Finance

In this Introduction we will have a presentation of those companies and their environment in order to better understand the stakes of this merger and acquisition. In fact it is crucial to know those companies, and the beer market of the concerned country, Brazil. Then we will analyze four main questions during this report. In 1988, a new Brazilian beer was created, nowadays a great and well known one, the Brahmas beers. In fact It was firstly a company named Companion Cervical Brahmas, then It had merged with other companies.

One mall reason why this firm Is well known is due to their innovative and striking ad campaigns and big buzz they arrive to create world widely. Their range is quite impressive because it comports almost twenty different beers under this umbrella brand of Brahmas. They are all different, and, the original beer of the company is quite a soft one because it has only less than 50 of alcohol. It has known a relevant success rapidly and became to be well standalone In ten Freezable market at ten Declining AT ten taunt century.

Nine, It n become leader on the Brazilian beer market, and, has extended to some Latino American countries such as Argentina or Venezuela. It has also become the fourth leading company in the beer market on the international scene. It has known such a fast success thanks to different foreign merger and acquisitions, various alliances and investments in the beer market, and sometimes in a quite different market, the soft drink one. By analyzing the related case study, we can enhance an impressive data for this concern in 1998, when beer accounted for 78,5% of its total sales and 94,7% of its EBITDA.

But, concerning the soft drink market in which they decided to go, it was not the same success encountered. In fact, the competition was rude, and notably due to the presence of Coca Cola company on this particular market. Coca is ell established in that market, with huge brand awareness, and many different beverages proposed to consumers. Clearly, the strategy of the company was to increase their international presence, increase their market shares and acquiring shares of competitors, diversify their range, launch regularly new beverages and innovate on both, beer and soft drinks markets.

They also focus on the branding aspect, in order to impose their image and increase their notoriety, what they succeed through years. And, the other company studied through the related case study, that Brahmas acquired is Antarctica. Antarctica was the brand name for a company named Companion Antarctica Populist. It has been created in the end of the 19th century, in the same market and the same country than Brahmas. This company was first specialized in the beer production, but then, it also tackles into the soft drinks markets and notably Guarani products.

The firm was one of the main competitors of Brahmas, and was the second company in terms market shares. In 1999 the two companies merged to form the leading beer company in Brazil and one the three leader on worldwide market as we will see later in this paper. Concerning its strategy of expansion, it was sensibly the same as the one of Brahmas corporate. We can assimilate both companies as very similar because they have the same core activity, playing on the same markets, with a common strategy… Antarctica proposes to its customers a wide range of beverages with almost thirty different ones, which more than 50% are beers.

In 1998, Antarctica assets’ value were R$ 3,4 billion, and the total sales amount was about R$ 1,38 billion with 73% of that total sales amount realized in the beer market. The company started to drop off in 1996. In fact, it knew financial faculties, and accurate and growing debts. The sales were collapsing too, actually, it decreased about 20% what is a huge loss. The main reason why it knew such a bad situation was distribution and customer failures. They also did bad forecasts in their strategy and wrong decisions what led to this critical financial position.

So it has to find a solution to recover a decent situation, that is why the company launched a new beer called Bavaria in order to rich a special target, young people, because Brazilian population is a very young one and could generate huge profits. It was a success, but to sufficient to recover the same previous situation and, the other product of the company still collapsed in terms of sales. This was this weakness’ situation that made Brahmas interested in acquiring Antarctica, to have more market shares, increase their leaning position Day decreasing ten competition.

I Nils Dulling proposition would provide benefits to both part because it would permit to Antarctica to avoid bankruptcy and stay alive. Now, it would be interesting to go through an analysis of Brazil in the concerned period, sass’s, in order to know the environment of that merger and acquisition and to understand it in a better way. The situation of that country was quite complex. Between 1993 and 95, it has implement a positive growth period of 25% in average per year. Between 1996 an 99, the beer market had to face with economical downturns.

In that period, to evolution was almost stagnant in terms of consuming beverages. Moreover, the local money was devalued what implied a increasing in importing ingredients. At this moment, Brazil was considered as the 4th beer market of the world behind USA, China and Germany. It is also the 16th one in terms of per capita consumption, what shows us great opportunities of growth for the future. Moreover, if we take into account the tropical climate, and the fact that the Brazilian population is a very young one show this huge potential unexploited in terms of beer consumption.

