Explain how you will respond when the President of Norges Bank Investment Management, which manages the assets of the world’s largest sovereign wealth fund, “The Government Pension Fund Global of Norway,” calls upon you in your Michigan office to tell you that the Fund is no longer happy with your company’s record of caring for the environment. Specifically, the President tells you that her fund wants Ford to announce the cessation of manufacturing of all gasoline and diesel powered cars and trucks within two years. The Fund owns 4.99% of Ford common stock and the President indicates that she has had informal contacts with Carl Icahn, Bill Ackman, Paul Singer and “others who are interested in Ford’s future and in enhancing shareholder returns from their investments in Ford.”
SAMPLE ANSWER
Investment Management Essay Question
To address this problem, it is important to check on the cause of the problem and the alternatives for solving it. It is clear that the environmental pollution is emanating from the use of diesel and gasoline fuels, and that the Government Pension Fund Global is not happy with the continued use of these pollutants. Communication is an important aspect in management. I will inform the President of the Fund that I support her call for cessation of manufacturing of all cars and trucks that are powered by gasoline.
Corporate social responsibility requires a company to meet its obligations and to make decisions that are committed to the improvement of community welfare through corporate contributions and discretionary business practices. This includes environmental management, pollution management, waste management, biodiversity conservation, and pollution prevention and control. Since environmental pollution is seriously spoiling the company’s image in line with our corporate social responsibility, we need to adopt an environmental friendly approach to avoid the risk of losing the Fund and ultimate collapse. Accordingly, Ford is adopting a ‘Smart Movers’ approach whereby we will exploit all available opportunities established by the green consumers (Welford, nd). The company has realized that it is not prudent for a business to merely restrain itself to its financial impact. We realize the great impact that our company has been having on the environment as well as the community in which we operate. Indeed, the emissions from exhaust pipes, including carbon monoxide and carbon dioxide lead to air pollution and creation of smog. These gases also lead to climate change due to global warming. Thus, we consider it our responsibility to deal with all risks, stakeholder and market pressures, and conditions emerging in the course of our business. Our vision is to manufacture cars and trucks that do not emit fumes, which are harmful to the public and the environment.
Ford is going to adopt various ways to ensure that alternative fuels such as bio-diesel, electricity, LPG, and natural gas (Srisurapanon & Wanichapun, 2010) are adopted in two years’ time. Ford is ready to partner with such stakeholders as Carl Icahn, Bill Ackman and Paul Singer to ensure that there is a proper balance between the interests of the company and its corporate social responsibility. We gladly invite Paul Singer, Bill Ackman and Carl Icahn to come in to contribute to our shift to more efficient and reliable sources of energy for our cars and trucks. We also greatly need the Fund to contribute to our new move, owing to the fact that the adoption of alternatives to fossil fuels tends to have heavy financial requirements in the short-term period.
Despite the overwhelming expenses involved in the initial stages of adopting alternative sources to fossil fuels, we realize that it is very beneficial for us to go beyond regulatory standards due to the fact that this move will save on money and time, in addition to reducing hassles. It is evident that environmental friendly energy sources have the ability of paying dividends with regard to effectiveness and efficiency. As a result, Ford will have an opportunity to outshine its competitors and even attract more investors. We need the Fund’s good will to help us in achieving these goals. Thus, I would communicate all this to the President and ask her to be patient with us a little longer to get financial backups in order to shift to environmental friendly sources of energy.
This is a forecasting assignment for Business Analysis and Modelling MBA module. The core text used Quantitative Analysis for Modelling by Render and Stair.
This forms part of a group assignment.
Further details will be sent across attached later.
SAMPLE ANSWER
Forecasting Assignment
Forecasting is widely regarded as a method of predicting events that may happen in the future. The accepted definition of forecasting is the process of generating predictions concerning the future by analyzing trends emanating from past and present data (Hirschmann, 2008). Data from forecasts is considered to be estimation since the future is unpredictable, but it is a reliable source of information for planning purposes owing to the future projections of the firm. Due to the unpredictability, forecasting methods provide an allowance for risk and uncertainty, and such a degree of uncertainty is usually indicated succeeding the forecast (Hirschmann, 2008). On a wider scope, however, forecasts are imperative by enhancing the quality of decisions due to risk reduction. Forecasting relies on the statistical discipline by applying models such as time series analysis and relies on data generated from vertical and horizontal analysis (Hirschmann, 2008).
Vertical analysis is the assessment of data amongst different organizations in the same industry, and in most cases organizations of similar sizes (Hirschmann, 2008). This is also called longitudinal analysis. Horizontal analysis is the examination of data for an organization over a period, for instance the past ten years. It can also be referred to as cross-sectional analysis (Hirschmann, 2008). Forecasting methods can be categorized into quantitative and qualitative methods. The quantitative methods predict future data by the assumption that the data is function of past data. The model utilizes past numerical data to develop trends that can be extrapolated to predict future data (Hirschmann, 2008). Exponential smoothing, linear predictions and moving averages are some of the quantitative methods of forecasting. Unlike quantitative forecasting which relies on speculative data, qualitative forecasting is quite subjective (Hirschmann, 2008). The latter predicts the future by relying on judgements and opinions, for example of experts. This method is mostly used in instances where past data is not available. Examples of such models are the historical life cycle analogy and market research (Hirschmann, 2008).
Due to the advent of technology, there are several software that have been developed that are able to predict future outcomes. Amongst such include excel QM and QM for windows that are used in forecasying. Excel QM is one of the applications developed by Microsoft corporation and it is mainly used in mathematical and statistical computations. QM for windows is also an application by microsoft, with a centre focus on statistics (Hirschmann, 2008). Such applications are vital in easening the forecasting work, and provide a great deal of accuracy compared to the traditional methods such as regression analysis and use of coefficients such as the Pearson’s coefficient (Hirschmann, 2008). Such software are capable of determining variants such as coeeficients of correlation and coefficients of determination.
In this milieu, focus will be on the quantitative methods to predict future data, specifically the method of moving averages. The moving average method, also referred to as the running average, is among the several time series methods that utilize historical data in the estimation of future outcomes. This method analyzes data points through generating a succession of averages that are derived from a series of values or various segments that are successive (Chiarella, He & Hommes, 2005). Periodical data such as monthly sales may have random fluctuation every month despite a general trend being evident. Moving average helps in smoothing away these random changes (Chiarella, He & Hommes, 2005).
A moving average is the forecast for a period that takes the average of the previous periods (Chiarella, He & Hommes, 2005).The moving average takes the average of previous series collected from a preliminary fixed subset. This subset is shifted forward, hence creating a new subset of numbers. The average of this new subset is determined, and the process is replicated on the remaining data in the series (Chiarella, He & Hommes, 2005). The moving average results to the smoothing of fluctuations that are short-term and in the process underlining the long-term trends from the given data.
Among the functions of the moving average method is the identification of reversals and trends of data over a period. The method is also imperative in the determination of the levels of support and resistance (Chiarella, He & Hommes, 2005). In stock trading, the moving average is key in imparting vital trading signals, particularly by the identification of uptrends and downtrends. The moving averages are considered to be lagging indicators, per se, since they only confirm trends but do not predict new ones. There are two moving average methods that are commonly used; the simple moving average and the exponential moving average (Chiarella, He & Hommes, 2005). The simple moving average is the simple average of data such as securities spanning a number of time periods. The exponential moving average, on the converse, puts much focus on recent data compared to data relating to a past time period (Chiarella, He & Hommes, 2005).
The moving average has various characteristics. Foremost, the more the number of periods in the moving average, the greater the smoothing effect (Appel, 2012). Different moving averages produce different forecasts. Another charectiristic is that the more the randomness of data with underlying trend being constant then the more the periods should be involved in the moving averages (Appel, 2012). Moving averages, however, have various limitations. They depict equal weighing with disregard to how more recent data is more relevant. Moving average ignores data outside the period of the average thus it doesn’t fully utilise available data.Also, where there is an underlying seasonal variation, forecasting with unadjusted moving average can be misleading (Appel, 2012).
Exponential smoothing is a method that involves automatic weighing of past data with weights that decrease exponentially with time (Hyndman, 2008). Exponential smoothing has certain characteristics. Amongst them is that more weight is given to the most recent data (Hyndman, 2008). Secondly, all past data are incorporated unlike in moving averages. Less data is needed to be stored unlike in periodic moving averages (Hyndman, 2008).
