MBA 500 Consulting Report Notes

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School

Southern New Hampshire University *

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Course

500

Subject

Finance

Date

Jan 9, 2024

Type

docx

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Uploaded by UltraWombat3833

Prompt Using the financial records of the health and beauty company that you work for, as well as the financial records of the company you chose in Module One, create a consulting report outlining the following criteria: a. Explain key financial performance indicators that various stakeholders would be most interested in. Support your rationale and include the following stakeholders in your response: i. Employees – Job security, compensation, growth are main three (people) Current Ratio (current assets – current liabilities = 47496+ to assets) and our Debt-to-Equity Ratio (liabilities / shareholder equity) = 39.6% or 0.4 which is good anything under 0.6 is good. We are leveraging debt well. But we want to be mindful and careful of not neglecting our debt too much (payment is down significantly from last year) ii. Shareholders – Profitability of company and future plans (profits) Net Profit Margin (net profit ( 18565 / 174090 x 100), = 10.66 good but could be better and our Charitable giving (% of profits) program (cash flow and income statement) 0.006% very low 1% is the gold standard but we need to aim for at least 0.5 percent which would require a substantial increase in the next year. iii. Community groups – Philanthropic efforts (planet) Inventory Turnover Ratio (COGS / average inventory value) (compare income statement and balance sheet) b. Explain additional key financial line items related to triple bottom line that are required to measure cost. Support your rationale. Insights of My Company  Payments to long term debt declined significantly even though the debt hasn’t gone down a ton in the last year.

Consider inflation and the increase of interest rates relative to the debt. Keep an eye on these increases and consider allocating more funds to debt payoff (would improve our credibility in the eyes of our shareholders)  Investing heavily in new equipment, buildings, etc increased from number on right to number on left in a year. While this is an increased expense, it is, at the end of the day, counted as an asset for ABC Company offering potential to increase overall revenue. We are spending money on better technology and production for our business which is a very positive step in the direction of ensuring our (planet) metric is serviced. Good for the community stakeholder group. (6,974) (1,708)  Shareholders equity is in a great place. Total equity 47,496 28,570  Both current and noncurrent assets are up from last year. Current liabilities are showing a slight uptick and noncurrent liabilities have gone down a little. Comparing it to asset growth, ABC Company is receiving much more back than it is losing through liabilities.  Revenue is outpacing the cost of goods sold, from 150,000 to 174,090 while costs only went up 5000 from the year before. Gross profit increased almost 20k.  A significant increase of paid in capital which shows strong enthusiasm from our investors but our dividends remain flat. We should consider increasing our payments as an act of good faith in return for the substantially high confidence our investors have in ABC company  KPIs

Next, let’s look at KPIs – 5 types – they tell you different things, how profitable you are leverages how well are you using your debt valuation has to do with how the company is being valued, efficiency is how efficient you're being with your stuff. Liquidity has to do with cash. These are the standard ones that you will use in business. Toyota’s layout Net income is down 24.5% (page 42 of 2019 Toyota Annual Report) Ours went up in comparison from last year Net Revenue up 2.9% (same page) 30,225.6 (in billions of yen) 202.66 (billions of dollars) Shareholder return down 13.3 billion Liquid Assets Up 82.3 billion Return on Equity (shareholders) down 2.9% from previous year From the “How to Read a Financial Statement” Video The first section of the financial statement is the balance sheet. The balance sheet states the company's financial position at a specific date and time. It reflects the ending balances of three major areas, a business's asset, liabilities, and owners' or shareholders' equity. Each of these elements should be evaluated separately and as a whole to obtain the complete picture of the business's financial position. Assets are things the company owns that have value. Assets can include physical items, like a fleet of trucks. Or assets can be intangible, such as trademarks or patents the company owns. Cash is also an asset. There are two types of assets, current and non-current. Both will be reflected in the balance sheet. Current assets are those assets that could be liquidated into cash within 12 months or less, such as cash itself, receivables, inventory, and short-term marketable investments.

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Current is what you owe this year. Examples of current liabilities include accounts payable, wages payable, income taxes payable, sales tax payable, or current payments due on notes and equipment. So in Marissa's case, current liabilities include wages she owes her employees. It would include bills she owes her vendors, like the distributor she buys her flowers from, or the money owed for utilities. Current liabilities would also include the amount of money owed this fiscal year on loans for her delivery vehicles and the mortgage payments she owes in this fiscal year on the building she purchased for her business. Non-current liabilities reflect payments that are not due in the current cycle or within a 12-month period. These are payments that are due on loans or long-term leases after this fiscal year. Knowing the distinction between current and non-current assets and liabilities will also be important when preparing the company's statement of cash flows.  Account for everything in and out (for shareholders)

Knowing the distinction between current and non-current assets and liabilities will also be important when preparing the company's statement of cash flows.

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A financial statement is routinely made up of what we call the income statement and the balance Sheet. FROM THE TEXTBOOK PAGE 187 A balance sheet shows assets and liabilities at one point in time. An income statement shows profits or losses at one point in time. Financial ratios help managers use information from balance sheets and income statements for control purposes. They indicate liquidity—the ability to generate cash to pay bills; leverage—the ability to earn

more in returns than the cost of debt; asset management—the ability to use resources efficiently and operate at minimum cost; and profitability—the ability to earn revenues greater than costs. Profitability—measures ability to earn revenues greater than costs Net Margin = Net Income/Sales Return on Assets (ROA) = Net Income/Total Assets Return on Equity (ROE) = Net Income/Owner’s Equity Higher is better: You want higher net income relative to sales, assets, and equity. Liquidity—measures ability to meet short-term obligations Current Ratio = Current Assets/Current Liabilities Quick Ratio or Acid Test = Current Assets ‒ Inventories/Current Liabilities Higher is better: You want more assets and fewer liabilities. Leverage—measures use of debt Debt Ratio = Total Debts/Total Assets Lower is better: You want fewer debts and more assets. Asset Management—measures asset and inventory efficiency Asset Turnover = Sales/Total Assets Inventory Turnover = Sales/Average Inventory Higher is better: You want more sales relative to assets and inventory. FROM THE BALANCED SCORECARD SOURCE Among the most important factors on a balanced scorecard are the vision and strategy of the organization's leaders. The vision and strategy must take into account many other factors, including the knowledge of leaders and workers; the innovations used in training, research, and planning; the efficiency demonstrated in the internal workings of the group; the satisfaction of customers and other stakeholders ; and the financial performance of the group. All of these factors are interconnected and must be addressed properly to ensure the overall success of the organization. The balanced scorecard also acknowledges a number of perspectives through which various data and measurements must be assessed. These perspectives help to ensure that the parts of an organization all work together to benefit people inside and outside the organization. Some important perspectives relate to the ongoing learning and training of organization members; how effectively an organization operates on a daily basis; whether the organization is financially feasible; and how customers and stakeholders perceive the organization and its work.