mba strategic finance assignment

5/23/2018 MBA Strategic Finance Assignment

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STRATEGICFINANCEASSIGNMENTONE

Date: June 1, 2004

Author: Lestor Meao!s

Strategic Finance, Assignment One Page = 1


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ContentsStrategic Finance Assignment One.................................................................1

Background........................................................................................................3

Highlights from the Essence of Success.........................................................3

Profit and Loss Statement...............................................................................4Balance Sheets................................................................................................

!urrent Position.................................................................................................."

Sales #ro$th.............................................................................................."

!ost of #oods Sold....................................................................................."

Earnings Before %nterest & 'a(..................................................................)

*e+t !o,erage -atio..................................................................................)

easures of Efficienc/ and Profita+ilit/............................................................0

#ross Profit argin....................................................................................0

et Profit -e,enue..................................................................................... 0

E(2enses as a Percentage of Sales..............................................................-eturn on Assets.........................................................................................

*e+tors -atio Anal/sis...............................................................................

Stock -atio Anal/sis................................................................................1

Stock 'urno,er.........................................................................................1

Stock 5 Sales -atio....................................................................................1

Percentage arku2...................................................................................11

Stock Profita+ilit/.....................................................................................11

easures of Financial Sta+ilit/........................................................................16

!urrent -atio............................................................................................16

7uick -atio..............................................................................................16%nterest !o,er...........................................................................................16

*e+t 5 E8uit/ -atio...................................................................................13

Pro+lem Areas .................................................................................................14

!ash Flo$.....................................................................................................14

*e+tors 9Accounts -ecei,a+le:....................................................................14

Holding E(cessi,e Stock..............................................................................14

'a(es............................................................................................................1

'rading as %nsol,ent.....................................................................................1

Actions to +e 'aken..........................................................................................1

Financial -e2orting......................................................................................1!ash Flo$.....................................................................................................1

*e+tors 9Accounts -ecei,a+le:....................................................................1

Holding E(cessi,e Stock..............................................................................1

'a(es............................................................................................................1"

Bonus Pa/ments ..........................................................................................1"



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"a#$%roun

&'%h('%hts )ro* the Essen#e o) Su##ess

Rising nationalism and a falling exchange rate have boosted sales in localfood types over the past three years. They no acco!nt for "#$ of nationalsales, estimated at a retail val!e of %"&' million.

The company recently anno!nced a "( year contract to export its food typesto the )iddle *ast and +orth Africa. ith the first sales of at least %# million,the contracts ill treble the company-s exports.

ocal made food types acco!nt for an improved "# percent of the localmar/et.

A0)* no employs abo!t "(( people mainly in So!th )exico. 1e also hassales reps in capital cities servicing 2((( c!stomers in pharmacies anddepartment stores. This year sales are expected to gro by #( percent to %"#million, aided by the la!nch in September of three ne lines 3 4!rritos,Tacosand *nchiladas.

5t-s been a hard slog, ith o!r sales groth co4!rritos s!ddenly, bolstered byrising nationalism and an %A exchange rate hich has made )exican foodtypes very expensive.6

The )exicon mar/et is ro!ghly divided into to sections 3 2( percent fine

fragrances, mainly )exican and American, and 7( percent 8life style6 lines. Ofthe imported food types, the cheapest standard si9e line retails at beteen%#' and %2( ith the res!lt that these food types are losing mar/et share.

According to +inio, s!rprisingly &( 3 7( percent of perf!me sales in )exicores!lt from so:called promotional sales: that is, items other than thoseavailable "# months of the year.



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+ro)'t an Loss State*ent

As at 0thJune 1-./, 1-.. an 1-.-

1-./ 1-.. 1-.-Sa(es 7,(((,((( "(,#((,((( "#,(((,(((

ess; 0ost of goods sold '&(,((( 7,#(( 22,&((4on!s '&,((( "&,((( ,&(( >",(>,#((

Add Retained Profits #(,((( &7#,,((( ",'


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"a(an#e Sheets

As at 0thJune 1-./, 1-.. an 1-.-

1-./ 1-.. 1-.-

0apital ""7&((( ""2"&(( "'"#(((Retained Profits &7#((( "'7((( &'#&((((4an/ Overdraft Cshort term interestD '&(((( "2'((( "'&((((ong Term oan +il +il +il

/2000 20/.00 2320000

1.4.000 2/1.400 400.000

Strategic Finance, Assignment One Page =


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Current +os't'on

Sales Eroth1-./ 1-.. 1-.-

Sales 7,(((,((( "(,#((,((( "#,(((,(((Eroth &$ "


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*arnings 4efore 5nterest G Tax1-./ 1-.. 1-.-

*45T &77,&(( ","#',,#((iabilities &7#,((( #,(7


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Measures o) E))'#'en#5 an +ro)'ta'('t5

Eross Profit )argin1-./ 1-.. 1-.-

Sales 7,(((,((( "(,#((,((( "#,(((,(((Eross Profit 2,&(,((( ,#'(,((( ,',(((Percentage #,&(( >",(>,#((Percenta

ge '.&$ >.($ 7.&$

De)'n't'on: Shos ho m!ch profit comes from every dollar of sales.