Then, we have also to notice the fact that the Brazilian economy was bad, but indicators showed growth predictions and great potentials and opportunities. It was also the time of the emerging middle class in Brazil, a new potential target becoming bigger and bigger. Now that we had analyzed the two concerned companies and the situation of the related country at that time, we are now able to analyze the merger and acquisition itself through four main questions that are the following ones: * Estimate the value of synergies and maximum intrinsic value per share of Antarctica. What are the relative merits of cash and common stock as form of payment in this deal? In your view, does the amount of consideration to be paid depend on the form of payment? Why or why not? * Assuming a share-for-share transaction, what is the maximum exchange ratio (number of Brahmas share per Antarctica) that Brahmas shareholders would tolerate? What factors determine the maximum and minimum? * Prepare a summary outlining your deal design and recommendation for the Truckee of a proposed combination of Brahmas and Antarctica, addressing all the issues that you believe should be reflected in a deal between these two companies.

Question 1 Estimate the value of synergies and maximum intrinsic value per share of Antarctica. The main objective when making merger and acquisition is to realize economies of scale Ana synergies In order to create a netter inclemency. It alms also ten Tact AT increasing market shares of a company and reinforces the market position. That is why if we want to study if this merger and acquisition was a success or not, we have o estimate the value of synergies. The result of the merger between Brahmas and Antarctica is a totally new entity named Nonce, the effect of such a merger would be synergies in the following sectors cutting costs.

Now, they will gain in production, purchasing power, distribution, administration, organization, sales. Actually, both companies will merge their activities and brand portfolio, gaining synergies in those areas of the company leading to a better position on the market and a better efficiency. If we focus on the sales, this operation will permit a huge growth rate of 75% concerning beers averages. What is interesting is that this operation will lead to more or less a monopolistic situation in favor of Nonce which implies an accurate bargaining power facing suppliers and a better price fixing position toward consumers.

Due to this merger and acquisition, synergies will be possible in every department of the company, but especially in the marketing and branding domain. In fact, it will be much easier to develop and launch new innovative products, and develop the already wide range. The financial power will also be increased, what will allow to tap into there oversees’ markets in an easier way. The new entity will be the driver of the local (Brazilian) beer market, and will have more power on the international scene that was in expansion.

Regarding to the financial situation, Nonce will improve its position gaining in term of margin increasing profits and financial capacity to invest and to maximize shareholder value. More concretely, all those synergies created through this merger operation will make a gain in terms of value and will make save to Nonce R$ 45 billion per year (due to savings in sourcing, production, distribution, administration… ). If we focus on the maximum intrinsic value price per share, it is actually quite difficult to assess.

Regarding to the market shares we see that Brahmas is in a better position that Antarctica leading Brahmas in a good position in order to negotiate the merger we are analyzing. And, for the other company, their shares were decreasing for years. Concerning the financial aspect, we studied that Antarctica had a huge debt of more than IIS$ 610 million and, to avoid going on bankruptcy it had to find cash immediately, what would be possible thanks to a merger and acquisition. In 1999, this company was in a critical situation and so had not really good bargaining power comparing to the Brahmas one.

Therefore, concerning the volatility of the share price of Antarctica corporate, it is impressive because equal to 84,6%; so, it is constantly changing. Just before the operation of merger, the share price in average decreased considerably. For example, it was about R$ 120 in 1997, and Just about R$ 39,6 in 1999 what is quite impressive. That is why the stockholders were not so confident in that firm anymore, and preferred selling their shares to another entity in order to sake them merge, and avoid losing money (what interests the most a shareholder).

So, Brahmas was really in a dominant position in order to acquire Antarctica, taking into account another fact, that it was undervalued. Lets calculate now ten maximum Intrinsic value per snare Tort anta A rattle. 10 total this, we will use a tool available on the web and data providing from the related case study (appendixes). R$ 5. 75 earnings per share in 1999, earning are expected to collapse over the next five years losing money during four years and reaching the O point in five years and with a 50% confidence in those predictions.

And we found a stock value per share about more or less R$70, which we can consider as the maximum intrinsic value of an Antarctica share. What are the relative merits of cash and common stock as form of payment in this It exists different means of payment when a deal appears, and we can consider cash, or common stock here. In fact, the way of payment implemented could have a direct impact on the merger and acquisition, by affecting the corporate or the market in which it is playing.

Generally, when companies are dealing with merger and acquisition, they use to combine both, cash and shares in order to be the most ireful as it is possible to be. It is also the solution the most simple, even if the less interesting concerning the stockholder point of view because it implies a lot of different additional taxes. If we focus on the merger and acquisition we are dealing with in that report, the one of Brahmas and Antarctica, the way of payment in cash would comports some advantages. In fact, it is more used in sliding trend in interest rates.