Both the methods rely on time series. Time series, however, possesses various characteristics. They have a long term trend, and the tendency of the whole series is to rise and fall (Chiarella, He & Hommes, 2005). They also posess seasonal variations, implying short term periodic fluctuations in values (Chiarella, He & Hommes, 2005). Time series have cyclical variations, and these are medium term changes caused by factors which apply for a while then disappear, and come back again in a repetitive cycle (Chiarella, He & Hommes, 2005). Cyclic variations have a longer term than seasonal variations, for instance seasonal variations may occur once every year while cyclic variation occurs once every several years. Time series also have random residual variations, whereby these are non-recurring random variations for instance war, fire or a political coup (Chiarella, He & Hommes, 2005).
Differences between actual results and predictions may arise from many reasons. They may arise from random influences, normal sampling errors, choice of the wrong forecasting system or alpha value or simply that the future conditions turn out to be radically different from the past (McAuliffe, 2011). Whatever the cause, persons involved with forecating wish to know the extent of the forecast errors and various methods exist to calculate these errors (McAuliffe, 2011).
A commonly used technique, appropriate to time series, is to calculate the mean squared error of the deviations between forecast and actual values then choose the forecasting system or parameters which gives the lowest value of mean squared errors, such as akin to the least squares method of establishing a regression line (McAuliffe, 2011). Moving averages tend to be used for short to medium term forecasting (McAuliffe, 2011). Longer term forecasting is usually less detailed and is normally concerned with forecasting the main trends on a year to year basis. Other techniques could be used depending on the assumptions about linearity or non- linearity, and the number of independent variables. The least squares regression approach is often used for trend forecasting (McAuliffe, 2011).
The writer will have to pay attention to grammatical errors when completing this papers. APA is critical and the writer will have to clearly respond to all the items in the questions clearly in two page word document. I have included some resources for the writer to use where necessary. The writer must elaborates on all explanations and must clearly demonstrate proper understanding of the subject matter.
Dividend and Non-Dividend Stock Valuation
One primary reason individuals invest in stocks is to receive returns on their investment in the form of dividends. Not all companies opt to offer dividends to their investors, however. In their article The Dividend Discount Model in the Long-Run: A Clinical Study, the authors discuss the importance of three variables that affect the valuation of a dividend and non-dividend paying stocks. They note how valuation is influenced by the size, timing, and uncertainty of cash flows that the asset will generate for investors over its lifetime.
Use the Internet to access financial sites to find a company that does not pay dividends.
From a theoretical view, explain the merits and/or pitfalls of using the dividend growth model to estimate the stock price of a non-dividend paying stock.
Then, compare and contrast how these variables affect the valuation of a dividend paying stock and a non-dividend paying stock.
Resources.
• Article
• Foerster, S., & Sapp, S. (2005). The dividend discount model in the long-run: A clinical study. Journal of Applied Finance, 5(2), 55–75. Retrieved from Business Source Premier database.
In this study, the authors research over 100 years of historical information on one company to determine the actual share price of stocks and then compared this with the expected price, determined using dividend discount models. They find that the models accurately predict the share prices, much more so than other financial methods.
• Cardinale, M. (2007). Corporate pension funding and credit spreads. Financial Analysts Journal, 63(5), 82–101. Retrieved from Business Source Premier database.
This study explores the relationship between pension funding and corporate financial policy and how they affect stock market valuation.
• Cai, N., & Jiang, X. (2008). Corporate bond returns and volatility. Financial Review, 43(1), 1–26. Retrieved from Business Source Premier database.
After studying 10 years of corporate bond excess return volatility, the authors conclude that there is a direct relationship between volatility and idiosyncratic risk as significant predictors of corporate bond excess returns.
• Bali, T., Demirtas, K., & Tehranian, H. (2008). Aggregate earnings, firm-level earnings, and expected stock returns. Journal of Financial & Quantitative Analysis, 43(3), 657–684. Retrieved from Business Source Premier database.
In performing an analysis of methods for establishing expected stock returns, the authors conclude that earnings yield have the best explanatory power.
• Bulan, L., Subramanian, N., & Tanlu, L. (2007). On the timing of dividend initiations. Financial Management (Blackwell Publishing Limited), 36(4), 31–65. Retrieved from Business Source Premier database.
After studying the timing and significance of dividend initiations in the lifecycle of a firm, the authors conclude that certain characteristics can be used to explain the reasoning behind the timing.
• Bosch, M., Montllor-Serrats, J., & Tarrazon, M. (2007). NPV as a function of the IRR: The value drivers of investment projects. Journal of Applied Finance, 17(2), 41–45. Retrieved from Business Source Premier database.
SAMPLE ANSWER
Introduction
Dividend Growth Model is one of the fundamental concepts for analyzing and determining the average value of a company’s stock. It’s also referred to as Gordon Model. It’s utilized as a strategy for estimating investments that are based on the actual gains that have been pegged on the dividend yield. The growth model estimates the value of stock based on the current payment of dividends and the general pattern of payment of dividends over the years by the company.
One of the companies that currently don’t pay dividends is Gilead Sciences (GLD) and is one of the companies 500 SP companies.
Companies that have good dividend yields together with reasonable and better payout ratios are mostly considered safe and reliable investments that also have good income and offer better opportunities for capital growth. Generally, the dividend growth model indicates the past performance of a company. To calculate the growth model, the current dividend payout and the dividend growth rate together with the required or expected rate of return are utilized to arrive at the growth model (Brav, Graham, Harvey & Michaely, 2004).
The conventional standards are that the DDM (Dividend Discount Model) cannot be utilized to value a company’s stock that either pays very low dividends or no dividends at all. This concept is wrong; the dividend payout ratio should be adjusted to accurately reflect the changes that are expected from the growth rate. A fairly reasonable value for the firm can be thus obtained even for firms that don’t pay dividends. A company that has a high growth rate and which is not paying any dividends currently can still be rated and valued based on the expected dividend payout when the growth rate reduces or declines. But if the company’s payout ratio is not accurately adjusted or not adjusted at all to reflect the current changes in the rate of growth then the DDM will underestimate the total value of the non-dividend paying company stocks or the low-dividend company stocks paying (Bulan, Subramanian & Tanlu, 2007).
The DDM is mostly criticized on the grounds that it’s too conservative when estimating values. This notion stems from the results that are based on the value that has been determined by another value that’s more than actual present value of the expected dividends (Bosch, Montllor-Serrats & Tarrazon, 2007). For example, its mostly argued that the DDM on average does not represent the values of unutilized assets. There is no justification whatsoever that the unutilized assets cannot practically be valued separately and later added to the DDM value. However, some of the ignored assets by the DDM like brand names and their values can for all be accommodated within the models context. The model does not incorporate ways of compensating stockholders in cases of buybacks. The new version of the DDM has however countered this argument or inadequacy.
Finally, the DDM model is considered contrarian. As the market for stock increases, less stock will be undervalued using the DDM approach. This argument is not entirely true. If the stock market improves or grows its largely because of the market’s fundamentals such economic growth in the country or may be due to reduced interest rates which means that the stock values may also follow the same trend. However, if the growth trend is not due to the economic fundamentals, then the DDM would also not follow the trend, in brief, the reactions of the values of the DDM represent positions of strength and not weaknesses for the model. The model may be signaling that stock market has been overvalued in relation to the cash flows and dividends hence a cautious investor will follow the cue. The DDM provides very impressive results eventually in the long term (Foerster & Sapp, 2005).
References
Brav, A., Graham, J.R., Harvey, C.R. and Michaely, R. (2004) Payout Policy in 21st Century Working Papers, Duke University, Durham, NC.
Bosch, M., Montllor-Serrats, J., & Tarrazon, M. (2007). NPV as a function of the IRR: The value drivers of investment projects. Journal of Applied Finance, 17(2), 41–45. Retrieved from Business
Bulan, L., Subramanian, N., & Tanlu, L. (2007). On the timing of dividend initiations. Financial Management (Blackwell Publishing Limited), 36(4), 31–65. Retrieved from Business Source Premier database.
Foerster, S., & Sapp, S. (2005). The dividend discount model in the long-run: A clinical study. Journal of Applied Finance, 5(2), 55–75. Retrieved from Business Source Premier Database.
We can write this or a similar paper for you! Simply fill the order form!
Can the writer complete a one page respond to the below questions and add it to the paper just before (Calculate the DuPont identity for both companies for the past three years.).
