Premium Essay


In: Business and Management

Submitted By APLUS
Words 1121
Pages 5
National University of Ireland, Dublin Master of Science (Finance) Intake 15 Module: Strategic Finance Submitted by: Win Lwin Student Number: 12254491 Lecturer: Mr. Soh Cheong Hian Submission Date: 17 May 2013 Word Count: 590

Question 1:
Exhibit 1 Company A Company B Company C 14.28 13 15.24 15.79 14.28 29

Return on assets (%) Return on Equity (%)

Referring to Exhibit 1, the rationale behind using the net operating profit after tax (NOPAT) for the calculation of return on assets and return on equity instead of using the net income is that a company’s profits are isolated by removing non operating or nonrecurring items from the reported earnings. Hence, by eliminating the interest expense in the profit calculation, the operating profitability is not distorted by differences in the capital structure of a company (Kabajeh, AL Nu’aimat & Dahmash, 2012). Company A and Company B does not use debt financing, using NOPAT or net income does not affect the return on assets and return on equity. However, Company C uses debt financing so using NOPAT in the calculations is more effective and accurate.
Exhibit 2 Invested Capital Company A Company B Company C Assets Inventory Accounts Payable Operating Working Capital Net PP&E Invested Capital Equity Investment Total Funds Invested 125 (50) 75 400 475 475 125 (50) 75 400 475 50 525 125 (50) 75 400 475 475

Reconciliation of total funds invested Company A Company B Company C Interest bearing debt 200 Common Stock 475 525 275 Retained Earnings Total funds invested 475 525 475

Exhibit 3 NOPAT Operating profit Operating tax NOPAT Company A Company B Company C 100 100 100 (25) (25) (20) 75 75 80

Exhibit 4 Return on Invested Capital NOPAT Invested Capital Return on Invested Capital (%) Company A Company B Company C 75 75 80 475 475 475 15.79 15.79 16.84

Operating performance wise, based on the three ratios Company...

Similar Documents

Free Essay


...pendorong utama nilai : pengembalian investasi modal (ROIC ) dan pertumbuhan pendapatan . Memeriksa tren dalam panjang perusahaan menjalankan kinerja dan kinerja relatif dengan yang sejenis , sehingga Anda dapat mendasarkan perkiraan Anda dari arus kas masa depan pada asumsi yang wajar tentang driver perusahaan kunci nilai. Mulailah dengan menganalisis ROIC , baik dengan dan tanpa niat baik . ROIC dengan goodwill mengukur kemampuan perusahaan untuk menciptakan nilai lebih dan di atas premiums dibayar untuk akuisisi . ROIC tanpa goodwill adalah ukuran yang lebih baik dari kinerja perusahaan dibandingkan dengan perusahaan sejenis . Kemudian menelusuri ke dalam komponen ROIC untuk membangun pandangan yang terintegrasi dari perusahaan operasi kinerja , dan memahami aspek-aspek bisnis yang bertanggung jawab untuk kinerja secara keseluruhan . Berikutnya , memeriksa driver dari suka pertumbuhan pendapatan . Apakah pertumbuhan pendapatan didorong , misalnya , lainnya pertumbuhan organik ( penting untuk penciptaan nilai , seperti dibahas dalam Bab 5 ) atau dengan efek mata uang, yang sebagian besar di luar kendali manajemen dan mungkin tidak berkelanjutan ? Akhirnya , menilai kesehatan keuangan perusahaan untuk menentukan apakah ia memiliki sumber daya keuangan untuk melakukan bisnis dan membuat jangka pendek dan jangka panjang investasi. Tiga bagian pertama dari bab ini melalui langkah-langkah yang terlibat dalam menganalisis ROIC , pertumbuhan pendapatan , dan kesehatan keuangan ,......

