mba case 2 - value based management
DESCRIPTION
Second case study for Spring 2012 MBA class.TRANSCRIPT
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
MBA220 Case #2Value based management & more!
David J. Moore, Ph.D.
www.efficientminds.com
April 16, 2012
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Outline
1 Financial statement analysis
2 Financial statement forecasting
3 Intrinsic value computation
4 Project cash flows
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Outline
1 Financial statement analysis
2 Financial statement forecasting
3 Intrinsic value computation
4 Project cash flows
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
What you need to do
Liquidity, asset management, debt management,profitability, market value, and DuPont measures for thecompany you chose in Case #1. (FSA)Repeat for the top three (by ROE) companies in theindustry. (FSA)Identify improvement opportunities. (FSA, VBM)
Sample table
Measure Your Company Leader 1 Leader 2 Leader 3ROEPMTATREMDSODSIOthers...
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Outline
1 Financial statement analysis
2 Financial statement forecasting
3 Intrinsic value computation
4 Project cash flows
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
What you need to do
Compute IGR and SGR of your company and competitors(FSF)Estimate sales growth rate for next five years. (FSF)Forecast income statement and balance sheet for the nextfive years. (FSF)Calculate FCF for each forecast year. (MA)Include separate line items for improvement opportunities.(VBM)
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Sample tables
Growth rates
Company ROA ROE RR IGR SGRYoursLeader 1Leader 2Leader 3
Financial statement forecasts
Item t t +1 t +2 t +3 t +4 t +5Income statement itemsBalance sheet itemsFCFImprovement opportunity items
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Outline
1 Financial statement analysis
2 Financial statement forecasting
3 Intrinsic value computation
4 Project cash flows
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
What you need to do
Use WACC from Case #1 and 10%. (VBM)Compute intrinsic value assuming constant growth at6.67% after year 5 under the status quo. (VBM)Compute sensitivity analysis using WACC and g. (VBM,PRA)Perform sensitivity analysis with improvementopportunities. Which one opportunity has the most impacton V0? (PRA, VBM)Repeat intrinsic value computation with the improvement.(VBM)Compare to current market value.
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Sample tables
Company Opportunity 1 Opportunity 2 Opportunity nBase - 20%Base - 10%Base V0 V0 V0Base + 10%Base + 20%
Status quo
WACC/g 5% 6.67% 8%8%9%10% V011%12%
Improved
WACC/g 5% 6.67% 8%8%9%10% V011%12%
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Outline
1 Financial statement analysis
2 Financial statement forecasting
3 Intrinsic value computation
4 Project cash flows
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
What you need to do
Make up a project for your company to take on. A newproduct. A new region. Something. (EPCF)Compute incremental cash flows of that project. Note anyopportunity costs, externalities, and salvage values.(EPCF)Compute NPV, IRR, MIRR. Should the project beaccepted? (PSC)Weave project cash flows into financial statement forecast.(EPCF, FSF)Compute new intrinsic value.
Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash flows
Sample tables
Selection criteria
NPV IRR MIRR WACC
Improved+new proj
WACC/g 5% 6.67% 8%8%9%10% V011%12%