I completely forgot that question when I made the order and remember this is a continuation of #112896 and also #112856. And the writer has to number the tables and at times put them in the appendix when necessary. Please refer to instructions on using the table on the sample paper as the writer did not follow those instructions and also the paper is a continues paper meaning all this section goes to be added to the paper and the reference page has to continue to grow in alphabetical order as we progress. The writer did not do that so please get that corrected and then add this one page to the paper with the below mention questions.
– Competitive Financial Ratio Comparison
In week two, you will begin your analysis of the financial data. Remember to add this content to your week 1 paper; in other words, I will want to see that week 1’s feedback has been incorporated and I will see the new week 2 content, too.
– DuPont Identity
You will want to calculate the DuPont identity for your company and as many competitors as you want. This area will require a table or an appendix or both. Recommend a table or appendix that includes this information.
SAMPLE ANSWER
Investment Analysis Paper on Chesapeake
SECTION 1
Investment Analysis Paper on Chesapeake Energy Corporation
Chesapeake Energy Corporation is U.S based utility company dealing in natural gas exploration and production. The company is headquartered in Oklahoma City, OK and employs approximately 10,800 people (as of December 31, 2013). The company was incorporated in 1947 and has evolved to be a leader in the energy sector worldwide with over $7.4 billion in total assets (as of December 31, 2014).
Board of Directors
The board of directors is very important to the organization since they determine the direction to be taken by the business. In Chesapeake Energy Corporation, the board of directors is composed of a ten member team; nine of the ten are independent members. Each of the nine sits in a charter committee namely; audit committee, compensation committee, nominating committee and finance committee. The Chair to the Board is a member of nominating committee and finance committee.
Monitoring Potential of the Firm’s Board of Director
The strategic monitoring potential of the board is derived from the fact that 90% of the members have complete autonomy and sits on committees (MarketLine, 2014). The charter is also governed by constituency statutes that permit them to make decisions in favor of the company rather than the shareholders’ interests (Brian et al, 2013).
Strengths and Weaknesses of Board Structure
Intense market competition and structuring of the board might either erode or increase the company’s market share. This board strength and weaknesses include (See Table 1):
Ethical Concerns
The company lacks appropriate responsiveness to the shareholders concerns. This is because the directors have full autonomy over decision making. Despite the fact that their position is backed up by the constituency statutes, it amounts to lack of transparency in the overall organization (Bundy & Ann, 2013).
SECTION 2
Competitive Financial Ratio
Proper financial management is based on building upon the business strength while at the same time striving to overcome the company challenges. Financial analysis is imperative in determining the profitability of the business. Financial ratios are based on the notion that trends and patterns always occur while doing business that can be quantified, interpreted and used by the management for decision making process (Brooks & Mukherjee, 2013). However, this section discusses competitive financial ratios as well as DuPont identity in order to help determine the part of the business that is performing and the part that is underperforming.
By using Chesapeake Energy Corporation, we can calculate the company Return on Investment (ROE). This value can help us to determine the organization competitive position by comparing the value with the ROE of Anadarko Petroleum Corporation. That is one of the company’s competitors.
ROE Calculations
ROE For CEC in 2012(See table 2)
=724, 000/15,995,000
=0. 0453
ROE for CEC in 2013 (See table 2)
=769,000/15,995,000
=0. 0481
ROE= Net income/ Shareholders equity
ROE for CEC in 2014(See Table 2)
= $1,917,000/$16,903,000
ROE=5.438
ROE for APC in 2014 is (See Table 3)
= (1,750,000)/19,725,000
= -0.0887
When we compare the two figures above, it is quite evident that Chesapeake Energy corporation (CEC) has a competitive advantage as compared to Anadarko Petroleum Corporation whose ROE is a negative value. Therefore, this implies that CEC management can to create value for the shareholders (Berk et al., 2013).
DuPont Analysis for the companies for the past three years
Return on Investment (ROE) is the is one of the most important company analysis tools that is used to measure how well a company manages and creates value to their shareholders. However, the values on the ROE can sometimes be misleading in terms of real value and risks associated with a particular investment. The numbers in the ROE can easily be misleading to financial analysis if the individual components of the ROE have not been broken down to their individual components. In this regard, DuPont can bridge the gap created by the ROE and provide a reliable measure of how the company creates value for its shareholders(Mitchell, Mitchell, &Cai, 2013).DuPont is the financial analysis tool that enables the breakdown of the ROE into its various individual components such as financial leverage, asset turnover, and profit margin (Haskins, 2013). The following is the financial calculation of DuPont of Chesapeake Energy Corporation, together with their competitor, Anadarko Petroleum Corporation (APC)(Cheasapeake Corp, 2015).
DuPont analysis is used to break down ROE in order to get a more detailed understanding of the ROE and where the information is obtained from (Gitman & Zutter, 2014). In our case we will calculate the DuPont analysis for Chesapeake Energy Corporation for the last three years in order to understand the trend in the RO
In the year 2012;
The DuPont for Chesapeake Energy Corporation is given by (See Table 2)
Net Profit x Asset Turnover x Leverage Factor
(769,000/12,316,000) x (12,316,000/41,611,000) x (41,611,000/12,316,000)
= 0.0624 x 0.256 x 3.379 =0.054
The DuPont for Anadarko Petroleum Corporation (APC) is given by (See table 3)
(2,391,000/13,411,000) x (13,411,000/52,589,000) x (52,589,000/20,629,000) =
=0.1783 x 0.255 x 2.541 = 0.116
In the year 2013;
The DuPont for Chesapeake Energy Corporation is given by (See Table 2)
(724,000/17,506,000) x (17,506,000 / 41,782,000) x (41,782,000/15,995,000) =
0.041 x 0.419 x 2.612 = 0.045
The DuPont for Anadarko Petroleum Corporation (APC) is given by (See table 3)
(801,000/14,581,000) x (14,581,000/55,781,000) x (55,781,000/21,857,000) =
0.055 x 0.21 x 2.55 = 0.029
In the year 2014;
The DuPont for Chesapeake Energy Corporation is given by (See Table 2)
(1,917,000/20,951,000) x (20,951,000/40,751,000) x (40,751,000/16,903,000) =
0.091 x 0.514 x 2.411 = 0.113
The DuPont for Anadarko Petroleum Corporation (APC) is given by (See Table 3)
(1,750,000/18,470,000) x (18,470,000/61,689,000) x (61,689,000/19,725,000) =
0.095 x 0.299 x 3.127 = 0.089
Differences and trend that emerge
In the year 2012, the operating efficiency of APC (0.18) was higher than that of CEC (0.06) as can be seen in their profit margins. In the same year, it can be deduced that the asset use efficiency of between the two companies are almost the same since they stood at 0.255 for APC and 0.256 for CEC. On the other hand, the financial leverage for CEC was higher (3.4) than the financial leverage for APC (2.5).
In the year 2013, the operating efficiency of APC (0.05) was still higher than that of CEC (0.04). In the same year, the asset use efficiency of CEC was higher than the asset use efficiency of APC. Similarly, CEC had a higher financial leverage in the year 2013 than APC. Overall, it can be deduced that CEC performed better than APC in the year 2013.
In the year 2014, the operating efficiency of APC (0.095) was higher than that of CEC (0.091). However, the asset use efficiency of CEC stood higher (0.5) than that of APC (0.3). On the other hand, APC had a higher financial leverage (3.1) than CEC (2.4) as can be deduced from the financial calculations. The higher the financial leverage, the better a company is placed to provide good value for its shareholders (Brian, Sandra, & Jennifer, 2013).
Appendix
Table 1
Strengths
Weaknesses
Mainstream on vertical integration
Strong market position based on personnel
High debt resulting from heavy borrowing
Opportunities
Threats
Increasing demand for natural gas in the world and key employees
Increasing competition
Legal compliance and changing gas prices
Table 2:Chesapeake Energy Corporation (CEC) Financials for the past three years
2014
2013
2012
Total Assets
$40,751,000
41,782,000
41,611,000
Shareholders’ Equity
$16,903,000
15,995,000
15,569,000
Revenue
$20,951,000
17,506,000
12,316,000
Net Income
$1,917,000
724,000
769,000
Table 3:Anadarko Petroleum Corporation (APC) Financials for the past three years
2014
2013
2012
Total Assets
61,689,000
55,781,000
52,589,000
Shareholders’ Equity
19,725,000
21,857,000
20,629,000
Revenue
18,470,000
14,581,000
13,411,000
Net Income
(1,750,000)
801,000
2,391,000
References
Brian, J. H, Sandra, M. T. & Jennifer, C. H. (2013). Benefit corporation concerns for
Financial Service Professionals.Journal of Financial Service Professionals.74-82.
