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BUS 311 Checkpoint Project Dr. Feng The checkpoint discussion can be extended around a series of questions from the perspective of owners, managers, short-term creditors, long-term creditors, market, and investors. Financial ratios are important tools to answer those questions and interpret the financial health of the company. You can organize the checkpoints project writing through the answers on the relevant questions. Note that your grade will be based on both the financial calculations and the interpretation. Usually, financial analysis should be conducted both along the time and against peers or industry benchmarks. a. The website http://finance.yahoo.com provides 4-year financial history for US public listed companies. b. The industrial benchmark data are available from sources like http://www.bizstats.com/. It provides the current update through a paid subscription. You can use the free delayed data for practice or reference. Our study does not require industry benchmark comparison. You can focus ratio changes over time, the underlying business decisions and transactions that caused the change, and their implications upon the financial health and investment value of the company STEP 1: Q0: Conduct an environmental scan, indicating future prospect for a company. Q0-1.Short description of the company background. Q0-2.Industry analysis on the Strength / Weakness / Opportunities / Threats of the company Strength Weakness Opportunities Threats Q1: Overview of the company financials Q1-1.What is the size, revenue, profit, revenue, and free cash flow for the last 5 years? Q1-2. How the stock performed over the recent 5 years? 2015 2016 2017 2018 Total assets Total liabilities Total equity Revenue Net income Free cash flow Price Total return Question: · Is the company of large, small, or medium size? · Is the company profitable? · Does the company generate positive free cash flow to investors? · Does the market return reflect positive on the company performance? Q2. From shareholder or investor perspective 2-1. How well has management utilized the company’s assets? 2-2. How well is the return over the stockholder’ equity? Return on Assets = Net Income / Total assets Return on Equity = Net Income / Equity 2013 2014 2015 2016 2017 Return on Assets Return on Equity Question: · Is the company profitable? · How has the profitability changed over time? · Any reason for such a change? 2-3. Cash flow analysis Free cash flow = Cash flow from operation – CAPEX 2014 2015 2016 2017 Cash flow from operating Cash flow from investing Cash flow from financing Effect Of Exchange Rate Changes Net change in Cash CAPEX Free cash flow Questions · Is the company operations profitable? · Is there any financing need? For what purpose, investment or financing? · Is there any major investment spending? For what purpose? · Does the company provide healthy free cash flows to investors? · Cash is the “King”. How does the cash flow situation related the stock performance? Q3.From Manager’s perspective 3-1.DuPont Identity DuPont Identity decompose the ROE into three different sources: profitability, management efficiency, and financial leverage. Net profit margin = Net Income / Sales Total asset turnover ratio = Sales / Total assets Equity multiplier = Assets / Equity Return on Equity = (Net Profit Margin) * (Total asset turnover) * (Equity Multiplier) 2014 2015 2016 2017 Net profit margin Total asset turnover Equity multiplier Return on Assets Return on Equity Questions: · Profit margin: Are profits high enough, given the level of sales? · Total asset turnover: Are sales higher enough, given the level of assets? · Equity multiplier: How did the financial leverage change the return on equity? · What has been the main driving factors for the change of ROE in recent years, profitability, asset turnover, or financial leverage, or mix of the three? 3-2. Management efficiency 2014 2015 2016 2017 Account collection period Inventory holding period Account collection period = (Account Receivable) / (Credit Sales / 365) Notes: If there is no data on “credit sales”, use “sales” data instead. Inventory holding period = (Inventory) / (Cost of goods sold / 365) Questions: · Are receivables coming in too slowly? · Is there too much cash tied up in inventories? 