JWI531 FINANCIAL MANAGEMENT II
Week 1 Discussion
Two Rules in Investing
In the HBO video above, Warren Buffett discusses Graham's two rules of investing. In addition, you have read about the role of the CFO and how finance managers work every day to ensure their company is a value to their investors and owners. Take a minute to reflect on your experience with finance and what you want to learn about investing.
Introduce yourself and tell us if you have any financial management responsibilities in your current or former job(s), such as department budgets, or developing sales, marketing, operational, or other strategic plans.
What experience do you have investing in stocks, and what would you like to learn more about?
This week only, post your initial response by Friday, midnight of your time zone, and reply to at least 2 of your classmates' initial posts by Sunday, midnight of your time zone.??
JWI531 FINANCIAL MANAGEMENT II
Week 2 Discussion
Identifying and Balancing Risk and Reward
Name one of the biggest strategic risks and one of the biggest financial risks that you face in your business or industry, and briefly explain how each of these can impact your business. For one of these, provide your ideas on the steps your company should take to significantly mitigate these risks.
JWI531 FINANCIAL MANAGEMENT II
Week 3 Discussion
Measuring What Matters
There is an adage in business that says, “You get what you measure.” This suggests that we must introduce performance tracking metrics if we want to improve business results like increasing productivity, mitigating costs, or improving employee engagement.
What is an important performance tracking metric that your company uses, and what is the likely business result they are trying to influence (such as increasing revenue, lowering costs, managing risks, etc.)?
Briefly describe how your company calculates and communicates this metric, and share your opinion on the extent to which this performance tracking is helping to improve business results.
Share your ideas on how else the company could improve this performance tracking process.
JWI531 FINANCIAL MANAGEMENT II
Week 4 Discussion
To Merge or Not to Merge…?
Mergers or acquisitions only make sense when the combined entities create greater value together than they can separately.
Locate and provide a link to a recent news story from The Wall Street Journal or other reputable news source about a merger or acquisition that has been announced between two publicly-traded companies in the last year.
In your own words (not simply copied from the article), describe how the combined entities were expected to create greater value together than separately (e.g., how they were going to increase revenue, lower costs, and/or better manage risks). Be descriptive and thorough in explaining these potential synergies. To support your response, include specific references to M&A strategies discussed in Chapter 6 of The CFO Guidebook.
Applying your business acumen and emerging CFO skill base, provide your assessment and supporting rationale about whether this merger makes sense from three perspectives:
Does the merger make sense from a strategic fit perspective?
Does the valuation of the deal seem reasonable?
Identify the biggest risk(s) you think the acquirer will confront in extracting the synergies post-transaction.
JWI531 FINANCIAL MANAGEMENT II
Week 5 Discussion
Forecasting
This week, we learned about the importance of forecasting future sales and profit for companies. Of course, there are many factors which can affect the reliability of these forecasts, such as interest rate fluctuations, competitive innovations, new customers, etc. But still, finance leaders must make every attempt to build their business strategy on forecasts that are as accurate as possible.
As you think about your company’s ability to forecast future sales and profit, what are two or three of the most significant variables that are difficult to predict?
What information and data would you use to improve the forecast accuracy?
How can you go about collecting and leveraging this data?
JWI531 FINANCIAL MANAGEMENT II
Week 6 Discussion
Aligning Strategy and Budget
In Chapter 9 of The CFO Guidebook, we are introduced to the tools of capital budgeting. Making specific reference to what you read in that chapter, respond to the following questions:
Which metrics and methodologies are the most useful when evaluating a capital investment? Why?
How can finance leaders be more effective partners to managers and business leaders in developing capital budgets that align with the risk tolerance and mission of the organization?
What can be done to make sure everyone understands the connection between the strategy and the capital budget?
JWI531 FINANCIAL MANAGEMENT II
Week 7 Discussion
Putting Cash to Work
Locate and post a recent news story from The Wall Street Journal or other reputable source about a publicly-traded company that has been criticized for its cash management practices and/or the amount of debt it is carrying.
What were the criticisms leveled against the company? Was it accused of being too conservative and hoarding too much cash, or of taking unnecessary risks such as being too highly leveraged?
How did the CFO or CEO address this criticism?
How has the stock performance been impacted by these cash management practices?
What are three ways, other than revenue growth, that the company could generate significant cash growth? Hint: take a look at the cash flows.
JWI531 FINANCIAL MANAGEMENT II
Week 8 Discussion
Welcome to Shark Tank
You have a great idea about a new business opportunity. You’ve run the numbers and are confident that with an initial investment of $500,000, you can turn a profit in three years and generate $150,000 in operating income per year. But you realize there are no guarantees. Further, you anticipate that there is at least a 50/50 chance the economy will enter a recession within the next two years.