Moreover, when companies use that modality of payment, they tend to pay much more attention to the estimation of the price of the concerned corporate. And this, could involve a devaluation by the buyer cutting prices and having a better price for its competitors. Another benefit linked to the cash way of payment is that is lower the probability of earning per share dilution for the buying corporate. But, this technique of payment presents a major drawback that we have to consider, this is the fact that it has a direct and huge negative impact on the cash flow of the company.

The other solution of payment (in stocks) would also be a good solution with advantages too. Firstly it is a tax free solution which is a good point in socialist economies with high tax rates and it would be a good solution in order to lower the final price and so, making a better purchasing offer on Antarctica. The result would be to share the benefits and the earnings of merger between stockholders of both companies, Brahmas and Antarctica.

In this particular case, we will be obliged to acquire shares of shareholders of the bought company, which is not really easy to realize, but, it will allow us to pay lower bill thanks to the devaluation of the intrinsic value of a share. But, this way of payment is more implemented in huge value companies’ operations, which is not really the case here. O, ten amount AT consideration to De pall apneas on ten way AT payment we chosen because as we Just saw those two forms of payments are different and each of them comports benefits and drawbacks.

Assuming a share-for-share transaction, what is the maximum exchange ratio Regarding to merger and acquisition operations, it exists different shapes to realize it, and, one of the most used and common is thee “share to share” method. In that particular case, the buying company will swap with the bought one a certain amount of shares. But there is a problem, that is that Antarctica performs in a lower ay than the other part, and, the share price of the buying company will automatically decrease when it will buy shares of Antarctica. If we want to make a good operation, we have to pay attention to a fair percentage of exchange ratio.

Let’s consider that the maximum of 51% would be a good minimum exchange ratio. And, the minimum could be about 75%. It is possible to obtain this value with the formula that follows (the case study doesn’t provide enough data to calculate it. ): AXIS [(E A +E B) PEE AS] / PA SOB With : RE = Exchange ratio P = Price per share PEPS = Earnings per share PEE = Price earning multiple E = Earnings S = Number of outstanding equity shares ARE = Actual exchange ratio In fact, the factors that permit to determine the maximum and minimum exchange ratio are various.

Firstly we have to take into account the voting majority because less than the half of the corporate won’t have the majority and the decision power and veto right too. We have also to consider the relative value of both companies; it is really important in the sense of considering the stocks’ value and/or the cash value or both as we Just have seen upper in the report. In our situation, it is quite complex cause if we take into account the shareholders’ point of view, they won’t agree with acquiring Antarctica.

So, the better option they will agree with would be to create a totally new entity by acquiring the company in cash and/or by buying shares of this same corporate. And, we have to take into account too, the financial capacity of the corporate, and, the regulation of taxes that are important points. Prepare a summary outlining your deal design and recommendation for the structure AT a proposed compilation AT Brand Ana Antarctica, resealing all ten Issues Tanat you believe should be reflected in a deal between these two companies

In this section of the report, we will establish a summary of the deal, enhancing the main points of the operation and including some recommendations for the merger and acquisition of the two concerned companies. Firstly, the price of value per share is likely to be the most important point of the operation for the two corporate because it is the main part of the merger, in any merger and acquisition. What is important, as we saw upper in this paper is to estimate the price that the buying company will pay to obtain the shares of the other part and have the control of Antarctica.

As we studied in the second question of the report, we recommend paying for each share of the bought company to send not more than R$ 70. But, the negotiation would begin with a quite lower price, due to stockholders of Antarctica corporate that are not so confident and in a bad position to make the price goes up. Now, it is also complex regarding to the way of payment as we have enhanced in the question two of the paper because the two way of payment proposed comports both positive and negative points.

And, concerning this particular beer case, we would implement a mixed solution in terms of way of payment. This will depend on the maximum share we can get regarding to the will of our own stockholders (who are not confident in buying shares of a bad performing company that Antarctica is). And, the second part of the operation will be done in cash in order to be much more powerful in Nonce and own a large majority of the bought part. This part paid in cash will also permit the buyer Brahmas to lower the debt of the other company involved in this merger and acquisition.

Regarding to the final result of this M;A operation, we would say that a totally new entity would be the better solution in this particular case. The Nonce entity (the new one) would be totally owned by the buyer company and Antarctica. By doing this, it will allow the buying company to lead the very new entity with huge resource and big power of control and decision making. We have also to pay attention to the control and the voting power in the Nonce corporate. As we Just have said Brahmas would have a larger influence on decision and in voting due to the share repartition (at least 51% for the buyer).

Like this, only Brahmas will have the possibility to decide, thanks to the absolute majority, as well as the veto right it will confer to this company. Moreover, they will perceive more dividends from the part of earnings of the new entity and having at the same time a really reasonable responsibility. Actually, the exact percentage of detention of the Nonce capital has to be clearly decided between the two companies involved in the operation in order to find the better agreement they can have and to be agree on that figure, and, we absolutely don’t know what the real and concrete negotiation will result.

Concerning the selected accountancy, it will be following the FIRS norms due to the international scene development forecast that they have, and, the FIRS is the international basis of accountancy. Therefore, the Nonce corporate will be referenced as a Brazilian tax policy company Decease AT ten roller AT ten two previous entitles, Ana also ten Tact Tanat ten headquarter will be located in that same country of South America. Nonce will also be referenced in the New York stock exchange in order to obtain an international scope, and in the stock exchange of SAA Paulo too, were their headquarter will be located.

If we focus on the law aspect, we would recommend establishing a forum selection clause in Brazil due to the fact that both parts are issued from that country. In fact it would make things easier in case of legal issues, in another country in order to be as neutral as possible. So, we could imagine selecting USA and England in the clause we want to set up. It is also logical that the official language within the new entity will be the Brazilian Portuguese, and the staff will be referent to the labor law of Brazil, as the unions.

In terms of governance, Nonce will do its best to save the maximum number of the manpower of both side of the operation, at the same time that they will try to avoid the double posts. If the needs in terms of labor force evolve and increase, managers will allow new hiring policies. Concerning the top managers within the new entity, they will be kept from both parts as far as it is possible, but we could imagine kind of preference for the ones issued from Brahmas.

Moreover, the culture of the Nonce Corporate will automatically be Brazilian due to the fact that both sides of the operation are Brazilian culture companies. So, we won’t have to face with cultural choc issues, what is a good point because extremely hard to manage. And, finally, the purchasing process will be beginning in half a year, permitting New to be born, and, the final completed organization of the new entity will be ended in almost two years. To conclude that report, we can say that merger and acquisitions are not so simple; in fact, they are very complex.

It has to be well prepared, and the organization has to be well thought. Both sides of the operation have to think of reshaping the entire organization and to think at every point in order to avoid any problem linked with the M;A operation. Companies have to take into account a lot of parameters, even the economical environment, the culture, the double posts, he financial aspect, the country, the law… In this paper we had gone through the merger and acquisition of Brahmas on Antarctica creating a very new entity, New.

We had first studied the value of the different synergies resulting from this operation. Then we have highlighted the maximum intrinsic value per share of the bought company. After this, we have selected a mixed way of payment after having enhanced the benefits and drawbacks of each ways. We have also obtained the maximum exchange ratio we consider that the buyer company shareholders can tolerate; Ana we nave also accuses auto Doctors Impacting ten Mullen Ana axiom value.

My life ended just as hers was beginning. At the exact second my car hit a patch of black ice, spun, and collided with a tree, she was emerging from the sanctuary of her mother’s womb. My soul was knocked from my body, just as hers breathed its first breath. I never thought death would be like this. From birth I had been raised as a Christian, believing in all that Christians do: Heaven, Hell, and all the rest. These were, to my way of thinking, the only destinations in the afterlife. Whether I was saved or condemned, I believed that death would signal the end of my earthly responsibilities.

Now, I know better. At first, I didn’t understand what had happened. I remembered the car spinning uncontrollably, the view out the window blurry until the tree loomed in the night. There had been a horrible crunching noise, like walking on packed snow, except much louder. My life did not flash before my eyes in what I now know were the last few seconds of my life. There was the spinning, the blur, the crunch — and then black. Not the kind of blackness that appears when you close your eyes — no, even then little speckles, little neon clouds appear.

This darkness was consuming. It was absolute. For a second I felt absolute terror. I remember wondering if this was what it was like to be in a coma, or if the glass from my shattered windscreen had blinded me. In my finitely human mind, I didn’t consider that I might be dead. Then I heard a voice. It seemed the voice came out of nowhere, or at least from some unidentifiable place in the blackness. It evoked in me the strangest sensation: in all my earthly life, I knew I’d never heard that voice before. Yet, a part of me responded to it in a way I didn’t understand.

The first thing the voice — the being — told me was that I had just died. That, to put it mildly, was a shock. A moment passed as the being gave me time to register this fact. Too stunned to even feel disbelief, I couldn’t seem to reply. In truth, what could I have said? There is nothing on earth to prepare someone for that knowledge. The next thing the voice told me was that I owed a debt to God. It did not say this cruelly, or even judgementally; rather, it spoke objectively, with no trace of human emotion clouding its delivery. It was difficult — indeed, impossible — to discern anything about the being. I couldn’t see it, couldn’t touch it — I had no idea where it was. All I could do was listen as it explained what would become of me.

