NURS FPX 5014 Assessment 3: Financial Engineering to Enhance Stakeholder Value
Name
Capella University
Nurs FPX 5014
Professor’s Name
March 2024
Financial Engineering to Enhance Stakeholder Value
Slide 1: Hello to all of you. I appreciate you being here. I’m _____, and I’m here today to discuss the financial engineering of ABC Corporation’s financial statements. Enhancing stakeholder value, which entails optimizing the value of ABC Corporation’s stock for its shareholders while also taking into account the interests of additional parties, including workers, clients, and suppliers, is one of financial engineering’s main objectives in this situation.
Slide 2
Although the ABC Corporation has good earnings and a desirable market value, there are a few possible issues to keep an eye on. The company’s price-to-earnings ratio for 2019 gave rise to optimistic expectations regarding future growth and profitability. Though it decreased from 2017 to 2019, the volatility in earnings per share is concerning. Reducing earnings should be the company’s primary objective to maximize shareholder value.
Key Financial Tools
Slide 3:
Various financial techniques can be utilized to conduct a complete analysis to recommend how ABC Corporation’s financial status should be analyzed. An outline of some of the most important financial instruments at hand is provided below:
- Statements of finances: ABC Corporation’s cash flow, income, and balance sheets can all provide crucial information regarding the state and performance of the business’s finances. One can learn more about the companies’ profitability, liquidity, solvency, and financial health by examining these documents (Purnama et al., 2020).
- Ratios: An effective method for evaluating and contrasting the financial results of two businesses, or any organization, is a ratio, which may be computed using the financial statements. Important measures that might assist investors in evaluating the financial health of the companies and making defensible decisions include leverage, profitability, and liquidity ratios (Schindele et al., 2020).
- Market trends: Analyzing benchmarks and trends in the market can help put things in perspective and give you a clearer idea of how the companies compete. An investor can determine if a company is outperforming or underperforming its rivals by comparing its performance to industry averages (Silva et al., 2020).
- Capital structure: The companies’ debt-to-equity and interest coverage ratios, as well as their capital structure overall, can shed light on their level of financial risk and debt management prowess. A business that has a larger debt-to-equity ratio than one that has a smaller ratio could be seen as riskier (Kumar et al., 2020).
- Competitive analysis: Investors can learn about a company’s advantages and disadvantages in comparison to its rivals by doing a competitive analysis. An evaluation of elements including market share, clientele, price policy, range of products offered, and means of distribution may be part of this research (Yang et al., 2022).
Assessing the Feasibility of the Project
Slide 4 :
The project’s viability was assessed using a number of capital budgeting metrics, including net present value (NPV), internal rate of return (IRR), payback period, and profitability index (PI).
- The net present value (NPV) method considers the worth of money over time when estimating the present value of future cash flows. NPV determines the project’s potential profitability in today’s money by discounting future cash flows at a specified rate. In this instance, the project is anticipated to yield positive returns, as indicated by the positive net present value (Fortaleza et al., 2020).
- The internal rate of return (IRR) is the interest rate at which the current value of future cash flows matches the initial investment. If the internal rate of return (IRR) of an investment exceeds the expected rate of return, it is considered appealing because it’s expected to generate profits beyond the cost of capital. Basically, the IRR measures how well a project is expected to perform financially, and if it’s higher than what’s needed, it suggests good potential for returns (Magni, 2020).
- The payback period tells us how many years it will take for the project’s incoming cash to match the initial investment. It helps us understand when we’ll break even and begin earning profits. The payback period in this instance is less than the duration that the company needs, indicating that positive cash flows are anticipated from the project within a reasonable amount of time (Sadowski, 2022).
- The profitability index, also called PI, is the comparison between the initial investment and the present value of future cash inflows. It helps measure the value of an investment relative to its cost. C project is predicted to yield positive returns if its PI is more than 1, and the higher the PI, the more appealing the investment prospect. This project’s PI is larger than 1, meaning that positive returns are anticipated from it (Gumisiriza et al., 2022).
Recommendations and Strategies for Maximizing Stakeholder Value
Slide 5 :
We examined a range of financial information about ABC Corporation, including its financial statements, industry trends, and competitor analysis, to provide evidence-based suggestions. The company’s earnings per share had been dropping over the previous few years, according to the financial statistics, and this needed to be fixed to optimize long-term stakeholder value.
