MBA620 Project-Financial Analysis to Accomplish an Organization's Strategic Goals

"Welcome Aboard!"

You have just landed a job as a financial analyst at IPS, a company that manufactures drives, processors, and other vital components for computer systems. On your first day, the CFO greets you: "Welcome! We are so glad to have you on board. Management has been anxious to set some new strategic goals, but the board recognizes that, at the moment, we just don't have the information to proceed."

She continues: "As you know, IPS' premiere product is the MiniZ and we would like to grow our share of the market. We think we can do that by diversifying our product line. The board is expecting recommendations at an early date."

You know that the task before you requires an understanding of the industry, fixed and variable costs, optimal level of production, and profit. Timely and accurate financial statements will be essential.

You decide that your first step should be to schedule a meeting with the company controller and his staff. In the meantime, you spend a few hours online searching for information about your new employer. You come across a couple of items that spark your interest: one about a client that went bankrupt, and another about the sale of a factory and its equipment. You also learn that there are only a few major players in the digital components industry.

When you meet with the controller, you ask about the online news stories. The controller admits that they are understaffed and haven't gotten around to updating the financial statements to show the impact of the client's bankruptcy and the sale of the factory.

He says, "The CFO will provide the demand figures for the MiniZ, and also the production specs." He gives you access to the firm's technical database. You leave his office thinking that you finally have all the information you need to do your job, but the CFO has requested one last piece of the puzzle: insight into the financial viability of two other companies in your industry. You agree and get to work immediately!

This project will require you to determine the structure of the industry of your firm, and its impact on production quantities and prices. You will prepare and analyze the financial statements of your firm to evaluate its financial health and its future prospects.

Begin with "Step 1: Analyze Industry Structure, Costs, Prices, and Optimal Production Levels."

When you submit your project, your work will be evaluated using the competencies listed below. You can use the list below to self-check your work before submission.

3.1 Identify numerical or mathematical information that is relevant in a problem or situation.

3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

10.1 Apply relevant microeconomics principles to support strategic decisions for the organization.

10.2 Analyze financial statements to evaluate and optimize organizational performance.

Question 1: Your first task is to determine whether your firm is in a competitive industry.

Based on the following demand function for the firm's product, what would you answer?

Q = 50,000 – 25*P

Q is the amount produced and P is the price.

Before starting your calculations, review materials on industry structure demands and prices and price, cost, and profit analysis.

Submit your Competitive Industry Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

Now that you have examined whether your firm is in a competitive industry, let's take a look at some questions related to price, cost, and profit analysis.

Question 2: At the profit-maximizing level, what is the relationship between marginal cost, marginal revenue, price, and average cost for firms in competitive and oligopolistic industries?

The CFO has provided the following information to you:

fixed costs for the MiniZ are $2.75 million

variable cost per unit is $200

She wants you to analyze the fixed and variable costs, optimal level of production, and profit for the MiniZ component.

Question 3: Find Q, P, average cost, and profit for the MiniZ at the profit-maximizing level. (Again, the demand function for the MiniZ is: Q = 50,000 – 25*P.)

Submit your Price, Cost, and Profit Analysis Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

When you have submitted both your Competitive Industry Report and Calculations and your Price, Cost, and Profit Analysis and Calculations, continue to the next step, where you will make corrections to financial statements, prepare a Comparative Analysis Report, and submit a Comparative Risk Assessment Report.

Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.

3.1 Identify numerical or mathematical information that is relevant in a problem or situation.

3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

10.1 Apply relevant microeconomics principles to support strategic decisions for the organization.

10.2 Analyze financial statements to evaluate and optimize organizational performance.

Mechanics to Obtain Information

You will have to retrieve financial data for AMD and Intel from the Securities and Exchange Commission (SEC) website. The webpages with the required information may change over time so you should use the following archived links:

Intel:

https://www.sec.gov/Archives/edgar/data/50863/000005086316000105/a10kdocument12262015q4.htm

AMD:

https://www.sec.gov/Archives/edgar/data/2488/000000248816000111/amd-12262015x10k.htm#s886EF4243BD1OBB1E6755EBE7EA3F51F

Once you are on a webpage, follow the links to get the required information. For example, on the Intel page click the Item 8 link, Financial Statements and Supplementary Data. This link will take you to the part of the page with the following links, which will provide you the information you need:

Reports of Independent tered Public Accounting Firm

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders' Equity etc.

The CFO suggested that you use Excel (financial analysis data in Excel) to perform a financial ratio analysis of both companies' income statements, balance sheets, and cash flow statements for the previous three years. Your analysis needs to include the following calculations and responses (when tables are provided, you need to fill in the answers):

Question 5: Calculate the annual percentage change in revenues and net income for two years (2013 to 2014 and 2014 to 2015). Is one company growing faster than the other in revenues? (Note that as AMD makes losses, the item is written as "Net Loss" rather than "Net Income").

Intel Annual Percentage Change

Intel

Revenue growth

Net income

2013 to 2014

2014 to 2015

AMD Annual Percentage Change

Intel

Revenue growth

Net income

2013 to 2014

2014 to 2015

Question 6: Calculate the following balance sheet ratios for both companies for 2014 and 2015: current ratio, quick ratio, days receivables outstanding, days inventory held, and total debt/total assets.

Note the following details to answer this question:

· For Intel, take marketable securities = short term investments + trading assets.

· For days inventory held, you need to take the average of inventory at the beginning and end of the accounting period. As you have data only for 2014 and 2015, you should only calculate days inventory held for the year 2015.

· For AMD use "cost of sales" as COGS.

· For calculating days receivables outstanding, use accounts receivable at the end of the period rather than average accounts receivable for the period.

