Depth analysis of the performance of the company

Assignment Help Financial Management
Reference no: EM13334930

You are employed as a management accountant within JH Alarms plc. The company began in the South of England 19 years ago with the entrepreneurial intuition of John Harris. He began the business by contracting to change fire alarms in large stocks of social housing. After several years of working in such a manner he began to acquire the alarms himself, from a Far Eastern supplier, prior to fitting them. This business expanded rapidly over the years, eventually becoming nationwide, and after recourse to the financial markets for debt and equity finance the company began to manufacture its own fire and burglar alarms within a modern factory environment in the UK. John Harris, now the Chairman and CEO, and his family still own 15% of the share capital of the business.

To a certain extent, although a plc, John Harris still runs the company as a personal fiefdom. He realises that constant innovation is vital within the burglar alarm market, in particular, and as a result has pushed through ever growing levels of debt financing.

However, there is an uneasy feeling among several senior managers and although they are reluctant to challenge John Harris, directly,(although a couple have recently resigned) they feel that the company is growing out of control and they are concerned with the share price performance in particular.

Task 1

You are approached by your manager, Mike Seenitall, who says, "I have recently been on a two day workshop concerning corporate performance management and it As part of your initial research you come across some research by Gosselin (2005) who, when undertaking a study of Canadian manufacturing firms stated that, "The results show that manufacturing firms continue to use financial performance measures. Despite the recommendations from experts and academics, the firms that implement a balanced scorecard or integrated [multidimensional] performance measurement system is low (p419)"

You are required to prepare a report for Mike Seenitall which considers:

I. The problematic issue of an over-reliance on financial performance management.

II. The possible benefits that JH Alarms may be forsaking by not utilising some type of integrated (multidimensional) scorecard for performance management. 

Task 2

Whilst completing the above work Mike Seenitall approaches you with another problem and says, "It may be worse than I expected, profitability has fallen to such an extent over the last three years that I am beginning to wonder if the company will survive. The market seems to reflect this as the share price also seems to be suffering at the moment."

As you are completing an MBA you are aware of models that can be used to predict corporate failure and as a result gather the following information:

194_Financial performance management.png

The average share price over the last three accounting years has been as follows:

840_Financial performance management1.png

There are 450 million shares in issue.

A relevant Z-score model for the industry sector is

- Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + X5 where:
- X1 = working capital/total assets
- X2 = accumulated retained earnings/total assets
- X3 = earnings before interest and tax/total assets
- X4 = market value of equity/ total long-term debt
- X5= revenue/total Assets

In turn, you decide to apply the following parameters for analysing your calculations:

♦ Companies with a ‘Z' score of below 1.81 are in danger and possibly heading towards bankruptcy within the next 2 years
♦ Companies with a score of 3 or above are financially sound
♦ Companies with scores between 1.81 and 2.99 need further investigation.

Required:

I. Comment upon the financial position of JH Alarms plc in the light of the last three years' performance. You should calculate Z-scores and use any additional financial ratios that you consider to be relevant.

II. Provide a brief summary of additional information which you would require in order to enable a more in depth analysis of the performance of the company.

III. Altman's (1968) Z-score model could be said to be an example of quantitative analysis, whereas Argenti's (1983) failure model could be described as qualitative.

You are required to discuss the relative strengths of these different approaches to the prediction of corporate failure (15 marks). You should also highlight the qualitative issues that may impact on the performance of JH Alarms plc and provide an indication as to why the identified factors are important.

Reference no: EM13334930

Questions Cloud

Find the initial height of the ball : a thin rod, of length L = 1.9m and negligible mass, that can pivot about one end to rotate in a vertical circle. A heavy ball is attached to the other end. find the initial height of the ball
Determine what is the profitability index of the investment : You are offered an investment with returns of $ 2,440 in year 1, $ 3,767 in year 2, and $ 3,170 in year 3. The investment will cost you $ 5,422 today. If the appropriate Cost of Capital (quoted interest rate) is 6.6%,
List npv of higher npv project of computer safeguard systems : Virus Stopper Inc., a supplier of computer safeguard systems, uses a cost of capital of 10 percent to evaluate average-risk projects, and it adds or subtracts 2 percentage points to evaluate projects of more or less risk
Evaluate two key changes in the selected company : 1. Evaluate two (2) key changes in the selected company's management style from the company's inception to the current day. Indicate whether or not you believe the company is properly managed today. Provide support for your position.
Depth analysis of the performance of the company : Provide a brief summary of additional information which you would require in order to enable a more in depth analysis of the performance of the company and comment upon the financial position of JH Alarms plc in the light of the last three years' ..
Compute the grams of so2 gas at stp : Calculate the grams of SO2 gas present at STP in a 5.9 L container. A) 0.24 g B) 0.26 g C) 15 g D) 17 g E) 64 g
Determine what are operating cash flows in the first year : The Old machine originally cost $ 363 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $ 78 or sold in two years for $ 26 . The New machine would cost $ 467 and could be sold in two years for..
Is internet pose threats to traditional client server system : Hures is a leading human resource service provider. To keep up with growing business demands,it implemented its first information system in 1987 purchasing a main frame computer that servedso-called dumb terminals on the users' desktops.
Distinguish between organizational needs assessment : • Distinguish between organizational needs assessment and strategic planning, and assess how each can be helpful to identify the needs of an organization.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Calculate the after-tax cost of debt

Calculate the after-tax cost of debt and what is LL's after-tax cost of debt? Round the answer to two decimal places

  Calculate the market price for the bonds

Calculate the market price for the bonds and long-run earnings growth rate.

  Determine what is the current value of the lease

Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 4.9 percent, what is the current value of the lease

  Explain how will america solve its debt problem

The topic may be anything of specific interest to you that is covered in the weekly reading assignments for this course. The paper must be in APA format and be between 1,500 and 1,750 words with a minimum of 4 external scholarly references

  Ratio analysis - calculate the current ratio

Ratio Analysis - Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period. Discuss and interpret the ratios that you calculated

  What should salem do

The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.5 per British pound. Any exchange rate below would result in Dayton actually losing money on the transaction.

  Develop a strategy to take advantage of the mispricing

Demonstrate why you believe the option is mispriced and develop a strategy to take advantage of the mispricing, assume you are correct with your estimate of historical volatility.

  Determine what is the rational for the federal reserve board

What is the rational for the Federal Reserve Board keeping the federal rate to a nominal rate in recent years. How does this effect the financial markets.

  What should be value of the hedged portfolio at expiration

What are its intrinsic values at stock prices of $45 and $38, respectively, what should be the hedge ratio and what should be the value of the hedged portfolio at expiration

  Identify all the important stakeholders for the entity

Identify all the important stakeholders for the entity.

  Black-scholes option-pricing model

Assume that the strike price will be 10% above today's stock value and calculate the price of this option. Provide an explanation that supports your findings.

  An analysis of the revised project

Evaluate the project in light of this new information

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd