This website uses cookies to ensure you have the best experience. Learn more

First Investment Inc Essay

1436 words - 6 pages

Financial Managment – First Investments, Inc.: Analysis of Financial Statements
Team 4: Nathalie Strookman, Dieter Wolfram, Demis Busropan
Problem Definition
The 1994 Basic Industries annual report shows a decline in the return on owners’ equity. This has got the portfolio people worried. An analysis has to be made of the way the company has achieved its return on equity over the last 10 years. The focus should especially be on the 1993-1994 period and the quality of the returns on equity of 1985 and 1994 should be compared, as well as other key financial ratios. By doing these financial analysis we hope to find out why the return on shareholders’ equity is varying in ...view middle of the document...

In addition, if a firm borrows money, a greater part of the profits is absorbed by interest which is reflected in a lower debt burden ratio.
When looking at the graphs presented in the results section, we can compare the different ratios with the return on equity. We see a fluctuation over the years with the lowest return on equity in 1988, which was 14.87%. If we compare the course of the operating profit margin with the return on equity we can see many similarities. In 1988 the profit margin was also the lowest (5.10%) over the years. This lower profit margin leads to a lower amount of money per sales and thus decreases your return on equity. So in time, every year the profit margin increases the ROE increases and vice versa. A comparable relationship can be drawn between asset turnover and return on equity, where we also see that an increase in turnover generates more sales per unit of asset which leads to a higher ROE and vice versa. The product of the profit margin and asset turnover make the return on assets. Comparing the graph of the ROE and ROA we can clearly see the effect of ROA on ROE. Every time the return on assets increases, the return on equity also increases.
Over the years we see a steady increase in leverage ratio which means that the company makes use of more debt to finance its operations. Furthermore, a decrease in debt burden can be found because of the interest the company has to pay to its creditors which in turn leads to absorption of part of the profits. The increase in leverage ratio does not necessarily have a negative effect on the ROE, as explained above, however the return on assets is decreasing whereas more interest is being paid. If the interest rate becomes higher than the return on assets it influences ROE negatively. This is because the interest has to be paid first before the shareholders can receive their dividend. Because of the increasing interest the profit margin is also decreasing which influences the ROE even more.
Comparing 1985 with 1994
Leverage ratio: assets/equity
This ratio compared the value of the company’s assets to that of the equity; it describes the debt equity mix. An increase in leverage ratio could be explained by a either a decrease in equity or an increase in assets. Equity is composed of total assets minus liabilities. The leverage ratio has mainly increased when comparing 1994 to 1985 because the liabilities have increased to a larger extend than the equity.
Asset turnover= sales/ average total assets
The increase in sales that the company has seen over the past years was complemented by an increase in average total assets resulting in a barely changing asset turnover. Asset turnover describes the efficiency of the company, it can therefore be stated that this has not changed significantly between 1985 and 1994.
Debt burden = net income/ (net income + interest)
This means that an increase in paid interest will lead to a decrease in debt burden. It...

Other Essays Like First Investment Inc

Portfolio Management Essay

4470 words - 18 pages JYMJ Equity Fund Fund Report Managers: Issued: November 11, 2010 Table of Contents Section 1. Objective and Strategy Introduction Investment Objectives Investment Strategies Section 2. Company Profiles Novellus Systems, Inc. Dollar Tree, Inc. Steven Madden, Ltd. Exxon Mobil Johnson Controls, Inc. Canadian

Hw1 from Investment Essay

1266 words - 6 pages Answer the following questions. a) Summarize Warren Buffett’s investments through Berkshire Hathaway Inc. What’s new? b) Describe Warren Buffett’s investment philosophy. c) Discuss Warren Buffett’s investment strategies with specific details. What have you learned? What suggestions do you have for him? Berkshire Hathaway Portfolio Holdings as of

Tort and Regulatory Risk

1504 words - 7 pages companies are not short or inexpensive and no company will want to have to worry about lawsuits. For Alumina Inc. to continue to operate and stay open another risk is liability. To address these risks, certain steps need to be taken. To manage these risks the first step is to indentify hazards inside and outside the company. Since, EPA laws way heavily on the company being able to operate conducting monthly test to make sure the company is up to

Merk Annual Report

1389 words - 6 pages — Merck's resilience. To achieve our mission of discovering and developing medicines and vaccines that improve the lives of people around the world, we are fundamentally changing this company. We continue to transform every aspect of our business, guided by the strategy we first laid out in 2005. As we move ahead, we have the market insight and financial strength to drive our business growth by investing in strategic internal as well as external