What factors will be most important in determining if you want to fund your venture through equity or take a loan for the $500,000?
If you meet all your projections, will you be happier in five years that you used equity to fund the venture or debt? Why?
If the company goes bankrupt in five years, would you have a different answer? Why?
JWI531 FINANCIAL MANAGEMENT II
Week 9 Discussion
Going Public
Locate a recent story from The Wall Street Journal or other reputable news source about a company that has gone public through an Initial Public Offering (IPO) within the last year.
How did the company arrive at the valuation for the IPO? Yes, we know there are multiple valuation methods and also supply and demand based on hype, but what was said publicly by the CEO/CFO and/or the bank that took the company public to defend the initial stock price?
Was the IPO price justified? How has the price changed since the IPO? Be sure to consider overall market and segment performance to support your position.
JWI531 FINANCIAL MANAGEMENT II
Week 10 Discussion
Circle of Competence
Locate and post a link to a recording of the most recent earnings call or to a press release from a company you are personally interested in
How did the CEO and/or CFO present the company in a positive light and address concerns and questions?
What did they say that demonstrated the competence of the senior leadership team and the company's strategy to manage risks and drive growth?
Include at least two specific examples to support your response.
Reflect on your Week 1 Discussion response. Share what you learned since then. How has your own circle of competence in finance grown?
JWI531 FINANCIAL MANAGEMENT II
Assignment 1
Enterprise Risk Management and Moat Strength
Congratulations! You have just gotten the opportunity of a lifetime to work as a senior financial advisor for Warren Buffett. You will be responsible for conducting financial analyses on two companies Mr. Buffett is reviewing, AMD and Intel, and providing recommendations for action to the CFOs of those companies.
Instructions
In this assignment, you will evaluate several risk scenarios and make recommendations on how to position the company for success by putting in place “reasonable” protections against downsides. To prepare for the assignment: (1) download and review the latest annual reports for both companies from the Investor Relations page of each company’s website; (2) read the Shareholder Letter and the Risks section carefully, and (3) read the Morningstar Analyst Reports with particular emphasis on the Moat and Risk sections.
A. Complete the Assignment 1 Worksheet to create risk profiles for both companies. The guidance for this is found on pages 24-29 of The CFO Guidebook.
B. Summarize your Analysis and Recommendations by addressing the following questions:
i. Where is each company in its corporate lifecycle (startup, growth, maturity, or decline)?
Explain.
ii. Based on your review of the analysts’ reports and the 10-K reports, which company appears to have more risk? Why?
iii. Which categories of risk pose the greatest threat to each organization? Why?
iv. Which company has the stronger economic moat? Explain.
v. For the company that has the weaker economic moat, what two risk factors should they prioritize to improve their risk mitigation and strengthen their competitive advantage?
Make specific reference to the applicable risk management tools discussed on pages 30- 63The CFO Guidebook.
Submission Requirements
A. Complete and submit the Assignment 1 Worksheet component of the Workbook, along with your written work for Part B, through the assignment link in Blackboard.
B. Format your written responses for Analysis and Recommendation as follows:
• Typed, double-spaced, professional font (size 10-12), including headings and subheadings (to identify main topics and subtopics), with one-inch margins on all sides.
• References must be included and provide appropriate information that enables the reader to locate the original source.
o Application and analysis of course materials and resources is expected.
o At least one additional source beyond the course materials must be cited to support your analysis and recommendations.
• Include a cover page containing the title of the assignment, your name, the professor’s name, the course title, and the date.
• The maximum length is 4 pages, excluding your cover page, completed worksheets, and reference list
JWI531 FINANCIAL MANAGEMENT II
Assignment 2
Performance Management and Valuation
The risk analysis work you did in the first assignment was a great start. It helped to paint a picture of where AMD and Intel are in their corporate lifecycles, the threats and opportunities each faces, and the defensibility of their economic moats – a metaphor that Buffett loves to use.
In this assignment, you will continue your analysis by comparing key performance management metrics of our two companies, identifying areas of relative strength and weakness, and suggesting ways that each company could improve, thereby increasing its valuation. To do this, you will examine trends in order to identify variances and comparisons to: (1) establish benchmarks, (2) identify best practices, and (3) look for signs of superior performance. This analysis is critical in determining the value of each company, as well as evaluating whether potential acquisition or merger opportunities exist which could create greater value and synergies than those of operating the companies as separate entities.
