...been charged with calculating the cash flows associated with the production of a new fad product which is expected to last for a five year period, provide a recommendation and respond to a number of questions on the capital-budgeting process. They must also factor in whether it should lease versus buying the equipment. Cash Flows versus Accounting Profits Caledonia should focus on free cash flows opposed to the accounting profits earned by the project when analyzing whether to undertake the project because focusing on free cash flow will allow Caledonia to see what all funds they will have available after the project is complete. The company will have to sit down and see what all finances they will need and what all has to be done and see what funds they will have and where they will go and make the final decisions from there. Also by looking at the free cash flows it will allow the company to see if they will have any funds to place on other unrelated projects as well going to pay for other company expenses. The major thing is to really focus on one project at a time and go from there they do not want to have too much put on them at one time and focusing on free cash flows is a way to make that happen for the company. Many different projects require a certain amount of money and to make sure that you have the proper funds to take on all of the project is key to getting them all done. Incremental Cash Flows The incremental cash flows for the project in years 1-5 and how...
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...Term Paper Financial statement analysis report of: LVMH Hand-in date: 25.11.2010 Campus: BI Oslo Examination code and name: GRA 62123 Financial Reporting and Analysis Table of Contents EXECUTIVE SUMMARY 3 MARKET REVIEW: 4 COMPANY REVIEW 5 Management compensation 6 BUSINESS DESCRIPTION 7 Business Risk Analysis 8 FINANCIAL PERFORMANCE 9 Profitability 9 Activity Ratios 12 Financing and Liquidity 13 CASH FLOW ANALYSIS 15 VALUATION 16 CONCLUSION 17 References 19 Appendix 20 EXECUTIVE SUMMARY This paper analyzes LVMH group. Taking the recent developments and prospects in luxury goods industry as a starting point, the first part analyzed and compares LVMH with Hermes International and GUCCI, focusing in particular on performance which is analyzed through their activity, liquidity and financing and profitability position. The next part scrutinizes LVMH’s cash flow statement in order to evaluate its operating activities as well as the ability to cover its investments. The paper will conclude that LVMH presents a good investment alternative considering other companies in the same industry. Second, LVMH have a low risk given its solid financial structure and sufficient liquidity. Sales have grown at an average annual rate of 7.5% over the past five years driven by organic growth and acquisitions. MARKET REVIEW: APPAREL, ACCESSORIES & LUXURY GOODS INDUSTRIES Concetta Lanciaux, ex head...
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...RESULT UPDATE HERO MOTOCORP Disappointment continues India Equity Research| Automobiles Hero MotoCorp’s (HMCL) Q3FY15 EBITDA at INR8.2bn was ~11% below our/consensus estimates, due to lumpy brand promotions (Tiger Woods/Sardar Singh) and staff costs (Neemrana plant). PAT at INR5.8bn was further hit by lower other income and higher tax rate. We expect margins to recover from Q4FY15 on lower brand related spend and reversal in excise duty anomaly. Similarly, domestic scooter volumes will see an uptick with increase in capacity and expiry of the one-time order from Sri Lanka. However, owing to weak traction in volumes, we prune our FY15/FY16 volume estimates by 4% and EPS by 8%/2%. We introduce FY17 numbers with volume growth of 12% and EPS of INR199. Maintain ‘HOLD’ with TP of INR2,990 (15x FY17E EPS). Intensifying competition in the executive motorcycle segment and weak brand franchise in the premium segment are key headwinds to our volume/margin estimates. Operating performance fails yet again While revenue at INR68.4bn was in line, EBITDA at INR8.2bn was ~11% below our/consensus expectations, primarily owing to higher other expenses. While gross margin improved 20bps QoQ, higher staff costs (up 50bps QoQ to 4.6% of sales) and other expenses (up 110bps QoQ to 11.7% of sales) impacted overall margins (-150bps QoQ at 12%). Staff costs inched up as Neemrana plant came on-stream, while promotion spends pertaining to Tiger Woods led to higher overheads. Lower other...
