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    Final Term Exercises

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    Jessa Mae Lavado
    This document outlines an assignment for a strategic business analysis final term exercise. It includes 10 essay questions covering topics such as the four steps of business analysis, barriers to entry in industries, accounting changes, ratios to analyze firm performance, and issues around lending. Students are asked to comprehensively explain concepts like how Coca-Cola and Pepsi retain profits, decomposing differences in firm return on equity, and debates around the use of debt covenants and lending to firms with negative cash flows.

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    Final Term Exercises

    Uploaded by

    Jessa Mae Lavado
    43 views1 page
    This document outlines an assignment for a strategic business analysis final term exercise. It includes 10 essay questions covering topics such as the four steps of business analysis, barriers to entry in industries, accounting changes, ratios to analyze firm performance, and issues around lending. Students are asked to comprehensively explain concepts like how Coca-Cola and Pepsi retain profits, decomposing differences in firm return on equity, and debates around the use of debt covenants and lending to firms with negative cash flows.

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    This document outlines an assignment for a strategic business analysis final term exercise. It includes 10 essay questions covering topics such as the four steps of business analysis, barriers to entry in industries, accounting changes, ratios to analyze firm performance, and issues around lending. Students are asked to comprehensively explain concepts like how Coca-Cola and Pepsi retain profits, decomposing differences in firm return on equity, and debates around the use of debt covenants and lending to firms with negative cash flows.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    43 views1 page

    Final Term Exercises

    Uploaded by

    Jessa Mae Lavado
    This document outlines an assignment for a strategic business analysis final term exercise. It includes 10 essay questions covering topics such as the four steps of business analysis, barriers to entry in industries, accounting changes, ratios to analyze firm performance, and issues around lending. Students are asked to comprehensively explain concepts like how Coca-Cola and Pepsi retain profits, decomposing differences in firm return on equity, and debates around the use of debt covenants and lending to firms with negative cash flows.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Strategic Business Analysis

    Final Term Exercise/Requirement

    Essay Questions – Answer the following questions comprehensively. Each item is worth 10 points.
    1. Four steps for business analysis are discussed in the chapter (strategy analysis, accounting
    analysis, financial analysis, and prospective analysis). As a financial analyst, explain why each of
    these steps is a critical part of your job and how they relate to one another.
     The purpose of business strategy analysis is to identify key profit drivers and business risks, and
    to assess the company’s profit potential at a qualitative level. Business strategy analysis
    involves analyzing a firm’s industry and its strategy to create a sustainable
    2. Coca-Cola and Pepsi are both very profitable soft drinks. Inputs for these products include corn
    syrup, bottles/cans, and soft drink syrup. Coca-Cola and Pepsi produce the syrup themselves and
    purchase the other inputs. They then enter into exclusive contracts with independent bottlers to
    produce their products. Use the five forces framework and your knowledge of the soft drink industry
    to explain how Coca Cola and Pepsi are able to retain most of the profits in this industry
    3. What are the ways that a firm can create barriers to entry to deter competition in its business? What
    factors determine whether these barriers are likely to be enduring?
    4. If management reports truthfully, what economic events are likely to prompt the following accounting
    changes?
     Increase in the estimated life of depreciable assets.
     Decrease in the uncollectible allowance as a percentage of gross receivables.
     Recognition of revenues at the point of delivery rather than at the point cash is received.
     Capitalization of a higher proportion of software R&D costs.
    5. Which of the following types of firms do you expect to have particularly high or low asset turnover?
    Explain why.
     a supermarket
     a pharmaceutical company
     a jewelry retailer
     a steel company
    6. Which of the following types of firms do you expect to have high or low sales margins? Why?
     a supermarket
     a pharmaceutical company
     a jewelry retailer
     a software company
    7. In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packard’s return was only 6.4
    percent. Use the decomposed ROE framework to provide possible reasons for this difference based
    on the data below:
    IBM HP
    NOPAT/Sales 9.0% 2.7%
    Sales/Net Assets 2.16 2.73
    Effective After Tax Interest rate 2.4% 1.1%
    Net Financial Leverage 0.42 0.16
    8. John Right, an analyst with Stock Pickers, Inc., claims, “It is not worth my time to develop detailed
    forecasts of sales growth, profit margins, et cetera, to make earnings projections. I can be almost as
    accurate, at virtually no cost, using the random walk model to forecast earnings.” What is the
    random walk model? Do you agree or disagree with John Right’s forecast strategy? Why or why
    not?
    9. Betty Li, the CFO of a company applying for a new loan, states, “I will never agree to a debt
    covenant that restricts my ability to pay dividends to my shareholders because it reduces
    shareholder wealth.” Do you agree with this argument?
    10. A banker asserts, “I avoid lending to companies with negative cash from operations because they
    are too risky.” Is this a sensible lending policy?

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