Strong_Reflection 2_FINCB

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Jan 9, 2024

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1 Reflection Two Amanda Strong University of Phoenix FINCB/571 Daniel Pasternack December 27, 2023

2 Reflection Two Capital Budgeting Techniques You are a finance manager for a major utility company. Think about some of the capital budgeting techniques you might use for some upcoming projects. Discuss at least 2 capital budgeting techniques and how your company can benefit from the use of these tools. Being a finance manager for a major utility company I will need to use various capital budgeting techniques to manage and evaluate upcoming projects. These techniques include net present value or NPV, internal rate of return or IRR, and payback period. Every technique has its own advantages and disadvantages. Each technique needs to be considered carefully to decide which technique is best suited for each individual project. Net present value or NPV considers the time value of money, and it is the more accurate method, but it can be more difficult to calculate net present value correctly. The internal rate of return looks at both the time value of money and the reinvestment rate, making this method an excellent choice for projects that have a higher investment rate. It can be difficult to accurately estimate the reinvestment rate when using the internal rate of return method. The payback period is the simpler method to calculate but it is considered the time value of money or the reinvestment rate. When deciding on capital budget techniques you will need to use your judgement to decide with method is best for each project. It should be your goal to use the method that will give you the most accurate picture for that individual project. Sometimes being in any type of management position it takes the ability to figure out the best course of action, like picking a correct method to make sure you are making the most accurate and informed decision when it comes to the financial future of your organization.

3 Financial Performance Evaluation You are writing a book on how to evaluate performance evaluation for a company. Think about some of the influences and measures of company performance that you read about in this module. Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the performance of a company. Write about how to calculate ROA and PE ratio and how market conditions can affect these metrics. Share the ROA and PE ratio for a company you are familiar with. What do these metrics tell you about the financial health of the company? When you are considering how a company is performing and are tasked with evaluating the performance of your organization there are varied factors that you should consider. One of the most obvious factors to evaluate would be the financial performance of the organization. Financial performance is one of the most important measures of success for an organization, but it is not the only factor to consider. Another key factor is customer satisfaction, which could contribute to returning customers or referrals. Employee morale is a key factor to consider when you are tasked with evaluating the performance of your organization. Lastly, operational efficiency is a crucial factor that is looked at when considering how the company is performing. When you are evaluating financial performance there are different areas you would investigate as an indicator of how your organization is performing. These indicators include revenue growth, profitability, and cash flow. Revenue growth is a good indicator to evaluate how well a company is doing in terms of top-line growth. Looking at profitability can help to measure the amount of profit the organization is making relative to the organization’s revenue. Lastly, cash flow will indicate the cash a company has on hand to pay bills and to invest in new

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4 opportunities. Measuring customer service is an important metric to investigate when evaluating the performance of your organization. Customer satisfaction can be measured through surveys or customer input. Employee morale is important to consider because an unhappy staff can lead to lower productivity, negative morale, and higher turnover. Operational efficiency can be looked at by taking inventory levels and production cycle times. There are different capital budgeting techniques that can be used to make an investment decision for your organization. The techniques look at a variety of factors including the costs and benefits of the investment, the risk involved, and the company’s overall financial condition. The most common capital budgeting techniques are net present value or NPV and internal rate of return or IRR. Net present value considers the present value of all cash flow associated with an investment. Internal rate of return considers the expected rate of return for an investment. Both the net present value and internal rate of return can be helpful tools when making investment decisions for your organization. When looking at these tools it is important to note that each technique has different strengths and weaknesses. Net present value is more sensitive to change in discount rates than the internal rate of return. However, the internal rate of return can be more complex to calculate than the net present value of an organization. Thus, it is vital to carefully consider each technique, and which is better suited for your organization’s needs. Overall, capital budgeting techniques can be useful tools for making an information investment decision for your organization. Considering a variety of factors, these techniques can help to assess whether an investment is likely to be profitable and therefore worth pursuing for your organization. When you look at Verizon Communication’s year-over-year performance for the past years, there are key factors to consider. One factor to evaluate is the organization trailing PE ratio, which measures the organization’s current share price relative to its earnings over the past

5 twelve months. Another is the forward PE ratio which measures the organization’s expected earnings over the next twelve months relative to its current share price. Looking at these two ratios it is easy to evaluate Verizon Communications financial performance. It is important to remember stock prices can be volatile and can move ahead or behind because of actual earnings. Ratio 2019 2021 Current P/E 13.18 9.75 7.51 ROA 6.7% 6.2% 5.5% ROE 33.10% 29.10% 22.2% Price Book Ratio 4.14 2.63 1.61

6 References Capital budgeting techniques, importance, and example. EduPristine. (2021, September 23). https://www.edupristine.com/blog/capital-budgeting-techniques Kenton, W. (2023, January 17). Capital budgeting: What it is and methods of analysis. Investopedia. https://www.investopedia.com/terms/c/capitalbudgeting.asp Verizon Communications Inc. (VZ) financial ratios and metrics . Stock Analysis. (n.d.). https://stockanalysis.com/stocks/vz/financials/ratios/

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