Words: 2089 - Pages: 9

Free Essay

Levi Strauss

...Case Name: Levi Strauss – Case 1 Short Cycle Process: • Who: Levi Strauss Management • When: 1995 • Where: United States/Globally Case Analysis: Issues #1 – Customer Satisfaction & the “Perfect Pair” Kiosks The “Perfect Pair” kiosks pilot project has been operating for a year now, and this has provided enough data to analyze whether Levi Strauss should continue with this project as is, expand or terminate this venture. The “Perfect Pair” kiosks will be reviewed in comparison to the current wholesale and retail operations to determine whether it provides the best return on invested capital. Applicable Concepts Product Pricing and ROIC Value Chain Analysis Product Mix Qualitative Analysis The alternative value chain for these kiosks is significantly changed in comparison to the wholesale and retail operations, and this is due to the processes involved in producing the kiosks end product. The new process reduces the time lag between start to finish of the value chain in comparison to traditional product lines. Expanding the kiosks to other retail locations will provide Levi’s with the opportunity to better respond to current industry shifts, while also providing greater satisfaction to its customers. Since Levi’s is not going to initiate the manufacturing process until after the sale has occurred, the need for intensive budgeting and forecasting is reduced for the “Perfect Pair” kiosks. The new alternative value chain also results in a......

Words: 845 - Pages: 4

Premium Essay

Business Report

...Centre of Macquarie English Business, Accounting and Economics Course Business Report on Cochlear By Peishu Liang (Athena), 22859 Class: BAE5 January 18th, 2012 Peishu Liang (Athena) 22859 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION ETHICAL ANALYSIS OF COCHLEAR FINANCIAL STUDY OF COCHLEAR CONCLUSION AND RECOMMENDATIONS REFERENCES 3 4 5 6 8 9 2/10 Peishu Liang (Athena) 22859 Executive summary This report aimed at providing recommendations and suggestions through analysing and evaluating the company for a client who wants to do ethical investing in Cochlear. Background of Cochlear, critical evaluation of ethics and examination of financial performance will be provided. The information used for ethical analysis is based on secondary portfolio. In financial aspect, the ratio of return on invested capital is used for evaluating profitability. The report finds that Cochlear is operating ethically because it takes social responsibility such as setting the Graeme Clark Scholarship for helping a number of recipients to finish their further education. Moreover, through analysing return on invested capital, it can be found that profitability of Cochlear shows an upward tendency. Based on these two results, this report recommends that Cochlear is a good choice to invest in. 3/10 Peishu Liang (Athena) 22859 Introduction This is a report which provides advices and suggestions for a client to help him or her to make an ethical......

Words: 1462 - Pages: 6

Premium Essay

Boeing Company Valuation

...Marc  Cohen  –  000094851             Nathanael  Dadoun  –  000094992   Dan  Taïeb  -­‐  006839960                                        May  the  22th,  2013   Corporate  Valuation   Assignment  3                   Question  1:     With   a   market   cap   close   to   $60B   on   December   the   31st   (and   a   current   market   cap   of   more   than   $75B   on   2013   May   the   22th),   BOEING   is   what   we   call   a   Gorilla   in   the   global   Aerospace   and   Defense   Industry.   Symbol   of   the   US   hegemony  for  many  years,  Boeing  has  confirmed  its  leadership  in  this  industry.   However,  we  know  that  the  whole  market  just  faced  the  subprime  crisis   of  2008,  a  fact  that  affected  the  growth  and  the  excess  return  that  the  company   was  performing.  This  fact  applies  to  the  whole  industry,  and  thus  we  believe  that   it   is   important   to   differentiate   our   company   through   its  ......

Words: 1020 - Pages: 5

Premium Essay

Coke 2001

...Coke Vs Pepsi 092506 1. Coke vs. Pepsi By: Brad Pearce, Les Pierce, Mike Puleo, Aaron Martinez, Lee Ann Whaley 2. 2000 Annual Sales 20.5 Billion 2005 Annual Sales 23.1 Billion Mistakes Made by Management Former CEO Doug Investor Raised price of syrup by 7.7% Upset bottlers who in turn raised the price of Coke First time in years Decreased overall volume and net income by 41% in two years Pushed heavily on carbonated drinks instead of sports drinks Case Background: Coke 3. Case Background: Coke New CEO Douglas Daft, replaced Investor in 2000 Non-carbonated drinks new focus Analysts believed the change in management would improve distributor relations Bring back Coke to former glory 4. Case Background: Coke Profitability Ratios Growth Ratios 5. Company Background: PEPSICO, INC. $20 billion company in 2000 Snack-food, Frito-Lay trademark 2/3 of Sales & Operating Income from snacks Soft-drink, manufactured concentrates Noncarbonated beverages, Juices 1/3 of Sales & Operating Income from beverages 6. Company Background: CEO Roger Enrico, CEO from 1996 to 2000 1997 - Instituted a massive overhaul at PepsiCo Sold KFC, Taco Bell, and Pizza Hut ( ridding PepsiCo of poor return performing divisions) 1999 – Spun off bottling operations To an independent public company . 7. Company Background: The New PepsiCo PepsiCo left with higher-margin business of selling concentrate to bottlers Bottlers can now raise their own capital Freeing up cash within the parent company Enrico......