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...J.P. Morgan M&A Reference Manual J.P. Morgan M&A Reference Manual This “M&A bible” is meant to serve as a training guide for newcomers to M&A, as well as a technical reference manual for experienced (and not so experienced) M&A practitioners. It incorporates what a number of people in M&A believe to be essential or useful basic knowledge to perform the tasks required in the daily routine of the strategic advisory business. As the financial, legal and tax environment in which the M&A Group operates is forever changing, periodic updates of this publication are intended. As such, any suggestions for improvement would be appreciated. Please direct your comments for improvement, but not your requests for copies of the book, to Eileen Smith at (77)6-8305. An online version of the book is available to Investment Banking professionals on the IB M&A Research database in Lotus Notes or through IB Today. The book is confidential, proprietary and the sole property of J.P. Morgan and should not be passed along to colleagues outside of Investment Banking or to people at competitor firms. Copyright © 1997 Morgan Guaranty Trust Company of New York. All rights reserved. June 1998 82890cl6 J.P. Morgan M&A Reference Manual Contents Valuation methodologies overview ............................................................... 1 Advantages and disadvantages ........................................................................ 1 Comparable company trading analysis ...................
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...QANTAS ANNUAL REPORT 2012 Broadening our horizons Qantas Annual Report 006 008 010 012 018 028 037 065 138 153 CHAIRMAN’S REPORT CEO’S REPORT FINANCIAL PERFORMANCE BOARD OF DIRECTORS REVIEW OF OPERATIONS CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT FINANCIAL REPORT SUSTAINABILITY REPORT FINANCIAL CALENDAR AND ADDITIONAL INFORMATION Broadening our horizons 002 QANTAS ANNUAL REPORT 2012 Broadening our horizons Building on unique Australian qualities – and the skills of its 33,600 people – the Qantas Group is broadening its horizons to secure a successful and profitable future. 003 004 QANTAS ANNUAL REPORT 2012 Heading For the Qantas Group, 2011/2012 was a year of transformation. We recorded an Underlying Profit Before Tax* despite significant challenges. We continued to build Qantas’ strong domestic network, Jetstar and Qantas Frequent Flyer. And we launched a five-year plan to turn around Qantas’ international network. FOR THE YEAR ENDED 30 JUNE 2012 *For explanations of non-statutory measures see the Review of Operations. 005 Building a stronger Qantas for our people, our customers, our shareholders and Australia The Qantas Group has a broad portfolio and a clearly defined strategy, with the following core goals: — Build on the Group’s strong domestic businesses through a clear focus on the customer. — Turn around Qantas International through the “four pillars” of targeting global gateways, growing with Asia, improving...
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...1) After spending years of effort to integrate Warner Lambert and Pharmacia into Pfizer, should its management have avoided another huge acquisition like Wyeth? Should Pfizer have gone after smaller bio tech firms in a series of small acquisitions in 2008 and 2009? A number of these bio tech firms could have been acquired for the $68 billion price of the huge Wyeth acquisition. Present arguments for and against buying several small firms versus one large firm. In my opinion, when it comes to the option of bigger or smaller firm acquisition, Pfizer should have invested in a large acquisition like wryeth. This is because Pfizer’s focus is not really on how many firms it can acquire but proceeds and profit margins these acquisitions can bring in. Basing on the case, its previous large acquisitions such as Warner Lambert and Pharmacia. In 2000 and 2003 where quiet good investments bringing in large profit margin of up to 90% from the Warner. A large problem of staffing is also worsened by over acquisition. According to the case overtime acquired firms have brought in excess staff for Pfizer and this has become a problem as managers for each line have increased and thus larger costs in terms of salaries as well. Larger firm acquisitions have also evidently brought stronger products than Pfizer itself can produce. Drugs such as Lipitor from an acquired firm brought in sales of about 12 billion annually while Pfizer produced drugs have failed i.e. T-pill Furthermore larger...
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...Define the issues Infosys is facing. 1. Productivity Infosys’ productivity seems to be competitive compared to U.S. companies on a productivity measurement based on operating profit. Nevertheless, the company performs far behind when looking at revenue per employee. This phenomenon occurs to the whole country, causing the wage differential between India and the United States to be quite significant. [pic] [pic] The solution for Infosys’ performance improvement is to move up the “value chain” of software development in order to remain competitive on a global basis. Refer to Exhibit 6, the company plans to move up from software development to project management with higher margin. To implement this strategy successfully, Infosys had to accomplish the following objectives. a) Increase customer penetration b) Increase brand equity c) Increase the amount of fixed price contracts 2. Globalization As a result of different productivity from Indian and American employees, growth of Infosys is not as favorable as of U.S. companies. Infosys is one of those aiming to be more global and is facing constraint causing by productivity of its employees. 3. Hiring and retaining employees Infosys is planning to grow in rapid pace which demands more responsibility from existing employees. The company is facing a challenge to maintain the spirit of its employees while being able to offer and implant the same spirit...
