Create a 6-8 page report that analyzes financial ratios for a selected company, uses the data to tell the financial story of that company, and concludes with a recommendation on whether the company would be a viable partner based on its financial condition.
It is essential for financial advisors and upper management to know the financial condition of a company for a variety of reasons, including to improve its condition, to make decisions to increase shareholder value, and to know the true value of the entity. Such an analysis is important for any business, small, medium, or large.
This portfolio work project gives you a chance to apply the skills expected of an MBA graduate; from the financial management perspective, you should be able to:
Tell the financial story based on financial statements.
Conduct a financial analysis and identify focus areas for enhancing shareholder value.
Interpret ratio computations that are meaningful and inform business decisions and strategies.
Maria Gomez is founder and president of PacificCoast Technology, a small technology company. She is considering being bought out by a larger publicly traded company so she can be rewarded financially for all of her entrepreneurial efforts. She calls you into her office and says:
Thank you for meeting with me today. I’d like to talk to you about the future of the PacificCoast Technology. I’ve been running this company for a long time now, and I think it’s time for me to consider the next five to ten years. I want to find a buyer for this company who can take it to its full potential but with me still leading it. I still want to be a part of the journey, to see this company’s growth, which means this potential buyer needs to be a high quality company with solid financial health. That’s the only way we’ll be sure there’s going to be necessary funds and stability for the firm to grow.
You are ready to take on this project to assist Maria with her vision to find a buyer to take the company into the next phase. At your desk, you review these additional meeting notes:
The acquiring company does not need to be in the same industry, as Maria values financial strength over any synergistic benefits.
Maria wants you to select a company and then examine its financial condition by analyzing its financial statements and using financial ratio analysis. She indicated that using both trend analysis—going back at least three years—and industry average analysis would be helpful information for her.
From this analysis, Maria wants you to tell the financial story of the potential buyer/company by listing its financial strengths and weaknesses.
She expects you to provide a list of actionable decisions so she can understand if the company would be a potentially viable corporate partner.
You are one of Maria’s high-performing managers at PacificCoast Technology, and she trusts your work and leadership.
After a few days of thinking about Maria’s project request, you call a meeting with her in which you lay out the requirements below. You tell her that by meeting these requirements, you believe she will have the information she needs. Maria approves your plan and asks that you get started right away.
Here is what your report should provide for Maria on the selected company:
Provide a brief background and summary of the potential corporate partner in terms of its history, product lines, and geographic reach. (Remember that Maria is looking for a partner that is a publicly traded firm.)
Analyze the financial statements of the firm, which can be typically be found in the annual report in the investors’ area of the corporate website, including the income statement, balance sheet, and statement of cash flows:
Do a comprehensive financial ratio analysis, including multiple financial ratios in each of the following categories—short-term solvency or liquidity, long-term solvency, asset management or turnover, profitability, and market value ratios.
Use the following tools to analyze these ratios: trend analysis (going back at least three years) and industry average ratio analysis. If industry average ratios are not available for the company, use an average of two of its nearest competitors.
Evaluate the financial statements and ratios of the firm to find its true condition and valuation.
From the ratio analysis, identify and strengths and weaknesses of the company.
Make conclusions on the current status of the firm based on its history and comparison to its competitors.
Make actionable items and conclusions, based on the data analysis, about the status of the company.
Based on the analysis of the firm, identify any general actions that need to be made to improve the financial condition, and indicate the ease or difficulty of the firm doing so.
Tell the current financial story of the firm and indicate the overall health of the firm as it relates to current valuation and the future prospects of the company.
Provide a clear picture of the financial condition and valuation of the company to shareholders, debtholders, customers, and employees.
Present information graphically and in narrative form, conveying a compelling snapshot of the company.
Recommend whether the company would be a good match to enter into a buyout tender offer/agreement.
Remember that it is not enough to just simply summarize numbers or data for your audience. Put yourself in their shoes and make the connections for them, tell them why it is important, and tap into their concerns and motivations.
While you are free to use your creativity in formatting your submission, keep in mind that this is a document that will be for the eyes of the owner of the firm, so make sure it can be easily and quickly examined by a busy upper-management professional, with clear writing and understandable graphics and charts.