Extract the company’s FY08 10-Qs and 10-K from SEC site or it’s IR section. Fill the data into the template provided.
using 10-Q for Q1 08, Q2 08 Q3 08 and Q1 09; using 10-K for Q4 08
1. Assume that the company was operating at a full capacity with respected to all assets as of FY08 ending. Estimate the QI of FY09 financing requirements using the pro forma financial statement approach. Making an initial forecast, then make several adjustments to determine the effects of “financing feedbacks.” ASSUME ANY EXTERNAL FINANCING NEEDS WILL BE FUNDED USING NOTES PAYABLE AT AN ASSUMED INTEREST RATE. Also assume that each type of assets, current liabilities, and fixed and variable costs grow at the same rate as sales except the constant dividends.
2. Calculate the company’s key financial ratios for each quarter of FY08 and forecasted QI of FY09. Compare these ratios over time and with its industry average. Construct the DuPont Equation of ROA and ROE using the calculated financial ratios. How does the company do so far and is the company expected to improve during the coming quarter? Specifically, based on the comparison, how could the company’s DSO and inventory turnover affect its AFN and other financial ratios?
3. Calculate the company’s quarterly operating break-even sales in dollar amount and the differences from actual sales in percentage, plus its financial breakeven EBIT, the degree of operating leverage, the degree of financial leverage, and the degree of total leverage. Compare these metrics over time for the company. How does the company do so far and is the company expected to improve during the coming quarter? (A CHALLENGE: CAN YOU ESTIMATE THE CAPACITY BASED ON THE METRICS CALCULATED HERE?)
4. Without actually working out the numbers, how would you expect the key ratios in Question 3 to change when excess capacity in fixed assets exists? Explain your reasoning.
5. Suppose you now learn that the company’s FY08 QIV receivables and inventories were in line with required levels, given the firm’s credit and inventory policies, but that excess capacity existed with regard to fixed assets. Specifically, assume that fixed assets were operated at only 50%. (1) What level of sales could have existed in 2009 with the available fixed assets? What would be the fixed assets/sales ratios have been if the company had been operating at full capacity? (2) How would the existence of excess capacity in fixed assets affect the additional funds needed during the forecasted QI of FY09?
6. For forecasted FY09 QI, draw the operating breakeven chart to reflect the fact that the breakeven point is due to the existence of fixed costs and the economy of scale as sales go up, i.e. the fixed-cost/unit gets lower with larger and larger sales. Does the company enjoy any EOS? If not, why and what you, as a manager, will do to improve the situation?
7. Discuss the three or four most important assumptions or “key drivers” in this pro forma forecast case analysis. What are the effects of these factors on additional funds needed to be raised externally? Intuitively, why are these assumptions so important? Focus your comments on results and link them to recommendations, such as key factors to manage,opportunities to enhance results, and issues warranting careful analysis.