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...those that do not pay dividends. The corporate valuation model discounts free cash flows by the required return on equity. The corporate valuation model can be used to find the value of a division. An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value. | 2. (TCO F) Which of the following statements is correct? (Points : 5) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV. If Project A's IRR exceeds Project B’s, then A must have the higher NPV. A project’s MIRR can never exceed its IRR. If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV. If the NPV is negative, the IRR must also be negative. | 3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a. $26.77 b. $27...
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... record earnings per share, record free cash flow and improved profit margins, with increased revenues. At the same time, we continued to deliver superior returns to you, our owners. Most importantly, we are well positioned to grow as the global economy recovers. These results were made possible by decisions and actions that we undertook a decade ago, based on where we believed the world was shifting. But even more, they are a reflection of the mindset, ambitions and values that have guided IBM since its inception, 100 years ago. As such, our performance in 2010 marks a fitting conclusion to our first century as a corporation, and a promising start to our second. In this letter, I will explain why the long-term thinking and management that IBM has practiced over the past decade have positioned your company advantageously for the next five years and beyond. 2 IBM today IBM’s performance in 2010 is indicative both of our high-value market position and of the discipline we apply to our strategy and operations. Since 2002, we have added $14 billion to IBM’s pre-tax profit base, increased our pre-tax income 3.4 times, our earnings per share 4.7 times and our free cash flow 2.8 times. Cumulatively, we have generated about $96 billion of free cash flow. Our strong 2010 continued this record of superior performance: Cash flow: IBM has consistently generated strong cash flow, a key indicator of real business performance. In 2010 our free cash flow,...
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...2012 Arnold Gilbo Problem Set II P2-6A | 2011 | 2012 | A) Earnings per share | $60,000/30,000Shares | = $2.00 | $70,000/33,000Shares | = $2.12 | B) Working Capital | ($20,000 + $62,000 + $73,000) – ($ 70,000) | = $85,000 | ($28,000 + $70,000 + $90,000) – ($75,000) | = $113,000 | C) Current Ratio | $155,000/$70,000 | = 2.2:1 | $188,000/$75,000 | = 2.5:1 | D) Debt to Total Assets Ratio | $160,000/$685,000 | = 23.4% | 155,000/760,000 | = 20.4% | E) Free Cash Flow | $56,000 – $38,000 – $15,000 | = $3,000 | $82,000 – $45,000 - $20,000 | = $17,000 | F) The financial position and operating results for the Sievert Corporation are looking up from 2011 to 2012. The net earning and working capital have both increased. This shows the share holders that the profitability of the corporation has improved. Another high point is the debt to total assets ratio has gone down and this is good as it shows less owned to debt and more that can come in profit margins. This is shown in the increase of free cash flow. P13-2A | 2012 | | Problem Work Through | Answer | A) Earnings Per Share | $300,000/$5 = $60,000(*)$290,000/$5 = $58,000(**)($60,000* + $58,000**)/2 = $59,000(***)$218,000/$59,000*** | = $3.69 | B) Return Per Share | $218,000/[($465,400+$603,400)/2] = $218,000/$534,400 | = 40.8% | C) Return on Common Stockholders’ Equity | $218,000/[($852,800+$1,026,900)/2] =$218,000/$939,850 | = 23.2% | D) Current Ratio | $377,900/$203,500 | = 1.86:1 | E) Receivables...
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...Trying on the numbers A quick check of J. Crew's first-quarter press release (these numbers are also released in the S-1 registration statement) shows some heartening signs. Net income came in at $5 million, compared with a net loss of $24 million this time last year. Same-store sales increased a whopping 37%, while consolidated revenues increased 45% to $211 million. Of course, same-store sales can indeed sound astonishing when a company is up against an easy comparison to last year, and that's definitely the case here -- comps increased a mere 4% during the same quarter last year. The financials also reveal that aforementioned long-term debt -- $590 million, as of the first quarter. J. Crew has 24 more times more debt than its mere $25 million in cash. Indeed, the company's risk factors in its annual SEC filing specifically contain the following warning: "We may be substantially more leveraged than certain of our competitors, which may place us at a competitive disadvantage." In its filing, the company said that paying off some of its debt is its primary reason for going public. J. Crew hasn't had a profitable year since its flush 2001, which has become the benchmark for many of the metrics we've shared here. Although revenues for the most recent fiscal year increased 17% to $804 million, that still hasn't matched 2001's $826 million in sales. Needless to say, J. Crew's earnings power has been hindered by its large debt load. That's why the company's fourth-quarter...