Words: 804 - Pages: 4

Premium Essay

Corp Finance

...Chapter 15 Corporate Valuation, Value-Based Management, and Corporate Governance MINI CASE You have been hired as a consultant to Kulpa Fishing Supplies (KFS), a company that is seeking to increase its value. KFS has asked you to estimate the value of two privately held companies that KFS is considering acquiring. But first, the senior management of KFS would like for you to explain how to value companies that don’t pay any dividends. You have structured your presentation around the following questions. a. List the three types of assets that companies own. Answer: Assets-in-place, growth options, and nonoperating, or financial, assets. b. What are assets-in-place? How can their value be estimated? Answer: Assets-in-place are tangible, such as buildings, machines, inventory. Usually they are expected to grow. They generate free cash flows. The PV of their expected future free cash flows, discounted at the WACC, is the value of operations. c. What are growth options? How can their value be estimated? Answer: Growth options are not tangible. They include R&D, such as at drug companies and genetic engineering companies, and building customer relationships, such as at Growth options are valued using option pricing techniques in Chapter 17. d. What are nonoperating assets? How can their value be estimated? Answer: Nonoperating assets are marketable securities and ownership of non-controlling interest in another company. ...

Words: 1356 - Pages: 6

Premium Essay

Levi's Case

...the production and supply chain capability and reduce the delay which Was about 8 months from ordering to selling. Strauss started an experiment in its 4 retails store with collaboration of custom Clothing Technology Corporation, software firm based in Massachusetts US. This helped Strauss to get custom measurement of their customers and sort out The best fittings for their customers and has bar code sewn for reordering same Fitting of personal pair™. 1) Calculation of PRETAX ROIC FOR BOTH CHANNELS 1. PRETAX ROIC FOR BOTH OF THE CHANNELS. 1) Wholesaler Channel PRETAX ROIC = Pre Tax Operating Profit /Total Investment PRETAX ROIC = 20% 2) Original Levi’s Store PRETAX ROIC = PRETAX Operating Profit / Total Investment PRETAX ROIC = 12.24% As we compare both of the Channels Estimates wholesaler Channel is doing much Better returns, the higher the ROIC the valuable the division or a company. Original Levi’s Store’s ROIC even after investing lot on assets and charging a good Margin is not satisfactory due to capitulating kind of vast...

Words: 1041 - Pages: 5

Premium Essay

Mini Case

...a. Assuming the expansion was effective Jan. 1, 2010, the 2010 income statement indicates an approximate increase in sales of $2.4M. However, the income statement also indicates a Net Loss in 2010 of ($95K) compared to Net Income of $88K in 2009. Total Assets increased approximately $1.4M. The major drivers causing the increase are fixed assets of $711K, inventory of $572K, and accounts receivable of $280K. Being that assets have to equal liabilities and equity the effect is the same with an approximate increase of $1.4M. Major drivers causing the increase for liabilities and equity are notes payable of $520K and long-term debt of $680K. b. Computron Industries (CI) had to finance the expansion. The financing activities are what kept them cash positive in 2010. In 2011, CI will need to focus on improving cash flow from the operation of the expansion and long term CI will need to manage the return on their investments. c. Free Cash Flow is the Net Operating Profit after Taxes minus net investment in operating capital. The cash flow is used for distribution to investors after all necessary investments are made to sustain operations. It is important to free cash flow now and in the future to increase the value of a company. Free cash flow can be used for paying off debt and interest to debt holders, paying dividends to shareholders, repurchase stock (treasury stock), and buy short-term investments or other non-operating assets. d. Computron’s NOPAT is......