For*u(a: +et ProfitTotal Sales

Ana(5s's: Are yo! generating eno!gh sales to leave an acceptable profitI

Trend from year to year can sho ho ell yo! are managingyo!r operating or overhead costs.

ACME: A0)* has managed its expenses ell in areas s!ch as repairsand maintenance, rent, cleaning and s!ndries. 5t is orth noting a($ increase s!perann!ation and significant increase in 4on!s-.

There is indication that A0)* managed expenses to co!nter debtin gross profit margin.



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*xpenses as a Percentage of Sales 1-./ 1-.. 1-.-

Sales 7,(((,((( "(,#((,((( "#,(((,(((

Total *xpenses #,&",'',((

liabilities #,'#(,((( ,7>7,((( &,'#


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?ebtors '&(,((( ",&(,((( 2,"#(,(((

?ays #>.# '.>

De)'n't'on: This calc!lation shos the average n!mber of days it ta/es to

collect yo!r acco!nts receivable Cn!mber of days of sales inreceivablesD.

For*u(a: Average Acco!nts Receivable Sales L 2&( days

Ana(5s's: oo/ for trends that indicate a change in yo!r c!stomerspayment habits

0ompare the calc!lated days in receivables to yo!r statedterms

Revie an Aging of Receivables and be familiar ith yo!rc!stomer-s payment habits and atch for any changes that

might indicate a problem.ACME 0learly the biggest problem area ithin A0)* as debt collection

has more than tripled since ">


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period and the sales for that period. 5t is determined by dividingstoc/, preferably at the beginning of the period, !s!ally monthly,by sales. 5t is disting!ished from inventory t!rnover or stoc/t!rnover, hich are ratios or averages for a period of time, !s!allyann!ally.

For*u(a: SalesStoc/ CinventoryD

Ana(5s's: 5n a ell managed operation, the level of stoc/ sho!ld beadeB!ate to meet the needs of sales and prod!ction.

*xcessive stoc/ levels may res!lt in excessive storage costsand servicing of capital tied !p in inventory.

ith excessive stoc/ there is a ris/ of loss thro!ghobsolescence and or deterioration of stoc/.

ACME As noted ith stoc/ t!rn, there is an alar4!rritos increase of stoc/over the period ">


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Measures o) F'nan#'a( Sta'('t5

0!rrent Ratio1-./ 1-.. 1-.-

0!rrent Assets : Stoc/ #,'#(,((( ,7>7,((( &,'#7,((( &,'#


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5nterest Paid "(,((( "&,((( ">#,(((

2.


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+ro(e* Areas

Cash F(o!0!rrently A0)* does have not developed a 0ash Flo process ands!bseB!ently cash is not noted on the company-s balance sheet. 0ash floproblems are responsible for ca!sing 7($ of all b!sinesses to fail ithin theirfirst year. itho!t this information

ith a cash flo statement and reg!lar revies of /ey performance indicators,A0)* ill catch iss!es li/e the example belo here debt is not beingcollected.

Current Assets

?ebtors Cneeds to collect soonerD '&(((( "&(((( 2"#((((

An effective credit policy and control are alays at the forefront of maintaininga healthy cash flo.

Detors 6A##ounts Re#e'7a(e8For the second consec!tive year, acco!nts receivables have been increasingat an alar4!rritos rate and are no !p to >' days. There appears to be noplan or process to manage this and s!bseB!ently has developed a gearingiss!e.

?ebtors Ratio Analysis 1-./ 1-.. 1-.-

Sales 7,(((,((( "(,#((,((( "#,(((,(((

?ebtors '&(,((( ",&(,((( 2,"#(,(((

?ays #>.# '.>

A0)* needs to ens!re they have some form of a debt recovery plan. 5f theplan fails to bring in the money, a debt collector may be the best option.

&o('n% E#ess'7e Sto#$A0)* is c!rrently holding excessive amo!nts of stoc/, tying !p money in!nprod!ctive assets. This is a real concern considering&( 3 7( percent ofperf!me sales in )exico res!lt from so:called promotional sales: that is,items other than those available "# months of the year. 1olding stoc/ forlonger than one year creates obsolesce.

Jey performance indicators in;

Stoc/ T!rnover Cdonard trendD

Stoc/ M Sales Ratio C!pard trendD

Percentage )ar/!p Cdonard trendD

Stoc/ Profitability Cdonard trendD



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Are confir4!rritos there is a lac/ on inventory management ithin thecompany. This stoc/ is potential obsolete hich is also inflating c!rrent assetfig!res.

TaesThere appears to be an anomaly in the amo!nt of tax paid in "> and moving forard.

Cash F(o!

0reate cash flo statement into the financial reporting of the company.

?evelopment performance indicators hich monitor and react to problemareas of cash flo.

Detors 6A##ounts Re#e'7a(e8

Revie staffing reB!irements for this effort

5mplement a 0redit Policy 5mplement 0redit 0ontrol

5mplement ?ays Sales O!tstanding C?SOD

5mplement collection methods

5mplement a!dit program to revie c!rrent problem and better managethis area in f!t!re

&o('n% E#ess'7e Sto#$

5mplement a revie of c!rrent val!e of stoc/ and impact to b!siness ifritten off

5mplement inventory management process



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Taes

0ond!ct a revie of payment of taxes for ">

mba strategic finance assignment

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