Corporate Finance - The ProjectYour project report should include an analysis of your company in the...

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Corporate Finance - The ProjectYour project report should include an analysis of your company in the areas below. Where appropriate comment on the differences between your company and the companies the rest of the rest of your group.	Corporate Governance - There are several questions to address here.					How much power do you have as a shareholder over the management of this company? To answer this you want to look at the board of directors (are they going to look out for you?), the ownership structure (is there a potentially activist shareholder?), the presence of anti-take-over measures, and anything else you can think of.			Are there potential conflicts of interest between inside stockholders and outside stockholders? Can the insiders take advantage of you somehow?			Are there potential conflicts of interest between stockholders and bondholders? Information on this is usually hard to find, but if you do learn something interesting, by all means include it in your analysis.			Is the company a good corporate citizen? All companies claim to be. If you find anything interesting here, include it.				Who is your company’s marginal investor? Remember that this will feed into your hurdle rate analysis.	Cost of Equity and Cost of Capital					Estimate the risk-free rate. If you are analyzing a company is US dollars, this is easy. Use the yield on the 10-year US T-bond.			Estimate the equity risk premium. We talked about several ways to estimate this. See me if you have any questions.			Evaluate the beta regression for your company. Include									Jensen’s Alpha					The beta estimate with confidence intervals					The R-squared										Estimate a bottom-up beta for your company			Estimate the market value of your company’s debt, including off-balance sheet debt.			Estimate the cost of debt			Estimate your company’s levered bottom-up beta			Compute your cost of equity and cost of capital				Measuring Investment Returns					Estimate you company’s return on capital and EVA			Estimate your company’s return on equity and equity-EVA.				Capital Structure					Do a qualitative analysis of your company’s optimal capital structure, paying attention to the two main benefits and three main costs of debt we discussed.			Use the Cost of Capital Approach to estimate your company’s optimal capital structure.									I will provide a spreadsheet which will take care of much of the computational part of this, but don’t let the spreadsheet become a black box.										Check for downside risk in moving to your optimal capital structure			Explain why your optimal is what it is. This is one of the points where comparison to other companies in your group will be very helpful. Look at									Tax rates					Cashflow generating capacity					Volatility in Earnings										If you want to, try out the APV method, but this is not required.				Getting to the Optimal					Evaluate whether the company has time to go slowly			Evaluate whether your company has good investment opportunities. (Look back to the Measuring Investment Opportunities part for clues about this.)			Make your recommendation				Design your perfect debt					Keeping in mind the objective of matching debt to assets, think about the typical investments that your firm makes and try to design the right debt for the project. If your firm has multiple businesses, design the right kind of debt for each business. In making these judgments, you should try to think about									whether you would use short term or long term debt					what currency your debt should be in					whether the debt should be fixed or floating rate debt					whether you should use straight or convertible debt					what special features you would add to your debt to insulate the company from default										Your objective is to get the tax advantages without exposing yourself to default risk.	Do a quantitative analysis of your debt.					Again, I will provide a spreadsheet to help with this.				Dividend Policy					What were the free cash flows to equity for the last few years and how much did they actually pay in dividends?			Do you trust the management to hold your cash for you?			Would you change this company’s dividend policy?			Optional: Relative to other companies in your sector, does this company pay too much or too little in dividends? (Use a regression if necessary.)				Valuation					Will you use cashflows to equity or cashflows to capital?			What growth pattern will you assume?			What are your estimates of the short- and long-term growth rates for this company? (Remember that your reinvestment rate is a part of this estimate.)			What is the value of your firm? Is it over or undervalued? How much of this value comes from expected growth? How sensitive is your estimate to changing assumptions?			Finally, what about value enhancement?									Where is this firm doing badly (investment, financing, or dividend policy)?					If you fixed the problems, what would happen to the value of the firm?					Based on your analysis, is this firm a take-over candidate (or just a buy or sell candidate)?