Instructions
To prepare, reread the Morningstar Analyst’s Report and the most recent annual reports for both companies with a particular focus on the Income Statement and Statement of Cash Flows.
A. Complete the Assignment 2 Worksheet to compare key performance metrics and ratios for both companies in order to see how performance can be impacted by manipulating certain financial levers. The guidance for this is found on pages 78-100 of The CFO Guidebook.
B. Summarize your Analysis and Recommendations by answering the following questions:
i. Performance Metrics:
a. Which company is a more efficient generator of income?
b. Which company is growing faster?
c. Using financial health ratios, which company is more profitable?
d. Which company has stronger valuation ratios?
e. Overall, which is the better run company and why?
ii. Merger Synergies:
a. If there was an acquisition, which company is the most likely acquirer? Why?
b. Would you recommend a merger or acquisition to increase the moat strength of the combined companies? Why or why not?
• If you support a merger or acquisition, identify 3 performance metrics that could be improved by a merger and explain how they would be improved. Guidance for this is found on pages 101-110 of The CFO Guidebook.
• If you do not support a merger or acquisition, explain your rationale and why the value of each company is best preserved/increased by remaining separate. The guidance for this is found on pages 111-117 of The CFO Guidebook.
Submission Requirements
A. Complete and submit the Assignment 2 Worksheet component of the Workbook, along with your written work for Part B, through the assignment link in Blackboard.
B. Format your written responses for Analysis and Recommendation as follows:
• Typed, double-spaced, professional font (size 10-12), including headings and subheadings (to identify main topics and subtopics), with one-inch margins on all sides.
• References must be included and provide appropriate information that enables the reader to locate the original source.
o Application and analysis of course materials and resources is expected.
o At least one additional source beyond the course materials must be cited to support your analysis and recommendations.
• Include a cover page containing the title of the assignment, your name, the professor’s name, the course title, and the date.
• The maximum length is 4 pages, excluding your cover page, completed worksheets, and reference list.
JWI531 FINANCIAL MANAGEMENT II
Assignment 3
Forecasting
In the first two assignments, you looked at: (1) how AMD and Intel are positioned to take advantage of opportunities and manage risks, and (2) how well each is currently managing their performance. As part of this analysis, you identified potential areas for improvement and considered whether a merger or acquisition could strengthen their financial performance.
Based on your insights and recommendations, Buffett is now asking for an assessment of what the future holds for these businesses. In order to deliver this, you must be able to accurately forecast cash flows (the money that comes in and the money that goes out). Like any predictions about the future, these forecasts require the collection and analysis of reliable data, including leading indicators in the broader economy as well as the market forces that impact competitive dynamics. This analysis will enable you to make smarter decisions about how to plan for the future in order to maximize returns, minimize risks, and beat the competition.
Instructions
For this assignment, you will continue to use the published data from the most recent annual reports you have been studying, as well as analyst reports and other resources available on the Internet.
A. Complete the Assignment 3 Worksheet to assemble and assess your forecasts of working capital. The guidance for this is found on pages 131-163 of The CFO Guidebook.
B. Summarize your Analysis and Recommendations by addressing the following questions:
i. Which metrics/trends are most critical for forecasting future performance and for budgeting?
To answer this, you must include an analysis of both past trend performance AND the applicability and reliability of key forecast indicators. In your response, consider:
a. Which company has the stronger income statement? Explain.
b. Which company has the stronger cash flows? Explain.
c. Which company has the stronger operating performance? Explain.
ii. Why are the metrics/trends in the data sets above so critical? How reliable are they as predictors of future performance?
iii. Based on the data you have analyzed, which metrics would you focus on to improve the performance of the weaker company against the stronger one? Why?
a. How would you do this? What specific financial tools would you apply? Why?
b. What would “realistic” improvement look like?
c. How would you measure success?
v. If you were given the opportunity to join either of these two companies as the new CFO, which one would you pick, and why? In considering your answer to this question, the majority of your compensation plan will be tied to the improvements you can help to drive. Therefore, you should not base your decision on which company is currently performing better, but on which company’s performance – and valuation – has the greatest potential for growth.
Submission Requirements
A. Complete and submit the Assignment 3 Worksheet component of the Workbook, along with your written work for Part B, through the assignment link in Blackboard.
B. Format your written responses for Analysis and Recommendation as follows:
• Typed, double-spaced, professional font (size 10-12), including headings and subheadings (to identify main topics and subtopics), with one-inch margins on all sides.
• References must be included and provide appropriate information that enables the reader to locate the original source.
o Application and analysis of course materials and resources is expected.
o At least one additional source beyond the course materials must be cited to support your analysis and recommendations.