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...Objective Our objective is to estimate the Free Cash Flow (FCF) value of Macy’s Inc. as of July 24, 2011 (date of valuation). Macy’s Inc. is a C-Corporation organized under the laws of Delaware. It is primarily engaged in the business of premier retail fashion. The standard of value was Free Cash Flow Value, which measures the company’s ability to generate cash after accounting for capital expenditures, which is a fundamental basis for stock pricing. FCF provides a viable indication of Macy’s ability to develop new products, buy back stock, pay dividends, or reduce its debt depending on the amount of cash the company has to expand. Since FCFs indicate the financial health of a company in its current environment, this valuation’s purpose is to determine Macy’s ability to increase stock prices and maximize shareholder wealth. External Sources of Information We have used various external sources of economic and industry data to assess the condition of the general economy, trends in the fashion retail industry, and the condition of the securities markets. Among those sources, we used Plunkett Research, Fashion Products, Wikinvest, Yahoo! Finance, Hoovers, Macy’s Inc., SEC filings, Financial Industry Regulatory Authority (FINRA) and Standard and Poor’s. We have consulted macysinc.com for internal documents where we examined various Macy’s proxy statements and annual financial statements including balance sheets, income statements, and cash flow statements. Analyses of these sources...
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...financing for Netscape? 5. What are the advantages and disadvantages of having an IPO? 6. What should be the offering price for Netscape’s stock ($28, the original $14, or something else)? Why? Value Netscape with the discounted free-cash-flow methodology under three different scenarios (see second page). Assume there will be 38 million shares of Netscape stock outstanding after the IPO. Estimated Value of Netscape – Scenarios 1-3 (1995 is actual value, 1996-2005 are forecasts) all dollar and share amounts in thousands 1995 1996 1997 1998 FCF -11,375 -13,260 -13,769 -10,809 Terminal Value 1999 -406 2000 13,654 2001 36,471 Now suppose we are confident in our estimated free cash flows from 1996-2001. What is the estimated market value of Netscape under these three scenarios? Assume incur loss of -11,375 immediately, -13,260 in one year, etc. SCENARIO 1 Assumptions: Discount rate is 12%. Growth rate from 2001-2005 is approximately 55% per year. Growth rate after 2005 is 4% every year, thus free-cash flow in 2006 will be (free-cash flow in 2005 * 1.04). SCENARIO 2 Assumptions: Discount rate is 12%. Growth rate from 2001-2005 is approximately 30% per year. Growth rate after 2005 is 4% every year, thus free-cash...
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...(Assets/ Sales during the last year) The increase in sales between S0 and S1 – (Spontaneous liabilities that will be affected by sales.) The increase in sales between S0 and S1 – Project Net Income (Retention ratio from Net Income) 3000000/5000000 .6 x 1000000 = 600000 500000/5000000 .1 x 1000000 = 100000 .05 x 6000000 x .3 = 90000 600000 – 100000 – 90000 = 410000 13-2 Value of Operations of Constant Growth Firm EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. 400000 x 1.05 / .12-.05 420000/.07 = 6000000 13-3 Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? Actual Projected 2010 2011 2012 2013 Free cash flow (millions of dollars) $606.82 $667.50 $707.55 $750.00 FCF*(1+g) / WACC-g 750 – 707.55 42.55/707.5 = .06 707.55*(1+.06) / .11-.06 750.003/.05 = 15000.06 13-4 EROIC and MVA of Constant Growth Firm A company has capital of $200 million. It has an EROIC of...
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...7 Ž2000. 317–344 www.elsevier.comrlocatereconbase Firms, do you know your currency risk exposure? Survey results Claudio Loderer ) , Karl Pichler a a Institut fur Finanzmanagement, UniÕersitat Bern, Engehaldenstrasse 4, Bern 3012, Switzerland ¨ ¨ Abstract This paper surveys the currency risk management practices of Swiss industrial corporations. We find that industrials are unable to quantify their currency risk exposure and investigate possible reasons. One possibility is that firms do not think that they need to know because they use on-balance-sheet instruments to protect themselves before and after currency rates reach troublesome levels. This is puzzling because performing a rough estimate of at least the exposure of cash flows is not prohibitive and could be valuable. Another puzzling finding is that firms use currency derivatives to hedgerinsure individual short-term transactions, without apparently trying to estimate aggregate transaction exposure. q 2000 Elsevier Science B.V. All rights reserved. JEL classification: G15; G30 Keywords: Currency risk exposure; Swiss industrial corporation; On-balance-sheet instruments 1. Introduction This paper surveys the currency risk management practices of Swiss industrial corporations. Many of them sell most of their output abroad and would therefore seem to be heavily exposed to currency risk. In fact, currency risk can be substantial. Between 1978 and 1996, the Swiss franc experienced dramatic swings in relation to...
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