David · Accepted Answer

Mohawk flooring financial statement analysis 1 
 
Running head: MOHAWKFLOORING FINANCIAL STATEMENT ANALYSIS
Financial statement analysis  
Name 
Institution 
Date
Mohawk flooring financial statement analysis 2 
 
Introduction 
Mohawkflooring is a leading distributor of commercial and residential flooring around 
the world. The company was among the pioneers of carpet manufacturers in America and its 
history dates back to 1800s. The company is headquartered in Georgia and its operations 
organized into three categories: Unilin, Dal-Tile and Mohawk. The company main objective is to 
create functional products that are capable of meeting the aesthetic needs the customers. The 
company’s operations range from carpet fiber technology to laminating designs and installation.  
Mohawk offers products that meet their customers decor needs, better performance as 
well as easy care. These are in line with the company drive for continuous improvement and 
innovation. The company business framework is a forward and backwards integration meaning 
that the company controls a majority of the manufacturing phase of its products. The advantage 
of the integrated approach is quality control, reliable raw materials and cost management.  The 
company enjoys leading in a number of flooring categories that include ceramic, stone, tiles, 
carpets, wood and rugs. Currently the company is worth about $5.6 billion and employs close to 
26,000 employees. 
Mohawk Company is listed at the New York Stock Exchange and makes public 
necessary information that relates to its board, privacy policy and compensation to the 
executives, the board contact information ethics and standard of conduct. In the stock exchange, 
the company is listed under the “MHK” symbol. The above information is availed to the public 
in the company website. Available also in the website are the proxy fillings with the SE. 
The company is currently valued at 6.87 billion with outstanding shares of 69 million 
where its return on equity is 5.85%, profit margin 3.56% return on assets 3.51and number of 
Mohawk flooring financial statement analysis 3 
 
shorted shares is 1.54 million. The shareholding of the company is 80.10% institution and 
insiders are 16.82%. The price to earnings is 27.4 times while price to book is 1.6 times. The 
company revenues stand at 5.7 billion while cash and its equivalents are 319.46. The total debt 
for the company is 1.63 billion while debt to equity is 0.47 times. Market capitalization 5.56 
billion, book value per share is 50.38, working capital 1.74 billion its retained earnings.     
Corporate Governance 
According to the corporate guidance guidelines, the corporate governance and 
nominating committee reviews with the board annually on the necessary experience, 
characteristics and skills of desired members of the board.  The board is responsible for the 
selection of its own nominees and recommends them to be elected by the shareholders. The 
board has delegated the screening of qualified candidates to the committee.  Directors for the 
company are elected at a general meeting that held at the company’s headquarters. Elected 
directors serve in their position for a period of 3 years, and another election held. During the 
election, shareholders cast their votes personally to elect the directors or on their absence, a 
proxy can represent them in the meetings. 
New directors undergo an orientation process that includes complete information for the 
company, the industry and other background materials. The board is responsible for the selection 
of the chairman as well as the chief executive officer. The board is also responsible for the 
assignment of duty to the two office holders, and it determines whether their responsibilities 
should be similar or not. The size of the board ranges from two to eleven and the exact board 
number are made by a resolution of the board. The size of the board changes frequently 
depending on the core competencies required by the board (Mohawk (a) 2012). 
Mohawk flooring financial statement analysis 4 
 
In the guidelines published by the company, members of the board are independent 
directors and the board follows the NYSE listing standards to determine the independence of the 
directors. A director is taken to be independent where in the past three years he has not been an 
employee of the company, or a family member has been or is an executive of the company. A 
director is Independent if he has received over $120,000 as direct compensation from the 
company in a period of twelve months within the previous three years. A Director should not be 
an employee or partner of the company’s audit firm or a family member being a current partner 
or employee in the firm who has worked personally for Mohawk. 
For a board member to be effective, participative and compliant with the attendance, the 
board limits the number of public companies board sitting of a director. Directors are required to 
inform the chairman of the board as well as corporate governance and nominating committee any 
service that they have been called upon. For those directors who change their job after securing a 
position in the board, they are required to submit a resignation letter to the board. The term limit 
is not established to reduce chances of lost contribution made by a director. It is therefore the 
responsibility of the committee and the chief executive officer to review the continuation of 
every director in the board during the tenure of director term of office (Mohawk (a) 2012). 
Directors are required to retire at the end of three years if they are 75 years of age.

Corporate Finance - The Project Your project report should include an analysis of your company in the areas below. Where appropriate comment on the differences between your company and the companies...

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