Bundy, J & Ann, K. B. (2013). Strategic Cognition and Issue Salience: Toward an Explanation of Firm Responsiveness to Stakeholder Concerns. Academy of Management Review. 38 (3) 352-376.
Chesapeake Corp. (2015). Company Profile: Chesapeake Energy Corporation. MarketLine
Brian, J. H, Sandra, M. T. & Jennifer, C. H. (2013). Benefit corporation concerns for
Cheasapeake Corp. (2015). Company Profile: Chesapeake Energy Corporation. MarketLine
Financial Service Professionals.Journal of Financial Service Professionals.74-82.
Haskins, M. E.(2013). A decade of DuPont ratio performance.Management Accounting Quarterly, 14(2), 24-33.
Mitchell, T., Mitchell, S., &Cai, C. (2013). Using the DuPont decomposing process to create A marketing model.Journal of Business & Economics Research (Online), 11(11), 485.
Goal Translation Concept in Continuous Improvement Order Instructions: Note: To prepare for this essay please read the required articles that are attached then answer the following questions:
Goal Translation Concept in Continuous Improvement
How important is the concept of ‘goal translation’ in the methodology of continuous improvement used at STM?
Could this approach be applied effectively in your own company or another organization you know well? Explain your answers with examples.
Also,
1) The answer must raise appropriate critical questions.
2) Do include all your references, as per the Harvard Referencing System,
3) Please don’t use Wikipedia web site.
4) I need examples from peer-reviewed articles or researches.
5) Turnitin.com copy percentage must be 10% or less.
Note: To prepare for this essay please read the required articles that are attached
Appreciate every single moment you spend in writing my paper
Goal Translation Concept in Continuous Improvement Sample Answer
TQM W8 DISC
ST Microelectronics (STM) is an international semiconductor firm that is involved in designing, developing, making and marketing an extensive variety of integrated circuits as well as discrete devices for many microelectronic applications. In the methodology of continuous improvement, the idea of goal translation utilized at ST Microelectronics is very important as it enabled corporate goals and objectives to be cascaded into local goals. This concept allowed goals to be transmitted systematically from the top level of the organization to the bottom level in order to provide focus, alignment, as well as clarity direction (Oakland 2012).
The process of policy deployment allowed STM’s organizational goals to be cascaded into local goals that were not just realistic, but also challenging. It is notable that the training programs which entailed 50 hours for each member of staff annually ensured that STM’s staff members actually possessed the relevant abilities and expertise to espouse the corporate goals and then translate those particular into local action plans (Oakland 2012). STM’s management recognized accomplishment and success at international, national, and even local levels. Moreover, the management made major efforts to collapse the walls between different divisions of the company and establish an environment wherein cross-fertilization was adopted and encouraged actively throughout the organization until it truly became a routine.
Policy deployment is essentially the main approach that the management of STM employed in making TQM a way of life at the firm instead of something added to operational management. In the policy of STM, policy deployment is seen as the way of translating the strategies, objectives, and vision of the company into concrete specific plans, goals, as well as actions at the operative level. A policy deployment manual was developed as an operative and methodological user guide for the managers who are in charge of planning and attaining major improvement goals. In-depth explanations, examples, as well as descriptions of forms/tools, were included inside the manual.
Policy deployment at STM operates at 2 levels: Level One is a continuous focused improvement, and Level Two is a strategic breakthrough. The annual plan is designed by developing the budget plan and improvement plan and bearing in mind the investment plan. Each of these components has to be both coherent and consistent (Ebrahimi & Sadeghi 2013). Corporate result goals and objectives of the current year are stated in the budget and the fundamental capability and operations improvement goals are approached with the use of policy deployment. Amongst the improvement goals, 2 or 3 of them are chosen per year for more rigorous and careful management. In essence, these few improvement goals are the breakthrough goals that have to be managed with the use of special techniques and attention. It is worth mentioning that policy deployment goals must be in agreement with long-lasting policies. In addition, everything has to be in agreement with and should be supported by the investment plan (Oakland 2012).
At STM, continuously improving capabilities and performance, and particularly attaining breakthroughs – that is, significant improvements in short periods of time – was, in fact, the major undertaking that all managers had to face and perform in their functions. After the significance of accomplishing major goals and objectives was apparent, the problem came up of how to recognize those goals and then prioritize them. STM’s management fixed 4 long-lasting policies – generic and broad objectives which are as follows: (i) to be amongst the best 3 suppliers in quality; (ii) to be number 1 supplier in service; (iii) to be the leader in TQM in the West; and (iv) to possess top-notch manufacturing capabilities. These 4 policies reveal the need for improving strategic capabilities and were put into practice gradually by accomplishing sequential shorter-term objectives that were focused on operational performance and capabilities, as well as urgent requirements.
The annual plan consisted of all the performances and goals which STM had to achieve in the year. Management control, through the budget, managed goals that were related to losing and profit, sales volume, expenditures, standard costs, and inventories. Nonetheless, to be increasingly competitive, goals that were harder to achieve had to be recognized every twelve months. These goals constituted the improvement plan and necessitated special management using a particular strategy, that is policy deployment, wherein a policy could be described in full as the combination of targets/goals and means. It is notable that policy deployment is applicable to (i) the how goals – those related to organizational, technological, behavioral, and operational facets. Largely process oriented; and (ii) the what goals – those that are large results oriented. Every level of the firm has to carry out its own Hows and Whats deployment (Oakland 2012).
In STM, the senior management believes that for the company to be a total quality firm, goals, values, philosophy, and strategy have to be conveyed down the firm, from one level to another in a manner that is systematic so as to give focus, clarity direction, as well as alignment. At STM, policy deployment is actually the process by which corporate goals and actions plans for achieving those goals consistent with and in support of the top-level organizational objectives, mission, and strategic guidelines, are cascaded to every of the company. Successful policy deployment makes sure that the goals and action plans of ST Microelectronics are aligned from the corporate level at the top to the group level in the middle, and to the division level at the bottom. In essence, the goal cascade entails a decomposition at all levels to reach comprehensive goals which are readily obtainable.
The approach used by STM could be applied effectively in my own company or another organization. For instance, by using the process of policy deployment, the corporate goals of my company could be cascaded into challenging but realistic local goals (Kumar et al. 2009). My company can provide adequate training to its employees as this will ensure that all employees have the essential proficiencies and abilities to adopt the corporate goals and then translate them into local action plans. Cascading the goals at my company would involve a decomposition at all levels in order to reach detailed goals which can be obtained readily (Wiengarten et al. 2013). The company can use the x-matrix during the decomposition process and fix ownership for the detailed goals.
Goal Translation Concept in Continuous Improvement References
Ebrahimi, M, & Sadeghi, M 2013, ‘Quality management and performance: An annotated review’, International Journal Of Production Research, 51, 18, pp. 5625-5643, Business Source Complete, EBSCOhost, viewed 8 May 2015.
Kumar, U, Kumar, V, de Grosbois, D, & Choisne, F 2009, ‘Continuous improvement of performance measurement by TQM adopters’, Total Quality Management & Business Excellence, 20, 6, pp. 603-616, Hospitality & Tourism Complete, EBSCOhost, viewed 8 May 2015.
Oakland, JS 2012, TQM: Text with cases. London, England: Business & Economics.
Wiengarten, F, Fynes, B, Cheng, E, & Chavez, R 2013, ‘Taking an innovative approach to quality practices: exploring the importance of a company’s innovativeness on the success of TQM practices’, International Journal Of Production Research, 51, 10, pp. 3055-3074, Business Source Complete, EBSCOhost, viewed 8 May 2015.
The bonds are bought by the US market because they aid in ensuring the market has the right funds that are needed for use in carrying out developments and the creation of the right infrastructure.The projects that create job opportunities are started by the bonds acquired by the United States government thus, it implies bonds are of great use in the emerging governmental projects(Hillier et al, 2014).The bonds are of high use as they are well useful in maintaining of quality life to the US citizens, their well-being and in turn leading to increase in the US competitiveness with other markets.The US government issues bonds as they an approximation of a theoretical risk-free currency that has to be maintained at the right standards. The cost of infrastructure renovation is lowered by the purchase bond issued by the government,and this also happens in case of new business.Bridges, transportation systems and roads are built by the use of bonds that is collected by the US government. There are power plants that are used to heat the homes of the citizens and are known to be constructed by the use of the bonds.The company that has acquired the use of debenture and mortgage bonds, will have high bond rating in the side of debentures. This is because debenture bond in a business are more risker than any other type of bond and their maturities are short following that debenture bonds are not secured debts.First mortgage bonds will be of high interest as it is secured despite it having long term returns on investment(Hillier et al, 2014).I would prefer to use the mortgage bond because it is a secured bond with long maturities and do away with unsecured debts like in the case of debentures, which only benefit from shorter maturities,which do not last.
