Requirements:
The written final summary report will ultimately recommend to the Board of the Directors of the manufacturing conglomerate (your client) which of the two companies should be considered for acquisition purposes. You will support the reasons for recommending your choice by performing the necessary financial analysis and answering the questions below. The more detail and depth you include in your analysis, the better. I expect you to do a good job of explaining your position. I will not tell you how to do the project, as I want you as a group to develop your own best methods. However, I will act as a resource and a sounding board for suggestions and ideas.
Resources required for the project:
An Excel worksheet that includes your computations
The most recent financial statements for both companies.
The report may be 1-2 pages using MLA format, and it must be typed using MS Word or comparable software, no more than 12-point font and double-spaced with margins of no more than one inch. It is expected that each group member will actively participate in the project.
Project Outline:
Overview:
Select any company from below and submit your top two selections to me – first come, first served as to choices.
Aerospace & Defense Industry:
Boeing Co. & Northrop Grumman Corp.
Alliant Techsystems Inc. & United Technologies Corp.
Textron Inc. & Raytheon Co.
Lockheed Martin Corp. & BE Aerospace Inc.
Communications Equipment Industry:
Harris Corp. & EchoStar Corp.
Ciena Corp. & Qualcomm Inc.
Exelis Inc. & Rockwell Collins Inc.
Apple
SamSung Electronic
Electrical Equipment & Appliances Industry:
Whirlpool Corp. & Acuity Brands Inc.
Diebold Inc. & Belden Inc.
Emerson Electric Co. & Lennox International Inc.
EnerSys Inc. & Hubbell Inc.
Middleby Corp. & SunPower Corp.
Exide Technologies & A.O. Smith Corp.
Automotive Industry:
General Motors
Ford
FCA (Fiat Chrysler Automobiles)
Tesla
Mercedes Benz
Hyundai-Kia
Toyota, Honda
Service & Retail Industry:
Wal-Mart
Tencent Holdings, Ltd in China
Your group will function as an investment advisory firm to a large manufacturing conglomerate. Once you have selected your companies and have been approved, your group will begin an in-depth analysis of the two companies. The analysis will be comprised of several elements, such as both companies' most recent financial statements, as well as learning all you can about the companies in terms of their products, success within their industry, and any current news that would be relevant to your advisory firm. In your financial analysis, you will be analyzing sales, manufacturing costs, net income, cash, etc. Your analysis will also require you to answer the questions listed below.
You will also consider other factors that would influence your decision whether or not to recommend purchase of this stock. Some items in this category might include the company's "green" initiatives, a new product or service, recent cost cutting moves, or consolidation or merger with another company. Finding this information will be part of your research for the project.
Questions:
Part 1 – Sales
Identify and record the most current three years' sales (in dollars) for both companies using their financial statements.
Using the data in question 1, predict both companies' sales activity for the next two to three years. Hint: use trend analysis. If possible, compare your predictions to actual sales figures for those years.
Use Excel to compute profit margin for both companies for the two most recent years. Comment on your findings.
Part 2 – COGS cost analysis
Use Excel to compute the ratios of cost of goods sold to total expenses for both companies for their two most recent fiscal years. Record answers as percentages, rounded to one decimal place.
Comment on the similarities and/or differences in the ratio results across both years between the two companies.
Which company has a higher ratio of costs, defined as COGS plus total operating expenses, to revenues? Use the two most recent years' income statements. Use Excel to show your analysis.
How might the use of activity-based costing help the less competitive company become more competitive?
Part 3 – Inventory
Identify the impact on operating cash flows (increase or decrease) for changes in inventory levels (increase or decrease) for both companies for each of the three most recent years. Use Excel for your analysis.
What impact would a JIT inventory system have on each company's operating income? Link this answer to your response in question 1 above.
Would the move to a JIT system have a one-time or recurring impact on operating cash flow?
Part 4 – Warranties
Read the "Product Warranties" section of the "Organization and Significant Accounting Policies" footnotes for both companies. For each of the three years reported, compare the dollar amounts of the annual warranty expense and actual warranty claims paid. Is the expense higher, lower, or about the same as its claims paid?
Using your answers from question 1 above, which company made more accurate estimates of warranty costs over the most recent three years.
Project Grading:
Your project will be graded on content/creativity, contribution/effort, coherence and organization, and communication and participation.
See grading rubric below.
I suggest exchanging phone numbers and e-mail addresses to assist in this process. I also recommend that you use a service like Zoom, Google Hangouts, Brightspace Discussions, Microsoft Team, etc. to meet as a group if you are unable to do so in person.
I am available to answer questions and provide some guidance, but the goal is for you to use your talents and imagination to figure out the best methods to accomplish the objectives of this project.