Analyzing a Company As of April 29, 2016.

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Presentation transcript:

Analyzing a Company As of April 29, 2016

General Overview of Company Structure Financial Strength Profitability Stability Operational Trends

1. Profitability Financial Strength Profitability Stability Operational Trends

Franchise Power & Profitability Return on Assets Return on Capital Free Cash Flow to Total Assets Net Income Total Assets Efficiency of cash management (cash + STI) Efficiency of inventory turnover Efficiency of investment in PP&E

Franchise Power & Profitability (contd.) Return on Assets Return on Capital Free Cash Flow to Total Assets EBIT Total Capital Total Capital = Net PP&E + Net Working Capital (Current Assets – Current Liabilites); Excludes cash and interest bearing assets Measures exclusively investments in operating assets of the business excluding effects of capital structure and tax

Franchise Power & Profitability (contd.) Return on Assets Return on Capital Free Cash Flow to Total Assets Measure efficiency of capital expenditures Measures efficiency of working capital Free Cash Flow Efficiency of cash management (cash + STI) Efficiency of inventory turnover Efficiency of investment in PP&E Total Assets

2. Stability Financial Strength Profitability Stability Operational Trends

Stability Declining Leverage Liquidity Improvement (Current Ratio) Favorable Net Equity Issuance Position Debt Total Assets

Stability (contd.) Declining Leverage Liquidity Improvement (Current Ratio) Favorable Net Equity Issuance Position Current Assets Current Liabilities Receivables Inventory Accounts payable Notes payable Taxes Current ratio highlights whether or not the company is liquid enough to cover all of its assets today if sold today

Stability (contd.) Declining Leverage Liquidity Improvement (Current Ratio) Favorable Net Equity Issuance Position Share repurchase Share issuance Enables a firm to optimize shareholder payout

3. Operational Trends Financial Strength Profitability Stability

Operational Trends Improving ROA Improving FCFTA Improving Gross Margins Improving Asset Turnover Change versus 1 year prior

Operational Trends (contd.) Improving ROA Improving FCFTA Improving Gross Margins Improving Asset Turnover Change versus 1 year prior Sources of Competitive Advantage (Porter) Differentiation (high margin) Low Cost Production (high turnover) Sales Jewelry Business High margin Low turnover Discount Retailer Low margins High turnover Invested Capital See’s Candy High margin High turnover

4. Holistic Assessments

Taking a “Step Back” Market Opportunity (New and Current Products & Crown Jewel) Strength of sales in conjunction with pricing, sensitivity of demand to changes in price, competitors actions, and corporate tax rates all affect profitability What is the business worth? How long will value sustain itself? What is likelihood the gap between price and value is realized? What is the potential risk / reward: when will value change or corrupt? Business Pivot: Product / Service Launches & Sentiment Growth considerations include increased volume due to predictable increases in the general population, increased product use by customers, increased market share, greater market penetration into the population, or price increase What is competition doing?