Throughout my somewhat short life, the being said, I had offended and even hurt God on many occasions. I was not unique in this aspect; in fact, such was the case for most who had ever dwelt on the earth. A lucky, selfless few spent their lives pleasing God, and at death they were free. They owed nothing. I, however, did, and the debt for my sometimes sinful life had to be repaid. The only question was how. The second I had that thought, I felt an enormous shift come over my body — or soul, whatever I was made of. There was a brief falling sensation, like descending the first big dip of a roller coaster. The scene in front of me flicked from the void of blackness to an unfamiliar scene.

I was watching events in suspended animation, in what seemed to be a hospital delivery room. My confusion mounted. ‘Why am I here?’ I asked, directing my question to the being’s presence somewhere beside me. I looked at the doctors in their green garb, their bodies inclined towards a woman on a bed, frozen in a picture of agony. The baby the doctors were lifting from her body had just been about to take its first breath. I tried to see what the scene had to do with me, but I could make no connection with any of the room’s occupants. The last time I’d been in a place like this was during my own birth. ‘Do I know these people?’

‘No,’ the being replied, tonelessly. ‘You’ve never met any of them. But. some will become very familiar to you.’

‘How can they?’ I asked. ‘You’ve just told me – I’m dead.’

Somehow, with the mental equivalent of a hand gesture, the being drew my attention towards the newborn, framed by the circle of doctors. It was then that I learned how my debt was to be repaid.

‘This,’ it said, ‘is your charge.’

‘My . . . charge?’ I didn’t understand.

‘You know you have a debt to repay to God,’ I was told. ‘This is how. This child has just been born, as you have just died. On birth, every child is appointed a guardian, one of those who owe God.’ Something changed in the voice then, a shift so small I only just noticed. Its tone changed, softened; disembodied and ethereal as it was, it somehow became more human. I looked at the child – a girl – as I felt being do the same. ‘You must look after this child every moment of her life. Before her birth, the child was tied to her mother: she found all the protection she needed in her womb. Now, that is your responsibility. You will not always be able to protect her, but you must never stop offering her your guidance, your comfort, all the days of her life. Your eternal presence alone is usually enough.’

Looking back, I wonder if the option was there to refuse. That’s not to say I wanted to, but perhaps some have. Regardless, the only feeling I distinctly remember was of great surprise. Never in my life had I thought this was what happened after death. The question that had plagued mankind had been answered for me – but there was no one to tell. The only thing left to do was accept.

I looked at the child, frozen under the gaze of assorted doctors, the being, and me. I directed my thought towards the being. For some reason, I needed no deliberation. ‘Yes.’ At that, the scene in front of me unfroze. The baby breathed, and with her breath came her first cries. Her mother simultaneously groaned and sighed in relief, a sigh echoed around her by the doctors. The baby’s life had begun.

In retrospect, I wonder why, at that moment, I didn’t feel a surge of panic. What did I know about being a guardian? I’d never looked after a child while I was alive, yet here I was, ready to protect this tiny being for the rest of her natural life — however long that might be. Yet I found an odd acceptance of my new duty — perhaps because I didn’t have anything else. My own life had ended.

Coming out of my reverie, I realized the being was still beside me. I felt it watch with me as the little girl was wrapped in a blanket and given to her smiling mother. Strangely, there seemed to be a sense of sadness emanating from the being’s presence, something barely tangible but at the same time undeniably present. It was odd given its earlier detachment.

‘Is it hard?’ I asked as the mother cuddled her child for the first time. ‘Is it hard to be a guardian?’

‘Harder than anything you’ve ever done,’ the being replied. ‘No matter how long she lives, it is always hard. But it must be done.’ The being’s voice changed again, swelling suddenly with emotion. ‘You will come to care very much for that child. No one will ever know her in the way that you will because you will always be with her.’ I was almost sure I felt the being sigh inwardly. ‘Always, until the end of her life. Then you will show her what to do. as I have shown you.’

It was only then that I realized who the being was, why I had instinctively known its voice. Elated, I felt my mind reel with a thousand questions. But it was too late. As soon as the revelation had come, the being had gone. For a moment I felt a crushing sadness that I would never know him or her — someone who’d been there for me through every second of my life. But there wasn’t time to dwell. Looking at the yawning baby a few feet away from me, I felt the first stirrings of affection. It had been a long time since I’d felt such a clear sense of purpose. Inwardly, I promised I would do for her what the being, the presence who’d just left, had done for me.

