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Western University
Business Administration
Business Administration 1220E

FINANCE REVIEW ELEMENTS OF ANALYSIS Evaluating past performance - Statement of Cash Flows - Ratios Projecting future performance - SOE, SRE, B/S - Two years OR Hi/Lo Interpreting the Plug - What does the plug mean? - Seasonality? - Sensitivity? Risk analysis (4Cs) - Capacity to Repay - Conditions - Character - Collateral - Risk assessment Decision - Why / Why Not? Loan Conditions? - Draw on major points of your analysis - what do you expect in the future? Be case specific and persuasive. COMPLETE ALL ELEMENTS OF ANALYSIS - Grades are approximately evenly allocated across all area EXAM TIPS Bring “quiet” snacks & drinks Breaks are permitted Read the case carefully - First and last paragraph, headings, Exhibits (see what you have) - Read thoroughly & make notes /highlights “label” important sentences in the case margin - Complete exam in pencil - Be careful with point form –fully developed thoughts necessary - Explain why things happened and what this means to the firm Love your Grader - Be neat, clear and specific - Show all assumptions and calculations – I can’t assume you know what you’re talking about - Use headings and sub-headings to make it easy to follow and to help organize your thoughts Remember the “Big Picture” Do periodic “reality checks” - Sit back and think about what you are actually writing - Don’t get bogged down by details Make your decision based on your analysis (Consistency is key) If you get stuck, make an assumption and move on Trust yourself! Finish all components of the exam - REMEMBER, NO DECISION = NO PASS The Exam Structure The Question: As _________, make whatever recommendations that you feel are appropriate. You get: The question + the case + financial management study sheet + a blank exam booklet. YOU put the structure into the exam. TO GET AN “A” IN SCF ANALYSIS Was cash generated from operations? Was net income a source of cash? Why? How? Discuss the Major S & U from operations Discuss the remaining major S & U - Explain why the account is a source or a use. - Explain why this is good or bad for the company - be case specific - Discuss whether this trend will continue and what you’d like to see in future - Compare the major sources and uses with each other (funding, matching.) TO GET AN “A” ON RATIOS Recognize trends and draw realistic implications on the performance of management and the future performance of the business Consider context of the case and be specific with your insights. Ensure your analysis “links” Make sure to discuss implications from all 5 groups: • Profitability • Efficiency • Growth • Liquidity • Stability 1. Discuss trends 2. Ask yourself, if it was the numerator or the denominator that caused the change? 1. look at the raw numbers of the formula - go back to the statements 2. Explain root causes of any major changes 1. Recognize the impact of the type of business on the ratios 1. I.e. Zero inventory for a trucking firm/ dental practice 2. I.e. Need for high valued inventory in a jewellery store 3. I.e. Quarterly statements for a business in its first year 2. How will future changes impact these ratios? 3. Provide deeper analysis than just “Current ratio is low - bad”. TO GET AN “A”IN PROJECTED STATEMENTS STATEMENT OF EARNINGS BALANCE SHEET Successfully estimate sales for Hi/Low OR Yr1/ Use reasonable and most correct formulas for Yr2 estimate Days to calculate A/R, INV and A/P complete COGS section (if inventory) Add new Fixed Assets if necessary Expenses – given, or use a reasonable % of Last yr’s Acc. Dep + (new) Dep. X. sales or $ figure. Include new loans - Determine new depreciation exp if Correctly solve for a short term plug figure necessary (Working Capital Loan (WCL, LOC)) - Rent, depreciation, interest all $ values Add in RE properly Calculate SRE values TO GET AN “A”IN PROJECTED STATEMENTS Don’t forget about hi/lo vs. 2yr projections: Cases featuring hi/lo sales projections Cases featuring 2 year sales projections - Gardiner Wholesalers - Maple Leaf - GE - Lawsons - Forest of Flowers - More Vino Ensure that you understand the difference TO GET AN “A”IN INTERPRETING THE PLUG Explain what your plug tells you - Additional capital needs required to fund increase in assets (for the day of your PBS)
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