For example, Nike’s footwear and apparel lines, which make up a combined 92% of their revenue, are segments that complement each other and are sold through the same marketing and distribution channels. Non-Nike products made up only 4.5% of Nike’s revenue including the Cole Haan brand, a company that sells casual dress and footwear products. Since the Cole Haan is the only business segment that took on different risks than the others and since it makes up such a tiny fraction of the revenues, its impact on the decision is insignificant so one cost of capital should be used for the whole company. II. Methodology for Calculating Cost of Capital Joanna is correct to use the WACC method for computing the costs of capital.
The following report will compare, contrast, and analyze the financial performance of Sears and Wal-mart between 1995 and 1997 to be used as input into stock buying and selling recommendations given to clients. Specifically, the report will discuss: • Economic and historical factors that lead us to believe that Wal-mart, and not Sears, should have a higher ROE • Each company’s financial performance • Each companies’ past and likely future profitability Big picture: Factors why Wal-mart should have a higher ROE. Even though Sears’ ROE of 22% exceeds Wal-mart’s ROE of 20%, historical and economic factors have led us to question the validity of these values as to who is the real retail powerhouse. In the past three decades, Sears has faced increased competition in the marketplace, resulting in a loss of market share as well as sales. To cut costs and improve profitability, in 1992 Sears repositioned itself within the market to target middle-class female shoppers.
NIKE is greatly influenced by its competitor’s marketing expenditures (advertising and endorsements), but overall NIKE’s marketing team regularly research and develop product so they maybe able to compete with its competitors. * If NIKE is unable to predict consumer preferences, they may not be able to develop new products and satisfy consumer needs; therefore NIKE will not be able maintain or increase its profitability and its net profit. Also, NIKE is greatly influenced by seasonality, which could cause fluctuation in NIKE’s production and stocks. The effect of seasonality will have a great effect upon NIKE’s finances and production costs. For instance, on summer a customer orders about 200 shirts for a sporting club but later the customer changes his/her mind because it will be winter in 2 weeks, so therefore the customer cancels the shirt that was ordered.As a result, the production process has been disturbed causing a negative effect on the cost of production, as known as a ‘waste’ or ‘disrupted product’.
On the other hand, very recently a story is being developed in the market. And that is, Nike is planning to sell two of its brands, Cole Hann and Umbro as an effort to slim down its product lines. Though their stock price has a steady growth in the market, they have gone through a lot of struggles and achievements. After overcoming couple of stumbling block, they are now more calculative. Their research and development division is putting their extra effort to ensure the growth of the company.
Case Study A. Pine valley organized the company into functional areas such manufacturing, sales, orders, accounting, and purchasing. In order to stay on pace with the rapid expand; they installed a minicomputer to automate applications. Then in effort to improve their information systems, they created a company-wide database and applications that work with in the system that they have already established. This system was a process-oriented approach that separated the applications and created its own data files. I believe that the company chose this option because they saw that keeping the system as it was originally would not work as the company grew.
We believe that many of the assumptions that she made were incorrect and somewhat altered the outcome of the WACC calculation. The first piece that we disagreed with was with Joanna’s estimation of the equity of the company. Joanna simply used the Total Shareholders Equity figure off the balance sheet of Exhibit #2. We feel that she undervalues the equity of the company by using this figure. In our calculation, we multiplied the shares outstanding by the current market price of the stock.
Computed by deducting the cost of capital from the after-tax profit, it is said to be the best measure of the true profitability of an enterprise because it is tied to cash flow and not earnings per share. Many analysts would agree that EVA is more positively associated with a company’s stock price than ROE or EPS. Keith confirmed his findings with an industry analyst, which posed him with the decision of whether of not to implement this calculation into OSI accounting practices. Furthermore, would it be a beneficial tool to be used for evaluating the new manager’s incentive compensation plans? The EVA trend seems to be almost mandatory for the larger companies, but there is no reason that it shouldn’t work just as well for their smaller firm.
This can either be an advantage or a disadvantage depending upon the (ask pops) The sole proprietor does not share the business's profit and loss. The profitable sole proprietor enjoys 100 percent of the business's earnings Formation One advantage of starting a sole proprietorship is the simplicity of formation. Very little paper work is required if you choose to file your business name. In most cases, you can visit your local courthouse and complete a "Doing Business As" or a fictitious name form to operate under your business name. A small fee is required for completing the paperwork.
Which challenge do you think will be more difficult for Walmart: diversifying its top-management ranks or ending charges of discrimination? Why? • I believe that diversifying its top-management ranks will be proven more of a challenge for Walmart than ending charges of discrimination. Walmart as the largest private employer in the United States, it is easy for them to do a payoff and make these charges go away as the have been doing for years. But diversifying its top-management ranks will require for them to sponsor training programs designed to teach employees about differences among groups.
DeVry University Online | SBE430 | Week 2 Case Study | | Submitted to Dr. Glenn Palmer January 20, 2013 Question 1: Explain how Google generates revenue and identify future levels of revenue given some of the risk factors are for future revenue generation. Prior to Google becoming such a success, Northern Light and Ask Jeeves were the default search engines of choice for many people. However, with advancement in search technology Google became the “number one in search engines. Its success in terms of revenue was not until it began auctioning ads that appear alongside the search results” (n.d). That is what separates Google from its competitors.