blends in with Brown-Forman’s philosophical view as it is a unique high quality product with a strong brand which has never been sold at a discount price by its manufacturer. The acquisition of Southern Comfort would assist in improving sales performance at Brown-Forman by increasing the product mix, adding product diversification and creating a competitive advantage. Southern Comfort holds a strong presence in the foreign market with a 37.8% 5 year compound export growth rate in comparison to the domestic US and Canadian markets. Brown-Forman would benefit from the international market strength that Southern Comfort holds, assisting with their goal to penetrate the foreign market. The
Horizontal Analysis of the Balance Sheet and Income Statement A comparative income statement and balance sheet for the period were established for the company for three years 2008 to 2010 to show comparative percentages of the years under review. Horizontal analysis examines the changes, which will occur over the period and will help in predicting the organization’s future performance. Appendix 3, LPH year on year increase in net income had negative growth for 2008 and 2009 but at a decreasing rate. By 2010, the company was able to have positive returns. Operating income moved along the same path for the period albeit at a lower rate.
2. What is the financial goal of the entrepreneurial venture? What are the major components for estimating value? The venture’s financial goal is to maximize the value of the venture to its owner(s). The major components of estimating value are projected free cash flow (cash generated in a specified time period that exceeds funds needed to operate, pay creditors, and invest in the assets needed to grow the venture) and its risk (including the timing and realized amount).
Everything being equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC means a decrease in valuation and a higher risk. A firms WACC is a very important both to the stock market for stock valuation purposes and to the company's management for capital budgeting purposes. In an analysis of a potential investment by the company, investment projects that have an expected return that is greater than the company's WACC will generate additional free cash flow and create positive NPV for stockholders. Since the WACC is the minimum rate of return required, the managers in the company should invest in the projects that generate returns in excess of the WACC. WACC is set by the investors (or markets), not by managers.