Hope Medicals owner, Shiva Aruguman, was considering entering the online pharmacy market. Hope Medicals was a local pharmacy in Madurai, India's Tamil Nadu state, and Aruguman was at a strategic crossroads-he had to decide whether to expand into the online pharmacy market. With the challenges (financial and non-financial) of integrating the "brick" and "click" modes of his pharmacy business, Aruguman had to conduct an analysis based on capital budgeting and run a Monte Carlo simulation to determine the potential profitability and risks of such a venture.
On January 2, 2018, the chief executive officer of a private company in Karachi, Pakistan, Imaam Spinning Mills (Imaam), was planning to expand the company's product line and enter the weaving business by setting up a new weaving plant. He asked his chief financial officer to conduct a financial evaluation financial evaluation of the project. To do so, she needed to calculate the weighted average cost of capital, using the comparative method to calculate the cost of capital for the unlisted firm based on financial data from Imaam and comparable firms, and determine the feasibility of the project.
Faraaz Usmani, heir to the family-owned Herbo Drugs & Pharmaceuticals, a small private Unani pharmaceutical company in Prayagraj, India, planned to expand the company's business to other states to cover most parts of India. Before implementing this ambitious plan, Faraaz needed to conduct a feasibility study by applying some popular capital budgeting tools such as net present value, internal rate of return, and profitability index. He first projected the cash flows for ten years with an initial investment of ₹6.5 million financed with 80 per cent equity and 20 per cent debt. He expected sales to grow by 15 per cent annually for the next five years, 10 per cent from year 6 to year 10, and a perpetual growth rate of 5 per cent afterward. Faraaz understood that the estimation of the cost of capital was a key step in his analysis. He discovered that finding the cost of equity for a private firm was tricky because stock return information was not available to estimate beta. The case introduces the basics of cost of capital (i.e., weighted average cost of capital) and capital budgeting. It focuses on the details of how to estimate the cost of equity for a private firm.
In December 2022, Shariq Nomani had been living with his family in a rented apartment in Lucknow, India. Even though they liked the place, which had all the necessary amenities, they were thinking of buying a unit in the same community. After collecting all the necessary information, Shariq sat down to figure out the best alternative between two options: buying and renting. He needed to undertake a comprehensive quantitative analysis by applying the concept of time value of money to make the optimal decision.
Annie Anthony, the chief financial officer of Liz Motor Corp. (Liz), was attempting to use capital budgeting to evaluate an environmental, social, and governance (ESG) project using all the available quantitative and qualitative information. Anthony had planned an ESG project, which would help the company adopt solid-state battery technology for most Liz electric vehicles and reduce the carbon footprint of electric vehicle batteries by 39 per cent, to improve the company's ESG and sustainability. The technology was so new that Liz would be the first major automaker to use it on a large scale. It would increase sales and the profit margin in the long run but would also require a heavy initial investment to allow Liz to adopt the technology. With all the information needed for a thorough capital budgeting analysis, Anthony believed she was ready to develop a framework to comprehensively evaluate this critical project. She also needed to do ten sensitivity analyses based on ten different scenarios.
On April 14, 2022, Elon Musk offered to buy Twitter Inc. for US$54.20 per share, for a total cost of US$44 billion. Musk hoped to make the social media network a platform of free speech, and the company profitable and cash flow-positive far more quickly than its management team at the time. Musk's leveraged buyout was mainly funded by a margin loan backed by his own shares in his company, Tesla Inc. On July 8, 2022, Musk announced that he was backing out of the deal. Almost immediately, a lawsuit was filed to force Musk to close the deal as required by the merger agreement. In response, Musk had to decide whether his bid of US$54.20 per share was still a fair valuation for the purchase, if a leveraged buyout with a margin loan was the best financing plan, and whether to confirm or abandon his agreement to buy Twitter Inc. If he chose to walk away from the deal, he would have to consider the potential loss, depending on the outcome of the pending lawsuit in the Delaware Court of Chancery.
This short note introduces all of the important and commonly used financial ratios, organized into five categories: (1) liquidity ratios, which measure a company's ability to meet short-term debt obligations; (2) leverage ratios, which evaluate a company's capital structure by measuring how a firm uses debt and equity to finance its operations; (3) efficiency ratios, which measure how efficiently a company is utilizing its assets and resources; (4) profitability ratios, which measure a company's ability to generate profit from its resources; and (5) market ratios (also called valuation ratios), which evaluate the share price of a company's stock.
In February 2021, the owner of Anwal Gas Traders, a liquefied petroleum gas distribution company based in Sakesar, Khushab District, in the province of Punjab, Pakistan, was considering whether to invest in expansion. It would be the first significant expansion for the company since its founding in 1998. Based on data provided by a consultancy firm performing capital budgeting techniques, the company would integrate backward to take advantage of perceived market potential. The owner needed to determine whether this investment was worth making and how various scenarios would affect his decision.
This exercise provides the financial data of eight major companies operating in Pakistan in 2019 and listed on the Pakistan Stock Exchange. It also provides a list of eight of the country's main industries. Identify which company operated within which industry to test your understanding of how a company's financial data can be specific to a particular industry. Using only financial figures, can you identify within which industry each company operated?
If you can understand football scoring or read a recipe, you can understand an income statement, with the help of this note. It is important to understand an income statement because it tells investors or any stakeholder of a company whether or not the company is making money. An income statement also gives information to company managers to make better forecasts and decisions.
In July 2019, Green Trend Holdings Co. Ltd. (Green Trend) faced a difficult situation with regard to flaws in the preparation of its proposed initial public offering on the Stock Exchange of Hong Kong. According to the remedy measures raised by the underwriter facilitating the initial public offering process, Green Trend needed to raise additional capital of ¥1 billion with a proposed annual interest rate of about 30 per cent. Of course, the company could have postponed the initial public offering; however, without the long-awaited return following a successful initial public offering, all the efforts taken in past years would be in vain. The uncertainty of the capital market would further complicate the future road to an initial public offering. Did Green Trend have better alternatives?
On October 22, 2016, U.S. telecom operator AT&T Inc. and television media giant Time Warner Group announced that AT&T Inc. would acquire Time Warner Group for $107.50 per share, using half cash and half stock, to a total equity value of $85.4 billion. Although the chief executive officers from both companies were very confident about the future prospects for their shareholders once the transaction was approved and completed, there was much controversy surrounding the acquisition. A portfolio manager with a significant portion of her investment portfolios tied up in AT&T Inc. equity wondered if the price was fair. She needed to make a thorough valuation analysis to ensure that she could anticipate the future value of the merged firm and mitigate any possible loss in value for her investors.
In January 2018, an investment portfolio manager learned of a safety recall for Ford Motor Company (Ford) involving faulty airbags that failed to deploy upon collision. An investigation by U.S. regulators found that the company had been aware of these faulty airbags but had not taken proactive measures to mitigate the potential damage. As a result, in just one day, the share price for Ford dropped from $13.10 to $12.18 per share. The portfolio manager needed to anticipate the future of Ford and come up with a plan to protect his investors' wealth.