References
Hillier, D., Clacher, I., Ross, S., Westerfield, R., Jordan, B., (2014). Fundamentals of Corporate Finance.McGraw-Hill Higher Education; 2 edition
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Just as there is a growing trend for public health interventions to be evaluated for their effectiveness, so public health organizations are increasingly expected to show their own “return on investment.”
The concept of return on investment, or ROI, is just one of the business principles that public health leaders are incorporating in their organizations to bring about more effective ways of conducting public health. Revenue generation, entrepreneurialism, and cost shifting are among the other principles that leaders should be conversant with. Business skills are vital because they allow an organization to make the greatest impact on the health of communities using the limited resources they have.
This week you will learn about a wide range of business principles and practices that can improve the effectiveness of public health organizations and can even allow them to generate revenues to help keep their programs afloat. You will also focus this week on a matter that pertains to many professionals as they attempt to move ahead in their career: the problem of leadership derailment, in which for one reason or another a leader’s career stalls. In the video program this week you will hear more about how you can recognize whether your career is derailing and what you can do to keep it on track.
ANSWER THESE QUESTIONS:
1. Are up-to-date business principles encouraged or engaged in at the place you work? What are the costs or benefits of the way things are at your workplace in this regard? Reflect on how applying concepts like return on investment and entrepreneurship to public health fits your personal values.
2. What strategies do you think would be effective in helping you avoid leadership derailment?
USE THE FOLLOWING ARTICLES ONLY (DO NOT DEVIATE FROM ARTICLES)
Orton, S., & Menkens, A. (2006). Business planning for public health from the North Carolina institute for public health. Journal of Public Health Management & Practice, 12(5), 489-492.
Roper, W. L. (2006). The Management Academy for Public Health: Together we can make a difference. Journal of Public Health Management & Practice, 12(5), 407-408.
PLEASE APPLY THE APPLICATION ASSIGNMENT RUBRIC WHEN WRITING PAPER.
I. Paper should demonstrate an excellent understanding of all of the concepts and
key points presented in the texts.
II. Paper provides significant detail including multiple relevant examples, evidence
from the readings and other sources, and discerning ideas.
III. Paper should be well organized, uses scholarly tone, follows APA style, uses
original writing and proper paraphrasing, contains very few or no writing and/or
spelling errors, and is fully consistent with doctoral level writing style.
IV. Paper should be mostly consistent with doctoral level writing style.
SAMPLE ANSWER
1) My company offers project financing solutions to projects that meet its predetermined investment criteria. Project financing involves appraising project proposals to determine whether the projects will be viable and sustainable. One of the documents that my company requests clients to provide for the exercise is a detailed business plan and a feasibility study report. A business plan and a feasibility study report outlines the market that a project intends to serve. The documents outline the gap that the project will fill (Orton, Umble, Zelt, Porter & Johnson, 2007). They outline the marketing strategies that the project will implement to fill the gap in the market. They also outline the organizational plan that the project will use to achieve its strategic objectives. This involves outlining the organizational structure and profiles of key management personnel. These documents also look at the technical, environmental, political, socio-cultural and economic aspects of the project (Orton, Umble, Zelt, Porter & Johnson, 2007).
A business plan is however more detailed than a feasibility study. It identifies the problem that the project will be formed to solve (Orton, Umble, Zelt, Porter & Johnson, 2007). It outlines all steps taken to solve the problem and the costs and benefits that will be generated by the project. The other business practice that is embraced by my company is building working relationships with professional organizations to benefit from their expertise in different areas (Kerr, Hendrie, Delia, Gr, & Moorin, Rachael, 2014). The benefit of this practice is that the organization is able to add value to projects that it handles. Up-to-date business principles are therefore encouraged in my work place. Applying concepts like return on investment would help me to implement projects that increase my asset base. The approach will also help me to maintain investments that add value to my life (Kerr, Hendrie, Delia, Gr, & Moorin, Rachael, 2014).
2) There are several strategies that would help me avoid leadership derailment. One of the strategies is appraising investments that I make to ensure that I implement only those projects whose returns on investment are higher than my cost of implementing them. The other strategy is preparing a business plan that would assist in guiding leadership in all aspects of life (Kerr, Hendrie, Delia, Gr, & Moorin, Rachael, 2014). A business plan would identify problems that need to be addressed, identify steps that have to be taken to address these problems and methods of measuring performance. The other strategy is liaising with the business community to benefit from advice that can be gained from it and other resources that the business community can offer
McKenzie Corporation’s Capital Budgeting Case Study
McKenzie Corporation’s Capital Budgeting Case Study
Order Instructions:
McKenzie Corporation’s Capital Budgeting Case Study
The case study, found on page 557 of your course text, deals with the process of corporate budgeting and the types of decisions that must be made. After reading the scenario:
• Briefly answer the six questions at the end (4 to 6 sentences each).
• Include all calculations you were asked to provide.
SAMPLE ANSWER
Question 1. The Expected Value of the company within one year
The economic growth probabilities without expansion are;
Low .30 $25,000,000 $27,000,000
Normal .50 30,000,000 37.000.000
High .20 48,000.000 57,000,000
The expected value without expansion is
(0.3 x 22) + (0.5 x 35) + (0.2 x 45) = 33.1
The expected value with expansion
(0.3 x 26) + (0.5 x 48) + (0.2 x 57), minus the cost of financing (43.2-9) = $34.2 million
With these scenarios, the company would be better off with the expansion since they would be making more than 1 million dollars (34.2-33.1) = $1.1m.
Question 2. Expected value of company debt within one year
Without expansion, the expected value of the company’s debt would be $28m since all of it would be financed by the equity funds. The value of the company’s debt with low economic growth would be bad since it would negatively affect the company value while seeking financing (Bruce, 2003). The expected value of the company debt within one year is very important since it determines their ability to get financing within the following year.
Question 3. Value expected from expansion
The expected value without expansion would be;
The expected value without expansion is (0.3 x 22) + (0.5 x 35) + (0.2 x 45) = 33.1
The expected value with expansion is (0.3 x 26) + (0.5 x 48) + (0.2 x 57), minus the cost of financing (43.2-9) = $34.2m.
Therefore, the overall value created with this expansion is $1.1m. In this scenario, the additional value will be for the stakeholders since the debt is expected to remain the same and the expected value of stakeholders would be $1.1m and zero for the bondholders.
Question 4. The impact of non-expansion on the price of bonds
The prices of bonds will not be affected by the non-expansion of the company since the prices of bonds and the value of the stakeholders will remain the same. However, in case where expansion happens, there will be more equity that will in turn affect the debt to equity ratio to change significantly. This change in equity to debt ratio will also have an impact on the rate of bonds and this value will also affect the return on bonds and the bond market (Wilmott, 2007).
Question 5. Implications of non-expansion on the borrowing needs
If the company fails to expand, there will be implications on the borrowing needs in that the equity will be the same and the company will fail to get financing due to lack of debt equity. The availability of greater equity, which the financiers are keen on, will be lacking and this will lower the borrowing capability of this company. On the other hand, the ability of the company to expand will put them in a position to have more equity that will make them get more financing (Ross et al, 2013). In addition, the expansion will also help their borrowing needs in the following year since they will always have financing through equity.
Question 6. How Equity financing would affect the company
The bond covenant will force the expansion to be financed by equity, which would be a different scenario if it is financed by cash. The benefit of financing the expansion by cash is that the company would not have to pay for the cost of changing equity to cash, making it less expensive (Bailey & Lopez, 2013). On the other hand, the bond expansion would be expensive when financed by equity since the company would have to undergo additional costs of changing equity to cash.
References
Bailey, D. & Lopez-de-Prado, M. (2013): “The Strategy Approval Decision: A Sharpe Ratio Indifference Curve approach”, Algorithmic Finance 2 (1): 99-109
Why do you think competency-based management of rewards is the least popular area of use?
