AYN 505 – Sem. 1/2011
BUSINESS STRATEGY ANALYSIS -
SEMINAR QUESTIONS – WEEK 2 - KEY POINTS
A. Discussion Question
1. In financial analysis, explain why each of the four financial analysis steps (strategy, accounting, financial, and prospective analysis) is critical, and explain how they relate to one another. (PHBWBL p10, Q4 adapted)
2. Your brother, who works in a bank, has recommended to you that you purchase shares in an organisation, on the basis of the following information, which he has heard discussed around the office:
• Total assets have increased by 33% • Revenue has increased by 12% • Net profit has decreased by 4%. • The dividend per share is 23c. • The current share price is $8.50; 12 months
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2. Accounting analysis enables the analysts to ‘undo’ any accounting distortion by recasting a firm’s accounting numbers. Sound accounting analysis improves the reliability of conclusions from financial analysis.
3. Financial analysis seeks to use financial data to evaluate the performance of a firm. The outcome from financial analysis is incorporated into prospective analysis, the next step in financial statement analysis.
4. Prospective analysis synthesises the insights from business strategy analysis, accounting analysis, and financial analysis in order to make predictions about a firm’s future.
A2 Your brother, who works in a bank, has recommended to you that you purchase shares in an organisation, on the basis of the following information, which he has heard discussed around the office:
• Total assets have increased by 33% • Revenue has increased by 12% • Net profit has decreased by 4%. • The dividend per share is 23c. • The current share price is $8.50; 12 months ago it was $7.50.
1. Would you invest in this organisation?
2. What information encourages you to do so, and what reasons might you have for hesitating?
3. What additional information would you like before making this decision, and where might you find that information? (PHBWBL p10, Q5 adapted)
(a) There
You have been assigned to analyze the accounting information for a Fortune 500 corporation. From the e-Activity, evaluate which tools you would use to analyze its business processes, indicating your rationale.
On April 19, 1997, the company was offered for sale to Mr. Warren G. Hamer. Provided with the exhibits that contain the summary of Terms and Conditions of Sale, audited Income Statements and Balance Sheets, and Company History, Mr. Hamer needs to decide whether or not to place a bid, which is due on April 24. However, Mr. Hamer was
6. Although you are basically satisfied with the analysis thus far, you are concerned about the
1. Using the excel spreadsheet provided, and the recommended consequential disclosures as a basis you your analysis, what recommendations would you give Phillips on each of the items listed below? In each case, justify your recommendations and estimate how much the decision will change the “true” value of the company and its value in the eyes of an investor in a private company.
4. Conduct a feasibility analysis on the company, being sure to consider its market potential, industry attractiveness, and
Bruce can meet with the director of the agency. In the meeting, he can tell about that the documents of the grant and brochures for clients do not have the accurate information of the services which are providing to the consumers.
6. Outline a plan, based on the information provided in the scenario, which the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.
Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.
2. Considering Mary’s need of assurance, it is possible that Mary would prefer other forms, like bond or preferred share, which have more assurance to repay her investment.
Given that Big Spenders Inc. requires professional assistance in deciding on its best option concerning investment – that is, the company needs to select between Auto Wash Bot Ltd. and Popeye’s Muscle Wash Ltd. regarding equity investment. Big Spenders Inc. would require the expertise of a Financial Analyst to conduct comparative examinations of the prospective companies (which are both into the business of car cleaning). This is to ascertain the financial potentials of the two car wash and detailing companies, namely in the area of profitability – in short, the analyst will demonstrate to Big Spenders Inc., the show it should invest in. In the regards to the aforementioned, based on the definition of the word
This week’s discussion is about Mike making a decision on his inheritance. He should use the rational decision making process. There are at least two ways to infer the compilation given to Mike by the financial advisors. If I were Mike, I
I have researched the company’s financial reports. There will be a financial analysis of the company comparing its present to past two years’ performance and to the performance of its major competitors.
Ted received a call from his boss, Townsend “Sandy” Beech, the head of his four-person deal team and founding member of the firm. Sandy requested Tad, on a Friday afternoon, to review three presentations for possible buyout targets. Tad was to make a presentation at the partners’ meeting on Monday morning, recommending only one (1) investment and detailing the strengths and weaknesses of all three.
Joe has received an invitation from Bill owner of Peninsula Hotel Chain, for him and his wife to come enjoy the weather and to catch. Joe didn’t immediately accept the invitation, because in some way, he was feeling a bit intimidated by the remark Bill had previously made concerning, the proposed reduction being offered by the competitors. Joe is undecided at this point into he should accept the offer, or pass.
* The Board of Directors should approve the proposed option trading policy and should choose buying a call option on a listed stock as their option investment strategy.