Introduction: Trade Finance in India comprises of financing against imports into India, export from India and inland trade transactions. While doing this study, it is important to know about the regulations governing such transactions in India. Import and Export trade Is regulated by the Directorate General of Foreign Trade (GIFT) under Ministry of Commerce & Industry, Department of Commerce, Government of India. Banks In India, authorized by Reserve Bank of India to deal In Foreign Exchange are known as Authorized Dealers.

Authorized dealers, while undertaking Import and export ramifications, should ensure that the Imports Into India and export from India are In conformity with the Export Import Policy In force and Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed by Government and the directions Issued by Reserve Bank under Foreign Exchange Management Act from time to time. Banks also have to follow credit policy announced by Reserve Bank of India from time to time to ensure compliance while dealing with financing of Inland Trade transactions.

Authorized dealers have to follow normal banking procedures and adhere to the provisions of various rules framed by International Chamber of Commerce, Paris and onshore credit policy of the country. Banks in India use the following trade products to meet financing requirements of the clients: Imports: 1 . Opening of Letter of Credit and Follow up Financing 2. Buyers Credit / Suppers Credit in the form of short term credit for Imports into India 3. Trust Receipt Financing 4.

Simple Overdraft Facility 5. Issuance of some of the guarantees to facilitate imports related activities Exports: 1. Pre-shipment Credit in Indian Rupees 2. Pre-shipment Credit in Foreign Currency 3. Post-shipment Credit in Indian Rupees 4. Post-shipment Credit in Foreign Currency . Forfeiting of Export Receivables 6. Factoring of Export Receivables 7. Simple Overdraft Facility 8. Issuance of some of the guarantees to facilitate Export related activities Inland Trade: 1.

Local Bill Discounting backed by Bill of Exchange 2. Local Bill Discounting backed by Letter of Credit 3. Simple Overdraft Facility 4. Issuance of some of the guarantees to facilitate Inland Trade actively Trade Finance By onshore is regulated by the Directorate General of Foreign Trade (GIFT) under Ministry of Commerce & Industry, Department of Commerce, Government of India. Banks in India, authorized by Reserve Bank of India to deal in Foreign Exchange are known as Authorized Dealers.

Authorized dealers, while undertaking import and export transactions, should ensure that the imports into India and export from India are in conformity with the Export Import Policy in force and Foreign Exchange Management issued by Reserve Bank under Foreign Exchange Management Act from time to time. 1. Opening of Letter of Credit and Follow up Financing 2. Buyer’s Credit / Supper’s Credit in the form of short term credit for Imports into 4. Issuance of some of the guarantees to facilitate Inland Trade activities

The cost structure with the lower breakable volume has the lower systematic risk. Fluctuations in sales volume has an impact on net income. Because there is no certainty, Waver must be ready for increases and decreases in sales if the new equipment is purchased. It is important for Waver to understand that the company will not always be at normal operating levels. Sometimes more units will need to be produced and oftentimes, less units will need to be produced due to the demand in sales. Fluctuations in demand will affect the bottom line, as seen in the examples above. ) What other factors should Waver consider in making this decision? Will the quality of the product remain the same? Is the machine more efficient than the workers? Will time be saved? Can the machine produce more than 60,000 units per year? How many units can the equipment produce in a year, while maintaining a quality product? Can the company charge more for the product if there is an increase in quality? How will this equipment affect Waver long-term? Short-term? Will upgrades be needed (added expenses)? How quickly will the equipment be outdated? How quickly can the equipment be installed?

Will there be a loss of manufacturing products while the equipment is being setup? Will the company lose money during setup due to lack of production? How will this new piece of equipment show on the company’s financial statements? Will it be depreciated? What form of depreciation? Are there new asset conversions that the accounting department will have to record? Do the product costs and/or period costs change? Is it possible to make other areas more efficient, therefore, reducing fixed or variable costs? What company makes the manufacturing equipment? Is the company successful/reputable?

Is the company new? Is the return on the investment satisfactory to board members and owners? How does the new equipment affect the employees? Will additional training be needed? Who will operate and manage this new equipment? How difficult would it be to get service if repairs were needed? How dependable are the service repair people? Will Waver have to hire a full time employee to fix the repairs? This salary is an additional expense. How dependable is the machine? Will the equipment affect the factory layout, efficiency, create toxic smells or be too loud for workers to be near it?

Will customer satisfaction be increased? Will the employees operating the machine be paid more, therefore, increasing salary Will training occur? This is an added expense. Are there enough Jobs to reassign all employees displaced to new Jobs within Waver? How will Waver communicate this large change to its employees? How much does the machine cost? Are there additional variable costs that will be incurred? (4) What is your recommendation? This does not look like a good investment for Waver. The return on investment is low at the normal 60,000 operating volume. The fixed costs are large, Jumping by 476,000.