The following conditions must meet in the paper
1) I want a typical and a quality answer which should have about 550 words.
2) The answer must raise appropriate critical questions.
3) The answer must include examples from experience or the web with references from relevant examples from real companies.
4) Do include all your references, as per the Harvard Referencing System,
5) Please don’t use Wikipedia web site.
6) I need examples from peer reviewed articles or researches only.
Appreciate each single moment you spend in writing my paper
Best regards
SAMPLE ANSWER
Investment Analysis Paper on Ford Motor Group
Ford Motor Group is a multinational public company that’s based in Michigan in the USA. Its shares are traded in NYSE under the initial F. It majors in automotive production and its current Executive chairman is William C. Ford, Jr. while the CEO is Mark Fields. The current brands or models are Ford Focus, Ford Escort, Ford Cortina, Ford Sierra and Ford Capri. There are several other brands that Ford manufactures besides an array of trucks and other automobiles. The Ford Family owns 2% of the company while the employees number about 181,000. It has a market capitalization of $54.65 Billion and its shares are currently trading at $14.09 dollars with a yield of 3.5%. (Luenberger, 1997) Ford has outstanding shares numbering 9 million while the market prices of its shares are currently costing 14.1 which amounts to a total of $126.9 million in outstanding stock valuation.
Board of Directors
The directors of Ford Motor Group have impeccable academic backgrounds and experience that warrant their positions. The executive management of the Ford board as at the end of July 2014 were; Richard A. Gephardt, Ellen Marram, Stephen Butler, Kimberly Casiano, Edsel Ford, Mark Fields (CEO & President, Homer Neal, Antony F. Earley, William Clay Ford Jr., the executive chairman, James P. Hackett, John L. Thornton, Gerald L. Shaheeen, James H. Hance, Jr., William W. Helman John C. Lechieter, James H. Hance and Jon M. Huntsman.
Monitoring Potential of the Firm’s Board of Directors
Mark Fields, the current CEO and President, was initially appointed as the America’s President of operations in the year 2012. (Adams, 2008) The board is mostly concentrated in running the operations of the company from the head office. Almost 50% of its annual turnover is achieved in North America while the rest are from South America, Europe, Asia, pacific and Africa. The duties of each director are not included in the reports together with the salaries of other senior staff. The academic background for the senior positions office holders is not available on the 2014 proxy annual report. The performance of Ford Motor Group has not been very impressive and it was expected that it would have more financial problems in the current financial period. However, Ford has endured hard times before and it’s expected that it will come out of financial woes on its own.
Strengths and Weaknesses of Board Structure
The major strengths of the members of the board are the wide experience and skills the director’s posses. The executive chairman has been a director since 1988 and has also been the vice president at the commercial truck center before his recent promotion. He has also been the chair of the finance committee and the chairman of eBay Inc. The other board members are also equally skilled and experienced in automobile industry.
The board has also professional structures that vet all the qualifications of the directors before they are appointed. The nominating and governance committee scrutinizes all the background information on all the nominees before their names are forwarded to the board.
The major weaknesses of the board are the lack of clearly defined organization structures that spell out the role of each director and the hierarchy of the functions of their offices and their occupants. The structures are not clear and maybe they have their own system of operations but the structures have to be clearly drawn and the functions of each department clearly defined and addressed. http://corporate.ford.com/our-company/governance-hub/board-of-directors-801p
Ethical Concerns
The other ethical issues that may arise is that some directors like Gerald L. Shaheen who may have served as the president of the Caterpillar Inc before he retired may be having the connections with the group hence his interests may also be linked to the company. H e should be allowed to serve the interests of one company only.
The other issue is that the company has some former politicians in the board like the former governor Jon M. Huntsman Jr. It reflects a little unprofessionalism to include some politicians in the board and who may have had different policies that may have been unpopular with some people hence it can influence the performance of the company negatively.
Competitive Financial Ratio Comparison
The net assets turnover for Ford Motor Group decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. (Vance, 2003) The following table shows the complete analysis.
Ford Motor Group
2013
2012
2011
Current Ratio
Total Current Assets/Total current liabilities
2.11
2.32
2.26
Quick Ratio
TT C/ Assets – inventories /TT/ C Liabilities
1.98
2.18
2.15
Receivable turnover
Annual credit sales/average receivables
Inventory Turnover
Cost of goods sold/Average inventory
17.00
17.51
19.87
Asset turnover
Sales/Average total assets
0.75
0.73
0.76
Dividend yield
Div per Share / Current Share price
0.03
0.01
Dividend cover
EPS/ Dividend per Share
3.70
7.40
Net assets turnover
Net assets / total sales
1.24
1.27
0.85
Times interest earned
EBIT/Annual Interest Expense
9.45
11.83
11.63
Debt to total Asset
Debt/Assets
0.57
1.03
0.56
Book value per share
9.17
9.17
9.17
Interest cover
EBIT/Annual Interest Expense
9.45
11.83
11.63
Profit margin on sale
GP/sales
0.13
0.13
0.14
R.R return on assets
EAT/Total Assets
0.04
0.03
0.11
R.R com stock equity
Profit after taxes/Shareholders equity
0.27
0.36
1.35
Earnings per share
Profit after taxes-pref div)/No. of comm O/S
1.54
1.48
Payout Ratio
cash dividends/income
0.00
0.00
0.00
ROE
Return On Equity (ROE)
0.27
0.36
1.35
ROA
Return on average Assets
0.04
0.03
0.11
GM
2013
2012
2011
Current Ratio
Total Current Assets/Total current liabilities
1.31
1.30
1.22
Quick Ratio
TT C/ Assets – inventories /TT/ C Liabilities
1.08
1.02
0.95
Receivable turnover
Annual credit sales/average receivables
Inventory Turnover
Cost of goods sold/Average inventory
9.56
9.74
9.16
Asset turnover
Sales/Average total assets
0.93
1.02
1.04
Dividend yield
Div per Share / Current Share price
Dividend cover
EPS/ Dividend per Share
Net assets turnover
Net assets / total sales
0.27
0.24
0.25
Times interest earned
EBIT/Annual Interest Expense
23.33
-57.68
17.99
Debt to total Asset
Debt/Assets
0.04
0.02
0.02
Book value per share
Interest cover
EBIT/Annual Interest Expense
23.33
-57.68
17.99
Profit margin on sale
GP/sales
0.12
0.07
0.13
R.R return on assets
EAT/Total Assets
0.03
0.04
0.06
R.R com stock equity
Profit after taxes/Shareholders equity
0.13
0.17
0.24
Earnings per share
Profit after taxes-pref div)/No. of comm O/S
2.92
Payout Ratio
cash dividends/income
ROE
Return On Equity (ROE)
0.13
0.17
0.24
ROA
Return on average Assets
0.03
0.04
0.06
DuPont Identity
The following is the Dopont model breakdown for Ford and GM. The profit margin for Ford amounted to 13% of sales for both 2013 and 2012. The return on Equity was 27% in 2013 while in2012 it was 36%. The profit margin on sales for GM amounted to 12% in 2013 while in 2012 it was 7%. The ROE for GM amounted to 13% and 17% respectively for the years 2013 and 2012 respectively. The return on assets amounted to 3 and 4% respectively. The earnings per share for Ford in 2013 and 2012 were 1.54 and 1.48 respectively while the dividends per share amounted to 0.4 and 0.2 respectively. Both companies are heavily leveraged and Ford is the one that has the highest concentration of debt compared to GM.
The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%. The interest expense for Ford in the year 2013 and 2012 were 829 million and 713 million respectively. GM interest expenses decreased by 31.7% in 2013 while in 2012 the expenses decreased by 9.4%. The interest expenses for 2013 and 2012 were 334 Million and 489 Million respectively
The net assets turnover for Ford’s decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. The dividend per share for Ford in 2013 and 2012 was 0.4 and 0.2 respectively. This represented a return of 22% to the shareholders in 2013 while in 2012 it was 23%.
Table 1
Raw Data Ford Motor Company
Company Name
Year 2013
Year 2012
Year 2011
Net income
7.155B
5.665B
20.213B
Revenue
146.917B
195.058B
135.605B
Assets
202.026B
189.406B
178.348B
Equity
26.383B
15.947B
15.028B
Raw Data GM Motor Company
Company Name
Year 2013
Year 2012
Year 2011
Net income
5.346B
6.188B
9.190B
Revenue
155.427B
152.256B
150.276B
Assets
166.344B
149.422B
144.603B
Equity
42.607B
36.244B
38.120B
ROE Formula
(1)
Table 2
DuPont Analysis
ROE
Profit Margin
Asset Turnover
Equity Multiplier
TELUS
Year 2000
0.072621
0.71662
0.75
7.66
Differences or Trends
Ford Motor Group seems to be having better ROE and Profit margins than GM. However the asset turnover for GM is higher than Ford. The equity multipliers for Ford are higher than those of GM which means that Ford is more levered than GM.