The corporation should concentrate on putting cost-cutting measures into place and streamlining its operations to increase efficiency to address diminishing earnings per share (Brodziński et al., 2021). Stressing asset utilization—for example, by introducing new technologies and production techniques to boost operational efficiency—is one approach to accomplish this. To improve its financial performance and streamline its operations, the corporation may also think about selling off underperforming assets.
To maintain its competitiveness in the market, ABC Corporation needs to address its dropping earnings per share and keep a close eye on industry changes. To be relevant in the market, the company will need to stay abreast of the most recent developments in technology, industry trends, and consumer preferences. By doing this, the business can modify its approach to outperform rivals and optimize stakeholder value.
Tactical Objectives
Slide 6 :
The employees of ABC Corporation can concentrate on the following tactical goals to put the suggested strategies—which include addressing declining earnings per share, highlighting asset usage, and routinely monitoring industry trends—into practice:
Boost sales by introducing new items to the market or by running focused marketing initiatives to attract more clients. This can be done by identifying profitable customer groups and focusing marketing efforts on meeting their unique demands by using customer segmentation approaches. Historical Illustration: When Apple Inc. introduced the iPod in 2001, it was a game-changer for the music business. Historical Example: The concept of lean manufacturing known as the Toyota Production System was applied by Toyota Motor Corporation and resulted in notable cost reductions and increased quality.
Lower expenses by increasing operational effectiveness through automation and process optimization. Process analysis and best practices, like the Lean Six Sigma technique, can be used to accomplish this (Sordan et al., 2021). Historical Example: The Toyota Production System, a lean manufacturing concept, was applied by Toyota Motor Corporation and resulted in notable cost reductions and increased quality.
Improve asset turnover, cut down on idle time, and optimize inventory management to increase asset utilization. Preventive maintenance plans, asset monitoring systems, and just-in-time inventory management can all help achieve this (Frankó et al., 2020). Historical Example: Walmart Inc. is renowned for having an effective inventory management system that lets it keep low stock levels while guaranteeing that goods are available at all times.
By routinely examining financial and non-financial performance metrics, performing market research, and benchmarking against industry leaders, you can keep an eye on market developments and competition. Tools like Porter’s Five Forces analysis, PEST, and SWOT analysis can be used to do this (Kumbara, 2020). Historical Example: By providing a subscription-based streaming service that adapted to consumers’ shifting tastes for on-demand and customized entertainment, Netflix Inc. upended the video rental market. The business did this by constantly innovating and by keeping a careful eye on rivals and market trends.
ABC Corporation may enhance its long-term financial performance and optimize stakeholder value by executing these tactical goals.
Financial Tools for Monitoring the Tactics
Slide 7 :
The following financial instruments might be utilized to track the effectiveness of the above-described tactics (Giménez et al., 2020):
Statements of Finance: Regularly keeping an eye on financial statements such as the income statement, balance sheet, and cash flow statement is important for assessing how well the company is doing and identifying areas that need to be bettered. For instance, keeping an eye on the income statement can assist in tracking variations in earnings per share, and keeping an eye on the balance sheet can assist in spotting variations in asset use.
Ratios: Several financial ratios can be used to monitor the company’s performance and assess how it stacks up against industry standards. For instance, the debt-to-equity (D/E) ratio can be used to track the company’s capital structure, while the return on assets (ROA) ratio can be used to assess how well the business uses its assets.
Rationale for these Tactics
Slide 8 :
These suggestions are justified by the fact that they offer a thorough method for tracking the development of the previously mentioned strategies. While industry trends and rivals might offer qualitative insights into the issues affecting the company’s performance, financial statements, and ratios offer quantitative indicators of performance (Brown et al., 2024). The business can increase stakeholder value by employing a combination of these technologies to better analyze its performance and make decisions.
For instance, to make well-informed judgments about its product offers and business strategy, Apple routinely keeps an eye on its financial statements, ratios, industry trends, and competitors. Apple has been able to hold onto its leadership position in the electronics industry by prioritizing innovation and providing excellent customer service, even in the face of growing competition from firms like Samsung and Huawei (Amin & Munsi, 2020). Through the use of financial instruments and industry trend monitoring, Apple has made strategic decisions that have contributed to long-term shareholder value maximization.