That is a large increase when the sales at normal operating conditions will only yield an extra $4,000. It is not worth the expense. In the beginning, the equipment may be slow to operate at normal volume due to set up, training, glitches, etc. There may be a length of time where Waver is not able to produce and sell 60,000 units per year, which will hurt Wavers bottom line (as seen in the 25% volume decrease in example above). The new equipment seems like a risky investment. The choice of production structure (with the new equipment or without) depends on the expected future sales.

If Waver was certain they could produce and sell more than 60,000 units per year, this may be an investment worth looking into, however, this is an unknown. Making a little less than the 60,000 units (59,500 units), would put Waver in the same position had they not purchased the new equipment. This point at which both cost structures intersect is what is relevant. From a management’s perspective, this new equipment is really not a good idea. There are too many What ifs’ and too many personnel and training issues that could be factors. I would not recommend purchasing this new equipment for Waver.

Please use as a basis for your discussion the following question: Do you think the events of this chapter (Chapter 2) are isolated instances of business malfeasance, or are they systemic throughout the business world? I don’t think events in Chapter 2 are isolated instances of business malfeasance. From the cases of Enron, Arthur Andersen and World, it’s easy to find some similarities.

All of them focused on short-term revenue and ignored the long-term development and companies’ integrity and reputation; all of them couldn’t successfully solve the interest conflict between “people on the top” and current and respective shareholders. For companies, the main goal and theme is to make more profit in general. A stably raising stock price satisfies the board of directors as well as attracts investors to make investment.

To achieve this goal, there are two ways to go: one is following all the audit and accounting ethics when directing the company, which may be slow but stable and beneficial in long term; another one Is cheating and walking on the borderline of ethics, which can make a lot revenue In short term but prohibits the company’s healthy development in the future. Obviously, companies In those cases In Chapter 2 chose the second way. However, I can hardly say that they are symmetric problem In the business world.

Although there are some bad apples In the tree, there are more companies which aim to long-term healthy development and obey rules and regulations. I agree with Currant’s opinion that there Is a give and take relationship on both sides of companies and investors. The two-side relationship urges companies to follow their policies within ethics, especially In current world where there are more Acts to regulate behavior of corporations as well as technology and Internet makes Information more transparent.

Major Sources of Revenue:

• a) Revenue from operations: accounts for 98% of the total revenue of the firm and consists of the revenues from the below categories Information technology and consultancy services: contributes 97% of the total revenue from operations Sale of equipment and software licenses contributes 3% of the total revenue from operations
• b) Other Income: accounts for approximately 2% of the total revenue of the firm and consists of the revenues from the below major categories Interest Income: Contributes to 81. 0% of the total revenue from other income 73% of the Interest income comes from Interest on Bank & Interest on long term Bonds & Debentures. 25% of the Interest income comes from Inter-Corporate deposits. Profit from Sale of mutual funds and other current Investments Contributes to 0. 57% of the total revenue from other income.

Major Expenses

• a) Employee benefit expenses: consumes 35. 78% of the total operations revenue and consists of the below categories Salaries and incentives: accounts for 87. 57% of the total employee benefits expense.
• b) Operations and other Expenses: consumes 32. 11% of the total operations revenue and consists of the below major categories. Overseas business expenses: – accounts for 43. 4 % of the total. Operations and other Expenses Services rendered y business associates and others: – accounts for 18. 42% of the total Operations and other Expenses hardware and material costs: Software, – accounts for 1 1 the total Operations and other Expenses
• (c) Tax expenses: consume 7. 27% of the total operations revenue
• (d) Dividend on equity shares and tax thereon for Fiscal 2014 accounts increased by 40% Year on Year (7058. 2 crscoresiscal 2014)

Major Uses of funds:

• a) Cash And Bank Balance: accounts for 21. 51% of the total Non-Current Investments and Current assets. The company has increased the Cash and Bank balances significantly in fiscal 2014. Horizontal analysis on the Balance Sheet for Cash and Bank Balances shows a Year on Year growth of 113. 34% for fiscal 2014.
• b) Purchase of Fixed Assets: The Company has been investing in infrastructure development across various locations in India to meet its growing business needs. Additions to the gross block in fiscal 2014 amounted to 2,284. 7 crscoresHorizontal analysis on the Balance Sheet for fixed assets shows a Year on Year growth of 28. 27% for fiscal 2014.
• c) Non-Current Investments: Company has increased the Non-Current Investments significantly in fiscal 2014. Horizontal analysis on the Balance Sheet for Non-Current Investments shows Year on Year growth of 134. 97% for fiscal 2014.
• d) Long Term Loans & Advances: accounts for 10. 85% of the total Non-Current Investments and Current assets.
• e) Short-term loans and advances: accounts for 6. 2% of the total Non-Current Question 2: Perform a horizontal and vertical analysis on the Balance Sheet and Profit and Loss Account and comment on any significant changes that you observe over the last 2 years.