Growth
Dividend Growth Model
This section will require a table or appendix or both. Add a comment or two regarding your findings – are they logical or feasible?
Table 3
Dividend and Stock Price Raw Data for Ford Motor Group
Ford Motor Group
Year 2013
Net income
$ 7.155B
Equity
$26.383B
Total dividends paid
$1.574B
Outstanding shares
3,881,659,802
Earnings per share (EPS)
$1.82
Dividends paid per share
$0.4
Stock price as of 2/11/2014
$14.07
Table 4
Growth Rate for Ford Motor Group
Analysis
Formula
Year 2013
ROE
Net income/ Equity
0.2712
Retention ratio
1 – (cash dividends/ net income)
0.78001
Growth rate in earnings (g)
Retention ratio x ROE
0.21154
Dividend Discount Model (DDM) = (2)
(3)
Growth rate
Ford Motor Group
2013
ROE
Net Income/Equity
0.2712
Retention Ratio
1-(cash dividends/net income)
0.78001
Growth rate in earnings
Retention rate X ROE
0.21154
Dividend Discount Model
Return rate R = Dividend /price of stock + g
0.23997
Price of Stock
Dividend/Return Rate R – Growth Rate g
14.07
Issues with Using the Growth Model
The dividend earnings growth trend has been calculated on average per year. There are financial periods where the dividend pay rate and amounts are similar has the growth trend is not reliable as the average would be very low. The general average however is 0.212%.
Reasonableness of Constant Growth
The growth rate number is logical as it reflects the general performance on the ground. The major problems with the calculation are the constant figures payable as dividends reflects a constant growth trend and the calculations reflect a zero growth trend. The company pays dividend as shown in the table above. It would be fair assume a constant growth trend for Ford Company.
Annual Report
Potential Real Options
Stock Options for Employee compensation for the year 2013
Fair value per stock option
2013
2012
2011
5.03
5.88
8.48
Assumptions made
Annualized Dividend yield
3%
2%
–
Expected volatility
52.20%
53.80%
53.20%
Risk free interest rate
1.50%
1.60%
3.20%
Expected stock option (yrs)
7.7
7.2
7.1
Company stock options as at December 31 2013 (millions)
Outstanding options
Exercisable options
Shares
weighted av life yrs
weighted av Exc price
Shares
weighted av life yrs
Range Prices available in $
1.96 -2.84
15.5
5.2
2.16
15.5
2.16
5.11 – 8.58
23.2
3.1
7.29
23.2
7.29
10.11 – 12.98
29.1
5.3
12.58
19.1
12.56
13.07 – 16.64
11.3
2.8
13.86
9.8
13.71
Total stock options
79.1
67.6
These options are company specific and they are payable on the range of prices available and the average years the employee has spent in the company. The share prices are weighted as shown on the table above. (Garrison, Noreen & Brewer, 2009)
The stock options would have to be provided for as their prices are usually provided for employees only and not for the general investors.
Capital Budgeting Process
The options would have to be provided for when budgeting for capital projects. All projects with average returns that are less than the weighted average cost of capital should be rejected as the cost of capital would be more the profits of the project.
Beta
Expected Return – CAPM
The beta for Ford Motor Group according to yahoo business finance is 0.88. The current risk free market rate is 0.03%. The rate of risk premium is the amount that the expected asset’s rate of return is extra or exceeds the market risk free rate of interests. The risk premium for trading companies is the company stocks or their expected rate of return less the risk free rate of return.
Capm =
rf + β (rm -rf)
rf = risk free rate
3.00%
β = Beta
0.880
rm = return on the market
10.00%
Capm =
9.16%
(4)
The average historical equity premium is 6.9%, so 7% is an estimate for the risk premium (Ross, Westerfield & Jaffe, 2013).
The average Capm rate is equal to 6.52% as calculated in the excel formula which is attached. The expected return for Ford Motor Group is 7%. (Reilly & Brown, 2011) Using the model, the rate of return is 6.52%.
The cost of equity using the capital asset pricing model = Risk Free Rate + Beta * Market Risk Premium = 3+0.88*3= 11.64 (French, 2003)
Ford has outstanding shares numbering 3.88 Billion while the market prices of its shares were costing 14.07 which amounts to a total of $54.5916 Billion. (Black, Jensen and Scholes, 1972)
The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially. The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital.
Dividend Growth Model versus CAPM
The CAPM is 0.916% compared to the 0.21154 %. The differences are not so high but the most logical one is CAPM which is about 1%. However the general trend for the Ford Motor Group has been retrogressive at around -0.3. (Appendix B)
Debt and Equity
Equity
According to Modigliani and Miller (1958) the cost of equity capital is mostly determined by the asset’s cost of capital and not the other way round.
Ford has outstanding shares numbering 3.88 Billion while the market prices of its shares were costing 14.07 which amounts to a total of $54.5916 Billion. The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially financed (Bierman & Smiddt, 1966). The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital. (Black, Jensen and Scholes, 1972)
Table 5
Market Value of Equity
Company name
Year 2013
Shares outstanding
3.88B
Price as of 14.07 per share
Market value of equity
54.5916B
26.83B
CAPM
6.52
Debt
Interest payments that are payable by lenders are all deductible from the ones or a company’s taxable income while the payments to shareholders as dividends are not. Most tax systems encourage the companies to use debt financing instead of equity. (Black, Jensen and Scholes, 1972) The higher the interest rates the higher the incentive. The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%. The interest expense for Ford in the year 2013 and 2012 were 829 million and 713 million respectively. GM interest expenses decreased by 31.7% in 2013 while in 2012 the expenses decreased by 9.4%. The interest expenses for 2013 and 2012 were 334 Million and 489 Million respectively. (Bodie, Kane, Marcus, 2008)
The capital structure for Ford is mostly made up of borrowed money. In 2013, the long-term debts amounted to $114, 688 million while in 2012 and 2011 the debts amounted to 105, 058 and 99488 respectively. The total stockholder equity amounts to $26,383 Million and $15,947 million for the same period. Ford Company is highly levered and it needs to cut down on borrowing. General Motor’s long term debts amounted to $6573 Million and $3424 Million for the year 2013 and 2012 while the total stockholders equity amounted to $42,607, $36,244 and $38120 for the years 2013, 2012 and 2011. Gm is relatively levered. (Markowitz, 1959)
The credit ratings for Ford currently are CCC+ from S & P performance of CC in 2012. Ford managed to pay its 9.9 Billion debts in the year 2014 and it helped to boost its credit rankings. Ford credit rankings place it in front of GM and Chrysler and they are currently fitting hard to avoid bankruptcy petition.
Table 6
Cost of Debt
Company name
2013
Long term debt
Current Portion of Debt
Total Debt
114.688B
–
114.688B
Cost of Debt %
7%
Tax Rate
40
(5)
Weighted Average Cost of Capital
Table 7
Weighted Cost of Capital Raw Data
Ford
Value $
%
Equity (Rs)
26.383B
18.7
Debt (Rb)
114.688
81.3
Total Value
141.071
100Rs
(6)
Ford
Value
%
Equity(Rs)
26.383
0.86635
Debt(Rb)
114.688
0.13365
Total Value
141.071
1
Rwacc
3.98%
Capital Budgeting Assumptions
The major assumptions are that the tax rate is 40%. Following the losses incurred by ford in its foreign branches no taxes were chargeable in 2013.
Competitive Review of Debt and Equity Mix
The average weighted cost of capital is higher for Ford than GM. In 2013, the WACC for Ford was 3.98% while for GM it was 3.16%. Ford Motor Group seems to be in a lot of debts compared to GM.
Competitive Review
GM
Value
%
Equity(Rs)
42.607
0.86635
Debt(Rb)
6.573
0.13365
Total Value
49.18
1
Rwacc
3.16%
Capital Structure Theories
According to Modigliani and Miller (1958) the cost of equity capital is mostly determined by the asset’s cost of capital and not the other way round.