Words: 591 - Pages: 3

Premium Essay

Creating Value Through Best-in-Class Capital Allocation

...V O LU M E 2 1 | N U M B E R 4 | FAL L 2 0 0 9 Journal of APPLIED CORPORATE FINANCE A MO RG A N S TA N L E Y P U B L I C AT I O N In This Issue: Market Efficiency and Risk Management The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned? Contingent Capital vs. Contingent Reverse Convertibles for Banks and Insurance Companies International Insurance Society Roundtable on Risk Management After the Crisis 8 Ray Ball, University of Chicago 17 Christopher L. Culp, Compass Lexecon and University of Chicago 28 Panelists: Geoffrey Bell, Geoffrey Bell & Company; Nikolaus von Bomhard, Munich Re; Prem Watsa and Bijan Khosrowshahi, Fairfax Financial Holdings. Moderated by Brian Duperreault, MMC Lessons from the Financial Crisis on Risk and Capital Management: The Case of Insurance Companies 52 Neil A. Doherty, University of Pennsylvania’s Wharton School of Business, and Joan Lamm-Tennant, Guy Carpenter & Co. and the Wharton School The Theory and Practice of Corporate Risk Management 60 Henri Servaes and Ane Tamayo, London Business School, and Peter Tufano, Harvard Business School Measuring the Contributions of Brand to Shareholder Value (and How to Maintain or Increase Them) Creating Value Through Best-In-Class Capital Allocation 79 John Gerzema, Ed Lebar, and Anne Rivers, Young & Rubicam Brands 89 Marc Zenner, Tomer Berkovitz, and John H.S. Clark, J.P. Morgan Using Corporate Inflation......

Words: 5212 - Pages: 21

Free Essay

The Fresh Market

...For “The Business Model” Slide: · The Fresh Markets financial results show a tangible manifestation (outward or perceptible indication) of a retail strategy that has worked over the past several years to appeal to a shopper looking for a specialty experience and specialty products. · Although The Fresh Market is often compared to Whole Foods, this comparison is only valid based upon the customer demographic shopping within the store. o Whole Foods is a more mature retailer that has achieved higher rates of saturation (the level beyond which demand for a product/service is not expected to increase) in its markets. o Both retailers are in a strong position. For the “Strategy” Slide: · The company has taken the following actions aimed at improving profitability & future growth prospects for the Company: o The company has announced that it will close 4 stores in FY 2014; 3 in Sacramento, CA and one in Houston, TX. · Deployed new analytics & forecasting methods designed to improve site selection process & enhance accuracy of sales forecasting. o Company’s real estate plan will place greater emphasis on existing market expansion; while slowing the pace of openings in frontier markets in the near- to medium-term. · The company has identified a # of opportunities to better manage costs & improve efficiencies. o These savings should eliminate redundant or overlapping general & administration expenses, reduce non-merchandise procurement spending...

Words: 646 - Pages: 3

Premium Essay

Cash Flow & Cost of Capital

...Cash  Flow  and  Cost  of  Capital   Learning  Objec-ves     2 ¨  Cash  flow  to  invested  capital   ¤  $4,000.00   $3,500.00   $3,000.00   $2,500.00   Free  cash  flow       NOA NIBCL NOA ¨  Rate  cost  of  capital   ¤  NIBCL C IC OA Weighted  average  cost  of  capital   Includes  all  costs  of  capital     Fair  value  of  invested  capital     $2,000.00   $1,500.00   $1,000.00   $500.00   $-­‐ IC ¨  Economic  profit   ¤  ¨  Value  of  the  firm     ¤  roic    >  k FCFi V=∑ i i (1 + k) N ¨  Financial  decision  criterion  over     mul-ple  periods   3 State-­‐ ment   of   Cash   Flows   Statement  of  Cash  Flows   4 ¨  ¨  ¨  This  financial  statement  details  the  change  in  the  balance   sheet  cash  and  equivalents  accounts,  CE,  during  an   accoun-ng  period.       CEi    =  CEi-­‐1  +  CFOi  +  CFIi  +  CFFi    =  CEi-­‐1  +  ∆CE     ∆CE  =  CFO  +  CFI  +  CFF     ¤  ¤  ¤  CFO  is  the  cash  flow  from  opera-ng  ac-vi-es     CFI  is  the  cash  flow  from  inves-ng  ac-vi-es   CFF  is  cash  flow  from  financing  ac-vi-es   Statement  of  Cash  Flows     5   Statement  of  Cash  Flows     Balance  Sheet ......