• Include a cover page containing the title of the assignment, your name, the professor’s name, the course title, and the date.
• The maximum length is 4 pages, excluding your cover page, completed worksheets, and reference list.
JWI531 FINANCIAL MANAGEMENT II
Knowledge Check 1
Question 1 Tightening strategic focus can be accomplished by:
A. Agreeing on areas not to enter
B. Only making large bets
C. Completing all projects
D. Always being first to market
Question 2 In the CFO relationship with the board of directors, the risk management area includes the following task:
A. Report on risk issues to the board of directors
B. Monitor projected cash balances
C. Oversee the activities of any supplier to which functions have been outsourced
D. Oversee the formulation of the annual budget
Question 3 In an acquisition strategy, the product supplementation strategy is used to acquire a business:
A. Located in a faster-growing niche
B. That does not compete in the same industry
C. That sells into a different geographic region
D. That has a product that can supplement the company’s own product line with similar products
Question 4 In risk ranking:
A. It helps to estimate the potential frequency and severity of the risk
B. Judgment can help with quantitative analysis
C. The use of real-world models can improve accuracy
D. All answers are
Question 5 Internal controls are more likely to fail:
A. When one person circumvents them
B. When responsibilities are clearly stated
C. In a profitable business
D. Because they rely upon the judgment of the people operating them
Question 6 In risk management, estimating the severity of risks include:
A. Risk planning
B. Monitoring and reporting
C. Financial statement disclosure
D. All answers are
Question 7 The process integration principle states that:
A. A large number of manual controls be used
B. Controls be thoroughly intertwined with business processes
C. Controls are cluster of activities that are from business processes
D. Controls only be used for repetitive transactions
Question 8 Risk planning includes:
A. Mitigating the risk though specific actions
B. Accepting the risk because of the low frequency/severity or potential payoff
C. Transferring the risk through insurance or financial derivatives
D. All answers are
Question 9 In categorizing risk, profiles include different categories such as financial, supply chain, data security, strategic and operational.
True
False
• Question 10 In the CFO organizational structure, it is easier to share best practices information with subsidiaries when:
A. There is no formal management link between the corporate parent and the subsidiary accounting departments
B. The subsidiaries are given the freedom to contact each other with this information
C. Corporate counsel is placed in charge of best practices
D. There is a link between the business unit controllers and the corporate controller
JWI531 FINANCIAL MANAGEMENT II
Knowledge Check 2
Question 1The synergy strategy is one of the most successful acquisition strategies because it primarily:
A. a. Improves the quality of its products
B. Seeks to acquire businesses outside of its home established markets
C. Bases acquisitions decisions on cost reduction or revenue advantages
D. Bases acquisitions decisions on revenue enhancement opportunities
Question 2The result of the affordable growth rate can be impacted by:
A. Dividends paid in cash
B. Changes in the amount of assets employed
C. The renewal of existing debt agreements
D. The equivalency of cash flows and net profits
Question 3During an acquisition due diligence, corporate culture can be a particular roadblock when:
A. Members of both companies have worked together on joint ventures in the past
B. The computer systems used are different
C. The buyer imposes a command-and-control system
D. Managers from both companies want to run the combined entity
Question 4Acquisition valuation methods include:
A. Comparison analysis
B. Liquidation value
C. Discounted cash flows value
D. All answers are
Question 5Acquisition Integration issues include:
A. Cross training of the sales staff
B. Deciding which employees to retain and which to terminate
C. Integration of information technology
D. All answers are
Question 6The legal forms of acquisition payment include:
A. Exchange of stock
B. Borrowing
C. Using cash
D. All answers are
Question 7Return on Assets is typically defined as:
A. The amount of money earned from all business units
B. Net income divided by total assets
C. Operating income minus income from cash reserves
D. None of the above
Question 8Return on Equity is:
A. A metric for comparing profits to annual interest rates
B. Payback on the total market capitalization of the company
C. Net income divided by shareholders’ equity
D. The total profit divided by the total debt
Question 9Working capital productivity measurement:
A. Determines sales levels are consistent from period to period
B. Measures whether a business has invested in a sufficient amount of working capital to support its sales
C. Calculates the proportion of receivables in working capital
D. Estimates if there is a high proportion of inventory in working capital
Question 10Indicators of a strong acquisition candidate include.