· For "annual sales" use "net revenues."

· You can calculate total debt for Intel = total current liabilities + long-term debt + long-term deferred tax liabilities + other long-term liabilities + commitments and contingencies, and total debt for AMD = total current liabilities + long-term debt + other long-term liabilities + commitments and contingencies.

Intel Balance Sheet Ratios

Intel

2015

2014

Current ratio = (current assets)/(current liabilities)

Quick ratio = (cash equivalents + marketable securities + accounts receivables)/current liabilities

Days receivables outstanding = accounts receivable / (annual sales/365 days)

Days inventory held = Average inventory held per day/COGS per day = ((inventory at beginning + inventory at end)/2)/(COGS/365)

X

Total debt/total assets

AMD Balance Sheet Ratios

Intel

2015

2014

Current ratio = (current assets)/(current liabilities)

Quick ratio = (cash equivalents + marketable securities + accounts receivables)/current liabilities

Days receivables outstanding = accounts receivable / (annual sales/365 days)

Days inventory held = Average inventory held per day/COGS per day = ((inventory at beginning + inventory at end)/2)/(COGS/365)

X

Total debt/total assets

Question 7: Calculate the following cash flow ratios: net income/total cash from operations and total cash from operations/total of all cash inflows for 2014 and 2015. Did the company receive a net cash inflow from financing or from sale of investments?

Note the following details to answer this question:

· Total of all cash inflows is the item "Net increase (decrease) in cash and cash equivalents."

· Sale of investments is the item "Net cash used for investing activities."

Intel Cash Flow Ratios

Intel

2015

2014

Net income/total cash from operations

Total cash from operations/total of all cash inflows

Net cash in flow from financing? (Yes/No?)

Net cash inflow from sale of investments? (Yes/No?)

AMD Cash Flow Ratios

Intel

2015

2014

Net income/total cash from operations

Total cash from operations/Total of all cash inflows

Net cash inflow from financing? (Yes/No?)

Net cash inflow from sale of investments? (Yes/No?)

Question 8: Calculate the following ratios using the income statement and balance sheet for two years: return on equity (net income/total shareholder equity), profit margin (net income/revenues), total asset turnover (revenues/total assets), and the equity multiplier (total assets/total shareholder equity) for 2014 and 2015. Notice that return on equity is the same as the multiplication of the next three ratios.

Note that shareholders, stockholders, and equity holders all refer to the same set of owners.

Intel Income Statement and Balance Sheet Ratios

Intel

2015

2014

Return on equity = net income/total shareholder equity

Profit margin = net income/revenues

Total asset turnover = revenues/total assets

Equity multiplier = Total assets/total shareholder equity

AMD Income Statement and Balance Sheet Ratios

AMD

2015

2014

Return on equity = net income/total shareholder equity

Profit margin = net income/revenues

Total asset turnover = revenues/total assets

Equity multiplier = Total assets/total shareholder equity

Conclude your analysis by answering the following questions:

Question 9: What is management's view of the significant risks and important aspects of the business for 2015? (Note: from Item 1A, Risk Factors)

Question 10: What is the name of the accounting firm that audited the financial statements, and what was the opinion expressed for 2015? (Note: Search for the item Report of Independent tered Public Accounting Firm.)

Question 11: Which top two members of the management team (do not include those who are only directors) were responsible for preparing and issuing the financial statements for 2015, and what were their positions in their firms? (Note: Search for the item Signatures.)

Question 12: What is management's view on the causes of the changes in financial results for 2015? (Note: From item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations)

Before starting your calculations, review materials on data-based decision making and financial statements analysis. Also review the following topics:

Ratios That Analyze a Company's Short-Term Debt-Paying Ability

Ratios That Analyze a Company's Long-Term Debt Paying Ability

Ratios That Analyze a Company's Earnings Performance

Ratio Summary

All are contained in Financial Statement Analysis. You will need to scroll to or search for these topics.

Submit your Comparative Analysis Report and Calculations to the Dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.

After the CFO has had time to review your report, she returns it with her suggestions. She attaches a note saying, "This is a LOT of information! Would you mind summarizing your findings by answering the following questions?" Show your calculations and answer these questions for 2015 only:

Question 13: The profit margin is an indication of pricing. Does one company price lower than the other for 2014 and 2015? If so, which company?

Question 14: Does one company turn over assets faster than the other for 2014 and 2015? If so, which one? This is an indication of supply chain management and product life.

Question 15: Does one company have more debt than the other for 2014 and 2015? If so, which one? (Note: Provide answers for greater debt as a percentage of total assets and greater total dollar debt.)

Question 16: Does one company earn a greater return on shareholder investment for 2014 and 2015? If so, which one?

Question 17: Are there any significant differences between companies in balance sheet ratios for 2014 and 2015? Is one company more at risk, financially? If so, indicate which one.

Looking back, you were tasked with analyzing IPS's past performance, future prospects, and financial risks. The CFO reviewed each section of your report and suggested revisions (Steps 1-3). You have made the suggested changes. Now it's time to summarize your data-based strategic recommendations. Your CFO would like to be able to present your recommendations to the board in a concise, visually engaging Powerpoint presentation.

You pore over the completed report, highlighting the most salient points and inserting comments in the margins. You say goodbye to your coworkers as they leave for the day and work long into the evening, distilling your recommendations into a persuasive presentation before you call it a night.

Before starting your calculations, review materials on data-based decision making.

Submit your Recommendations for Management in dropbox below.

Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.

3.1 Identify numerical or mathematical information that is relevant in a problem or situation.

3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

10.1 Apply relevant microeconomics principles to support strategic decisions for the organization.

10.2 Analyze financial statements to evaluate and optimize organizational performance.