Investment Analysis Paper on Chesapeake
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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.
Brooks, R., & Mukherjee, A. K. (2013). Financial management: core concepts. Pearson.
Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013).Fundamentals of corporate finance. Pearson Higher Education AU.
Gitman, L. J., & Zutter, C. J. (2014). Principles of Managerial Finance. Pearson Higher Ed.
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