3-3. [Cost-volume analysis for EBDAT breakeven] How does current revenue compare with the breakeven level? VC = Variable cost = cogs CFC = (Admin + marketing + other operating expense) + (interest expense) R = Revenue SR = Survival revenue = CFC / (1 – VC / R) 2014 2015 2016 2017 R: revenue VC: cost of revenues TC: Total operation expense FC: fixed cost VCRR: Variable cost revenue ratio SR: Survival Revenue, FC / (1-VCRR) When actual revenue > Survival Revenue, the company can achieve profit over the fixed and variable cost combined. The ratio of R/SR shows the overall profitability for the company. Questions: · Does the company operate beyond a break-even revenue level? · How did the Revenue / Survival revenue ratio change recently? · What is the implication? Q4.Short-term Creditors 4-1.Does this customer have sufficient cash or other liquid assets to cover its short-term obligations? The Current Ratio and Quick Ratio measure the short-term liquidity of the firm? The Current Ratio [Current Assets / Current Liabilities] The Quick Ratio [(Current Asset – Inventories) / (Current Liabilities)] 2014 2015 2016 2017 Current Asset Current liabilities Inventories Current ratio Quick ratio Questions: · Is the company facing liquidity issues for operation? · How the company liquidity situation changed over time? Q5.Long-term creditors Debt-to-Equity (D/E) = [Total liabilities] / [Total Equity] The Times Interest Earned (TIE) [Income + (Interest + Taxes)] ÷ [Interest Expense] 2014 2015 2016 2017 Total assets Total liabilities Total stockholders' equity Debt ratio Debt / Equity ratio EBIT Interest expense Interest coverage ratio Questions · As a potential or present long-term borrower, how heavy is debt financing over equity financing? · Are earnings and cash flow sufficient to cover interest payments and provide for some principal repayment? Q6.Market 6-1.How is the financial performance priced in the financial markets? Price-book ratio = [price per share] / [book value per share] Price-earnings ratios = [price per share] / [earnings per share] Dividend Yield = [Dividend per share / [price per share] 2014 2015 2016 2017 Price per share Book value per share Earnings per shares Dividend per share Price-book ratio Price / earnings ratio Dividend yield Questions: · How has the financial health changed over time, better or worse, for the past 5 years? · Is the market reacting favorably to the company’ business performance? 6-2.Market value added Market value added = (Price per share – book value per share) * (# of shares) 2014 2015 2016 2017 Price per share Book value per share # of shares Market value added Q7. Potential investors Note: for this section, no detailed calculations are needed. Questions: · Research at least two the recent investment initiative taken by the company. · How such initiatives could affect the company’s future cash and value? · What are the potential risks associated with the investment activities? · What are the implication for investors? STEP 2: Q8. Cost of capital (to be finished in step 2) Note: if there is no allocation to preferred stocks, you can ignore the component from preferred stocks. 8-1Weighted average cost of capital amount % before tax cost after tax cost cost component Debt ?? ?? ?? ?? ?? Equity ?? ?? ?? ?? ?? Preferred ?? ?? ?? ?? ?? tax rate ?? Total Capital ?? WACC ?? What does the WACC mean? 1) The average cost of financing or hurdle rate for the business 2) The average return required by the capital providers 3) The opportunity cost for the capital providers 8-2.Economic value added The business need to make higher return than the WACC to be profitable. The wacc is the opportunity cost of the capital from the capital providers. The dollar amount business can achieve beyond the opportunity cost of capital is called economic value added. EBIT = ?? Assume T = Tax rate = 35% Total capital from financing = (Debt + Preferred + Equity) Economic value added = EBIT * (1-T) – (Total capital) * WACC. tax rate 30% EBIT 644.00 EBIT * (1- T) 450.80 WACC 11.18% Investor supplied capital 120,205.00 Economic value added -12,990.90 Question: · Is the economic value added positive or negative? · What is the implication from the result? Q9.Summary (detailed analysis is required) 9-1. List your overall conclusion on the financial analysis. 9-2. Were the financial ratios and indicators accurate reflection of business performance? 9-3. Comment on the company’s financial condition: excellent, healthy, or ill. 9-4. Is the stock over, under, or fairly-priced? 9-5. Is the stock a good investment candidate? Buy or Sell? Running head: Sony analysis 1 Sony analysis 8 Sony Analysis Luis Maldonado Lynn University Sony Analysis Executive Summary This report will give the extensive research and analysis on Sony Corporation. Valuation of Sony is primarily based on multiple growth factors, which drives the revenue and earnings of the company. Moreover, DCF and FCFF valuations are based on some assumptions, which is explicitly mentioned in the report. I would recommend to investors to keep a closer eye on the stock as it is undervalued by the market. Furthermore, the value of the stock is going down because of trouble in the world due to COVID-19 scare, problems with currency, economic crisis all across the world. 1 Company Overview Japanese based multinational organization headquartered in Konan, Tokyo, Sony today is one of the most well known organization in the world. Established in 1946 by Masaru Ibuka and Akio Morita,