Best Snacks Problem Solution

2931 words - 12 pages . will be better suited to address and comply with the needs and demands of their shareholders. Employees will think they are valued, customers will receive the best product for the best price, and shareholders will be able to see their investment pay off. While creating innovative products, Best Snacks Inc. will respect the competition and work around patents that may have been obtained by the competition. Changes in management style will assist

Course Project

727 words - 3 pages bonds. Part II – In Part II, you will provide the company with a recommendation for purchasing a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project using the cost of capital (WACC) as your discount rate. About AirJet Best Parts, Inc. AirJet Best Parts, Inc. is a company dedicated to the design and manufacturing of aviation and airplane technologies and parts. The company has

Week Problem Set

1125 words - 5 pages deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% per year for every year after that. • a. Which investment has the higher IRR? • b. Which investment has the higher NPV when

Airline Financial Aquisition

2726 words - 11 pages , 2012). That makes 655 million shares available to be issued. On August 15, 2012 shares closed at $9.26 per share. At this price Delta would have to issue 176,780,994 shares in order to finance their purchase of US Airways, Inc. Role of the Investment Banker During the course of the acquisition process of US Airways, the investment banker will obtain private information about US Airways cash flows, financial resources, and other exposures that

Hansen Private Label

4751 words - 20 pages 4021 REV: MARCH 1, 2010 ERIK STAFFORD JOEL L. HEILPRIN JEFFREY DEVOLDER Hansson Private Label, Inc.: Evaluating an Investment in Expansion Introduction On a frigid Sunday night in late February 2008, Tucker Hansson pored over a proposal developed by his firm’s manufacturing team. It called for investing $50 million to expand production capacity at Hansson Private Label (Hansson or HPL). For Hansson, a private company, this would be a

Johnson Controls

1707 words - 7 pages Johnson Controls was founded in 1885 by Warren Johnson, who was the inventor of the first electric room thermostat. This company was based out of Milwaukee, Wisconsin and is now a global leader in the building and automotive industries. It has more than 1300 locations worldwide in more than 150 countries with over 170,000 employees, and is traded on the New York Stock Exchange under the symbol JCI. The company is made up of three major sections

Strategic Capital Management,

1257 words - 6 pages | | | | | | I. Case background In this case study, Sarah Wolfe who was the founder and CEO of the Beta Management Group, a small investment management company based in a Boston suburb in 1989, wanted to expand her business in 1991 by changing investment strategy. II. Sarah Wolfe Previous investment strategy: Her company‘s stated goals were to enhance return and reduce risks, so that during first several years

Related Papers

Aarkstore First Wind Holdings Inc. Strategic Swot Analysis Review

1320 words - 6 pages  Aarkstore - First Wind Holdings Inc. - Strategic SWOT Analysis Review Summary “First Wind Holdings Inc. - Strategic SWOT Analysis Review” provides a comprehensive insight into the companys history, corporate strategy, business structure and operations. The Market Research report contains a detailed SWOT

Product Life Cycle Of Ipod Essay

1715 words - 7 pages US Imports & PHIPEs, 1996) Grant, Robert, Contempory Strategic Analysis 5th Ed, 2005 Apple Inc. (16 January 2002). Apple Reports First Quarter Profit of $38 Million. Apple Inc. (14 May 2002). Apple Investor Relations SEC Filings Quarter 2, 2002. Apple Inc. (12 August 2003). Apple Investor Relations SEC Filings Quarter 3, 2003. MacWorld (17 October 2003

Business Value Line Essay

525 words - 3 pages Value Line, in its current form, was incorporated in 1982 and is the successor to substantially all of the operations of Arnold Bernhard & Co., Inc. In June 2005, AB & Co. owned approximately 86.5% of the Company’s issued and outstanding common stock. The Company produces investment related periodical publications through its wholly owned subsidiary, Value Line Publishing LLC ("VLP") . VLP publishes in both print and electronic formats The

Mba 540 Week 3 Risk Analysis

1349 words - 6 pages Running Head: RISK ANALYSIS ON INVESTMENT DECISION Risk Analysis on Investment Decision University of Phoenix Risk Analysis on Investment Decision Silicon Arts Inc. (SAI) “manufacturers digital imaging Integrated Circuits (IC's) used in digital cameras, DVD players, computers, and medical and scientific instrumentations” (University of Phoenix, 2009). In an effort to expand and remain competitive, SAI wants to increase market