Words: 2951 - Pages: 12

Premium Essay

Measuring Gmcr

...SELLOUT S Presentation to GMCR  Board of Directors April 19, 2012 Executive Summary: Betting on Quality, Convenience, and Choice Takeaway: GMCR has bet on a growing trend in speciality coffee by investing in creating value through quality, convenience, and choice for coffee drinkers. However, these investments rely on patent acquisitions, which have a short-lived contribution to ROIC, and customer relationships, one of which is brewing trouble. Page Section 3 Coffee Market Competitors • • Specialty, Brew-at-Home coffee Wakes U.S. coffee economy GMCR Competes most directly with Nestle and Mars by selling both coffee AND brewers Reinvestment and Acquisitions secure Competitive Advantage and enable profit growth Market position Built on Relationships, although Customers pose notable Risks Inventory management Concerns: Revenue & margins growing, but Inventory Outpacing Sales New Invested Capital has Dual Effect on ROIC Address Immediate Threats to Patents and Relationships 2 4 5 Competitive Advantage • 6 Partners • 7 Inventory Management • 8 ROIC Immediate Imperatives • • 9 Perking Up: Specialty Coffee Wakes U.S. Coffee Economy Takeaway: “Premium-ization” and rising disposable incomes drive 4.7% annualized demand growth, much of it led by popularity of speciality coffee and growing awareness of high-quality single-serve systems. US Coffee Market Trends Evolving Consumer Preferences Conventional Coffee % of......

Words: 1863 - Pages: 8

Premium Essay


...Equity Target should have a higher profitability margin and Costco a higher asset turnover. [pic] [pic] 3. Which company is more profitable? We can see that Target is more profitable than Costco, mainly because of a profitability issue. Nevertheless it is possible to observe that Costco has a higher Asset Turnover. 4. Technical questions: a. ROA v/s ROE numerators: It has to do with the fact that ROA is a profitability measure of the whole company while ROE is a profitability measure for shareholders. The financial structure of the company affects the ROE not the ROA. b. ROIC v/s ROA: ROIC adjusts for non-operational assets, therefore we can have a more realistic measure of asset’s profitability. c. Long Term ROA / ROE / ROIC: d. What explains differences in ROA: Profitability and Asset Turnover. e. Better Understanding of Companies’ Profitability: By breaking down ROA you can better understand where the...

Words: 284 - Pages: 2

Premium Essay

Liz Claiborne Case

...1991 to 1994 and started to recover from the trough. LIZ has the ability to generate stable cash flow over time. We believe the company has a medium level of business risk. The company’s target debt-to-value ratio is 35.92% (Exhibit C), which falls into the lower end of the optimal range of 30% to 49%. Thus, the company’s level of financial risk is low, and the credit rating should be between A and AA ratings and the equity risk premium is 4%, which coincides with the key financial ratios’ indication (Exhibit E). Based on the current U.S. government yield and U.S. corporate rate spread of a credit rating A., LIZ before-tax cost of debt is 6.83%, the cost of equity is 10.83%, and WACC is 8.5% (Exhibit C). In the Exhibit F, the first-stage ROIC is 57.16%, which is significantly larger than the WACC. This relationship indicates that the EPV will be greater than the...

Words: 698 - Pages: 3

Free Essay


...importante porque mede o valor real da empresa. Os cinco usos do FCF são: a. Pagar juros sobre a divida b. Pagar o principal em divida c. Pagar dividendos d. Comprar de volta ações e. Compra de ativos não operacionais d) NOPAT = EBIT*(1-taxa) NOPAT(10)= 17,440*(1-0,4)= $10,464 NOPAT(9)= $125,460 Os ativos circulantes sao as contas que representam os bens e direitos da empresa. Os passivos circulantes são as obrigações e dividas que a empresa possui. NOWC=ATIVOS CIRCULANTES – PASSIVOS CIRCULANTES NOWC(10)= $1,317,842 NOWC(9)=793,800 e) FCF= nopat – Capital de Invesimento Liquido = 10,648-(2,257,632-1,138,600) = - $1,108,568 f) ROIC = NOPAT/ Total do Capital Liquido Operacional ROIC(10)= 10,464/2,257,632=0,5% ROIC (9)=11,0% O ROIC em 2012 foi menor do que 10%, portanto, os investidores obtiveram o retorno que esperavam. g) EVA = NOPAT –...

Words: 338 - Pages: 2