NURS FPX 5014 Assessment 3 Financial Engineering to Enhance Stakeholder Value
Conclusion
Slide 9 :
The ABC Corporation should prioritize correcting declining earnings per share, placing a strong emphasis on asset utilization, and routinely observing industry developments to optimize shareholder value over the long run. These tactics can be used to achieve tactical goals like supply chain management improvement and cost reduction. Progress can be tracked using financial instruments including industry trend research, financial statements, and ratios. All things considered, long-term success in financial management requires a proactive attitude.
References
Amin, M. R., & Munsi, M. (2020). Motivational Techniques for Business Organization – A Case Study of Apple Inc. Www.theseus.fi. https://www.theseus.fi/handle/10024/344717
Brodziński, Z., Brodzińska, K., & Szadziun, M. (2021). Photovoltaic farms—Economic efficiency of investments in North-East Poland. Energies, 14(8), 2087. https://doi.org/10.3390/en14082087
Brown, S. V., Hinson, L. A., & Jennifer Wu Tucker. (2024). Financial statement adequacy and firms’ MD&A disclosures. Contemporary Accounting Research. https://doi.org/10.1111/1911-3846.12919
Frankó, A., Vida, G., & Varga, P. (2020). Reliable identification schemes for asset and production tracking in industry 4.0. Sensors, 20(13), 3709. https://doi.org/10.3390/s20133709
Gumisiriza, M. S., Ndakidemi, P., Nalunga, A., & Mbega, E. R. (2022). Building sustainable societies through vertical soilless farming: A cost-effectiveness analysis on a small-scale non-greenhouse hydroponic system. Sustainable Cities and Society, 83, 103923. https://doi.org/10.1016/j.scs.2022.103923
Giménez, J. M., Ortega, E., Verdu, I., Cejudo, A., & Torres-, G. (2020). Using smart sensors to monitor physical activity and technical–tactical actions in junior tennis players. International Journal of Environmental Research and Public Health, 17(3), 1068. https://doi.org/10.3390/ijerph17031068
Kumar, S., Sureka, R., & Colombage, S. (2019). Capital structure of SMEs: A systematic literature review and bibliometric analysis. Management Review Quarterly. https://doi.org/10.1007/s11301-019-00175-4
Kumbara, A. (2020). The analysis of Porter’s five forces in lucky textile group in facing the competition of textile industry. Dinasti International Journal of Economics, Finance & Accounting, 1(3), 397–412. https://doi.org/10.38035/dijefa.v1i3.419
Magni, C. A. (2020). Internal rate of return. Investment Decisions and the Logic of Valuation, 487–554. https://doi.org/10.1007/978-3-030-27662-1_9
Purnama, O., Hanitha, V., & Angreni, T. A. (2020). Financial statement analysis to assess company financial performance. ECo-Fin, 2(3), 168–174. https://jurnal.kdi.or.id/index.php/ef/article/view/537
Sadowski, K. (2022). Comparison of the Carbon Payback Period (CPP) of different variants of insulation materials and existing external walls in selected European countries. Energies, 16(1), 113. https://doi.org/10.3390/en16010113
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Silva, S. C., Ferreira, I. C. F. R., Dias, M. M., & Barreiro, M. F. (2020). Microalgae-derived pigments: A 10-year bibliometric review and industry and market trend analysis. Molecules, 25(15), 3406. https://doi.org/10.3390/molecules25153406
Sordan, J. E., Oprime, P. C., Pimenta, M. L., Silva, S. L. da, & González, M. O. A. (2021). Contact points between lean six sigma and industry 4.0: A systematic review and conceptual framework. International Journal of Quality & Reliability Management, ahead-of-print(ahead-of-print). https://doi.org/10.1108/ijqrm-12-2020-0396
Yang, J., Xiu, P., Sun, L., Ying, L., & Muthu, B. (2022). Social media data analytics for business decision making system to competitive analysis. Information Processing & Management, 59(1), 102751. https://doi.org/10.1016/j.ipm.2021.102751