A. High employee turnover
B. A history of producing earnings and operations
C. A complex organizational structure exists
D. Company has attempted to sell itself in the past, and failed to do so
JWI531 FINANCIAL MANAGEMENT II
Knowledge Check 3
Question 1Examples of unethical behavior when trying to meet a budgeted target include:
A. Overbilling customers
B. Recording revenue that was shipped before the month-end deadline
C. Entering supplier invoices in the accounting system during a bonus period
D. Not using contractors
Question 2Net present value analysis can be a poor choice for capital budgeting analysis because:
A. It uses a risk-adjusted discount rate
B. It does not include the impact of depreciation on income taxes
C. Cash flow projections may be inaccurate
D. Managers tend to be conservative with their cash flow projections
Question 3Forecasting without a budget:
A. Requires a system that can be easily updated
B. Is a good replacement for budgeting if done as a rolling forecast
C. Is done at an aggregate level
D. All answers are
Question 4Alternatives to a budget for a company to maintain direction include:
A. Focusing on the margins
B. Managing by key value drivers
C. Centralizing data management to quickly changing direction when needed
D. All answers are
Question 5In a lease versus buy decision, a lease can be easier to obtain than a line of credit, because:
A. The lessor does not require collateral on the lease
B. A lease is only granted to low-risk companies
C. A lease is only granted to companies having strong cash flows
D. The lease agreement designates the asset being financed as collateral
Question 6The advantages of budgeting include:
Answers:
A. A rigid decision-making process
B. Modeling different scenarios from which to choose
C. Gaming the system
D. Use it or lose it mentality
Question 7The CFO's responsibilities in capital budgeting include:
A. All answers are
B. Determining which projects to abandon
C. Performing a facility analysis when expanding operations
D. Matching capital expenditure to the company's strategy
Question 8In the system of budgets for a multi-division company, budgeting for cash repatriation is needed when:
A. Cash is centralized for investment purposes
B. Customers are supposed to pay the company in cash
C. The amount of planned working capital is negative
D. Subsidiaries are located in countries that restrict the flow of cash back to the parent company
Question 9In the outsourcing decision it’s possible to reduce costs when:
A. The supplier is located in a low-cost region
B. The supplier does not have excess capacity
C. The supplier does not have high production volume
D. The supplier wants escalation clauses
Question 10When preparing a rolling forecast:
A. Keep the timeline short to make updating easier
B. Address only key variables
C. Focus on the areas that will make a difference to the business
D. All answers are
JWI531 FINANCIAL MANAGEMENT II
Knowledge Check 4
Question 1Equity funding is a good option when:
A. Companies want to avoid interest payments on debt
B. The company has too much risk to secure favorable loan terms
C. Shares can be sold within a reasonable period of time and price
D. All answers are
Question 2The Form 10-Q is used to report:
A. Stock registrations
B. Stock sales by insiders
C. Annual financial results
D. Quarterly financial results
Question 3In deleveraging:
A. Agency financing cannot be applied
B. Excess cash is used to pay down debt
C. Covenant renewal should be carried over
D. Refinancing must be restricted for the next 12 months
Question 4The Over the Counter Bulletin Board
A. Lists the securities of those public companies not listed on a stock exchange, but which are current in their SEC filings
B. Lists the securities of those public companies which are not current in their SEC filings
C. Is another form of the NASDAQ
D. Lists only the amount of short sales in a company’s stock
Question 5A credit rating agency:
A. Is prohibited from providing credit rating advisory services
B. Values issued warrants
C. May alter the a rating subsequent to its initial issuance
D. Is prohibited from charging fees to the issuers of debt instruments
Question 6 Accruing an earnings credit is a reasonable investment strategy when:
A. Interest rates are low and there is little cash in the bank
B. There is an active treasury staff to manage investments
C. The cash balance in an account is high
D. Interest rates are high
Question 7Cash concentration is particularly useful:
A. For a large number of dispersed locations
B. For a large manufacturing operation
C. For a company providing services under a small number of national contracts
D. For a software company selling through a website
Question 8A tiered investment strategy:
A. Matches investment maturities to when cash will be needed
B. Involves making investments of staggered durations
C. Works best in situations where there is minimal cash on hand
D. Assumes some cash will be in continuous use and some will be in occasional use or has no planned usage
Question 9A credit rating:
A. Can be assigned to the issuer of certain types of debt (i.e. bonds) or to the issuer
B. Is used by investors to determine the price at which to buy debt
C. Is provided by Nationally Recognized Statistical Rating Organizations (NRSROs)
D. All answers are
Question 10A good reason for taking a company public is:
A. Owners of the company can more easily sell their shares
B. The financial statements must be audited
C. There will be increased pressure to increase short-term profits
D. The increased cost of directors and officers liability insurance