Ford has outstanding shares numbering 3.88 Billion while the market prices of its shares were costing 14.07 which amounts to a total of $54.5916 Billion. The Capital Asset Pricing theory suggests that the cost of capital depends largely on how the asset was initially financed (Bierman & Smiddt, 1966). The cost of the debt capital, the cost of the equity capital and the weighted average of the two depending on the debt and equity financing represents the actual cost of capital. (Black, Jensen and Scholes, 1972)
Some theories of the Capital assets pricing model, have been applied in relation to heterogeneous beliefs (Merton, 1987) and risk free lending rate elimination (Black, 1972)
Summary
Ford Motor Group is a Gross Profit 7.9% in 2013 as opposed to 2012 when it decreased by 5% from the previous year. The GP for General Motors on the other hand increased by 70% in the year 2013 while in the year 2012 it decreased by 43%. The net profit for Ford for the same period increased 26% in 2013 while in 2012 it decreased by 72%. GM registered a 13.7 % reduction in 2013 while in 2012 it registered a further reduction of 32.7%. The total shareholder’s equity for Ford increased by 65.5% in 2013 while in 2012 it increased by 6%. General Motor’s shareholders equity increased by 17.6% in 2013 while in 2012 it decreased by 4.9%. In 2012 Ford Motor Group reduced its total liabilities by almost 70% while GM increased its total liabilities by 15.6% in 2013. The sales revenue for Ford increased by 10% in 2013 while GM sales for the same period increased by 2.1%. Ford total sales revenues increased from $133,559 million in 2012 to $146,917 million in 2013. GM sales for the same period were 152256 million and 155427 million from the same period respectively. The interest expenses for Ford increased by 16.3% in 2013 while in 2012 it had decreased by 12.7%, GM interest expense decreased by 31.7% in 2013 while in 2012 it decreased by 9.4%. (Bodie, Kane, Marcus, 2008)
The ratios for Ford also indicate that the liquidity ratios are above average for all the years for Ford Motor Group. The current ratios were 2.11, 2.32, 2.26 for the years 2013, 2012 and 2011. The quick ratios also indicated a positive trend. The Times interest earned for the year 2013 for ford were 9.45, 11.83 and 11.63 for the years 2013, 2012 and 2013. The interest cover for the same period indicated the same results like Times interest earned. (Drucker, 1999)
The ford Family owns 2% of the company while the employees number about 181,000. It has a market capitalization of $54.65 Billion and its shares are currently trading at $14.09 dollars with a yield of 3.5%. (Ross, Westerfield & Jaffe, 2013) The net assets turnover for Ford decreased by 2.5% in the year 2013 as compared to a 50% increase in the year 2012. GM registered a decrease of 13% in its net assets turnover in the year 2013 while in the year 2012 it experienced an increase of 6.5%. The dividend per share for Ford in 2013 and 2012 was 0.4 and 0.2 respectively. This represented a return of 22% to the shareholders in 2013 while in 2012 it was 23%.
Ford Motor Group has a great potential to return to great profitability and also be able to pay off all its outstanding debts. The Current ratios and the quick acid test ratios indicate that Ford Motor Group is has a stable liquidity and with the right leadership it would be able to make more profits like the earlier years. Given all these factors I would definitely invest my money in Ford Motor Group but I would be cautious besides I would also be requiring a plan on how the management of the company would be proposing to settle the huge loans that it owes several financiers. Ford may be earning some profits but it has a lot of debts that are four or five times its total equity. The classification of shares as common shares and also class B shares that have unequal voting rights is also some disquietedness among the shareholders.
Reference
Adams, S. (2008) Fundamentals of business economics. Financial Management (UK), 46–48. Retrieved from Business Source Premier Database.
Bierman, H. and Smidt. S. (1966).The Capital Budgeting Decision—Economic Analysis and Financing of Investment Projects. New York: Macmillan Company
Bodie, Z., Kane, A., Marcus, A. J. (2008). Investments (7th International Ed.) Boston: McGraw-Hill. p. 303.
Black, F., Jensen, M.C. and Scholes, M. (1972) “The Capital Asset Pricing Model: Some Empirical Tests,” in Studies in the Theory of Capital Markets. Michael C. Jensen, ed. New York: Praeger, pp. 79–121
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Fama, E. F, French, K. R (2004). “The Capital Asset Pricing Model: Theory and Evidence”. Journal of Economic Perspectives 18 (3): 25–46.
financial problems and make effective business decisions. New York: McGraw-Hill.
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Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
1. To define organizational development tools as they relate to the process of altering, accelerating, and sustaining changes in corporate culture.
2. To illustrate through multiple examples the importance of active and enthusiastic involvement of leadership through out the cultural shift.
Placement in the Course:
This case has multiple teaching objectives: (1) to convey the lengthy processes involved in shifting a corporate culture, especially a company segmented into large and independent business units like MECK Insurance, (2) to impress upon the reader the key factors of success involved in organizational change: leader participation, defining a common and clear purpose for your organization, setting clearly defined goals based on your defined and shared vision, (3) to highlight the importance of genuinely involving employees from every level of the organization in the transformation.
Provide a 2 pages analysis on the case and be sure to address all questions fully.
SAMPLE ANSWER
The Transformation of MECK Insurance
Organizational transformation involves changing an organization into a very proactive institution. This reduces costs and does away with duplication and non-value adding processes, hence, improving product and service delivery (Anderson & Ackerman-Anderson, 2010). In this regard, organization development tools enable an entity to adopt better to the fast changing external environment of new markets, regulations, and technologies. This could be done through altering, accelerating, and sustaining changes in corporate culture (Tate, 2009).
Changing the culture of a corporate is a slow and tricky process since it entails convincing the employees about the reason behind alteration of the current culture. The employees have to be cognizant with the way the changes are being proposed. The resources have to be moved from one activity to the other for the sake of change. In addition, the employees have to be motivated in order to make them buy into the reforms. The management, afterwards, needs to deal with the organizational politics by getting the people on board especially those with greatest influence (Klewes, & Langen, 2008).
Corporate culture change can be accelerated through carrying out culture survey. This survey’s main goal is to reveal cultural strengths, dangers, and any opportunities. This enables the leadership to know how to align the strategy, leadership and culture. The road map ought to be very clear to ensure that resources are allocated promptly to leadership and the goals of the culture. In addition, there should be support from the leaders to ensure cohesion, conviction and capability from all the employees (Dawson, 2010).
Ensuring that the change stands the test of time is very important in any organization. This is simply because, this approach improves the organization’s brand image, the company gains upper hand in competiveness, the employees get more satisfied, the risks are easily managed, and there is enhanced stakeholder relations (Anderson & Ackerman-Anderson, 2010). Apparently, these benefits can only be realized through sustainable management of change. The changes ought to be defined especially on how different they are from any other change, there should be a strategic plan on how to implement those changes, and the top management has to implement the changes through rewards and incentives. In addition, the corporate has to get seasonal employees and develop a system where employees get to embrace the culture. Moreover, the performance of those reforms has to be monitored always (Howard-Grenville, 2007).
To achieve all thsse reforms, the leadership has to be actively involved in cultural shift. However, the leader can only manage and bring change in an organization if he/she is competent. Leadership that can be relied upon is very relevant for the success of an institution. (Klewes, & Langen, 2008). The leaders always look for change through people towards the set down objectives. Kono & Clegg (1998) insisted that leadership was a procedure that not only influenced employees, but leaders as well, to accomplish the goals of the organization through change. Leadership revolves around the leaders and the employees, influence, organizational objectives, change, and people. Leadership involves giving people directions. In order to be a good leader, one must be a good servant (Anderson & Ackerman-Anderson, 2010). Active involvement of the leaders will ensure that increased technological advancement is incorporated in the organization. Also high expectation from clients and rapid change in the markets will be managed and controlled (Tate, 2009). The leaders, therefore, are able to examine their performance so that they can adopt and implement changes in an institution. Moreover, active involvement of the leadership ensures that the leadership always remains keen in the process of evolution of an organization in order to realize its desirable shape, hence, address the issues of organizational change appropriately.
References
Anderson, D., & Ackerman-Anderson, L. S. (2010). Beyond change management: How to achieve breakthrough results through conscious change leadership. San Francisso: Pfeiffer.
Dawson, C. S. (2010). Leading culture change: What every CEO needs to know. Stanford, Calif: Stanford Business Books.
Howard-Grenville, J. A. (2007). Corporate culture and environmental practice: Making change at a high-technology manufacturer. Cheltenham, UK: Edward Elgar.