AnNASPlease refer to the attached excel sheet for arriving at the below conclusions

• a) Profit & Loss statement: Significant observations on Horizontal analysis. Net Profit After Tax for Fiscal 2014 shows a Year on Year growth of 37. 70%. Net Profit After tax nearly doubled when compared with Fiscal 2012. EPPEPSEarnings per Share also shows consistent growth in the last few Fiscal years. Shows a Year on Year increase by 37. 58% in Fiscal 2014 Finance Cost for Fiscal 2014 has decreased significantly by 20%. Tax for Fiscal 2014 has increased significantly by 51% Year on Year. Profit & Loss statement: Significant observations on Vertical analysis. Despite a significant increase in the Employee base, we find that Employee Expenses s a % of revenue remained constant around 35% in the last few Fiscal years Total Expenses as a % of revenue remained constant around 70% in the last few Fiscal years Total Tax as a percentage of revenue, increased from 6. 37% in fiscal 2013 to 7. 2%
• b) Balance Sheet: Significant observations on Horizontal analysis. Non- Current liabilities shows a Year on Year growth of ofof4. 64% in Fiscal 2014. Fixed assets show a Year on Year growth of 28. 27% in Fiscal 2014 Current liabilities show a Year on Year growth of 34. 33% in Fiscal 2014. Reserves and Surplus shows a Year on Year growth of 27. 76% in Fiscal 2014. Share Capital shows a Year on Year negative growth of 33. 76% in Fiscal 2014. Current assets show a Year on Year growth of 36. 62% in Fiscal 2014. Long Term borrowings show a Year on Year negative growth of 2. 4% in Fiscal 2014. Balance Sheet: Significant observations on Vertical analysis. Cash and bank balances as a % of the total Assets excluding fixed assets increased from 12. 97% Fiscal 2013 to 21. 51% Fiscal 2014. Non-Current Investments as a % of the total Assets excluding fixed assets has been increasing steadily in the last few Fiscals. Short-term loans and advances as a % of the total Assets excluding fixed assets eccreasedrom 10. 81% in Fiscal 2013 to 6. 42% in Fiscal 2014. Goodwill as a % of the total Assets excluding fixed assets decreased from 6. 86% in Fiscal 2013 to 3. 7% Fiscal 2014.

Question 3

Scrutinize the Notes to Accounts and Statement on Significant Accounting Policies and check for any deviations in accounting policy over the last year with respect to major items. AnNASThere were no deviations with respect to significant accounting policies. However TCTTSdopted a new hedge accounting principle under the below category.

• a) Foreign currency forward, option and futures contracts: TCTTSnters into foreign currency forward, option and futures contracts to manage its exposure to exchange rate fluctuations, in accordance with its risk management policies. With effect from January 1, 2014, the Company has adopted hedge accounting principles in line with International Financial Reporting Standard 9 (referred to as IFFIRS), which aligns more closely with the Company’s risk management policy. The change has resulted in a reduction of ‘ 4. 76 crores profit before tax in fiscal 2014.

Question 4

Cash generated from operations, post adjustments to profit before tax, has gone up from 16,436. 77 scores fiscal 2013 to ‘ 21,795. 4 scores fiscal 2014, registering a growth of 32. 60% over the previous fiscal. Income from Interest InInterestn funds invested went up by 71. 22%, from 798. 80 scores fiscal 2013 to 1367. 72

• (a) Uses crscoresn fiscal 2014. During fiscal 2014, the significant uses of cash were Acquisition of French Company AlAlit.  41 crscoresPayment of Dividend & dividend tax for 5,489. 54 CrScoresurchase of fixed assets Increases in inter-corporate deposits Investment in fixed deposit. Pay Taxes amounting to 7,043. 63 CrScoresover Working Capital expenditures
• (b) Was the cash flows from operations greater than or less than net income? Explain in detail the major reason for the differences in these 2 figures. For Fiscal 2014, by referring to the Consolidated financial statements we get the below fgfiguresNet Cash provided by Operating activities = 14751. 41. CrScoreset Profit for the year = 19163. 87.
• (c) Unbilled Revenue – (811. 60) CrScores) Trade Receivables – (4015. 80) CrScoresc) Was the firm able to generate enough cash from its operations to be able to pay for all its capital expenditures? For Fiscal 2014, by referring to the Consolidated financial statements we can arrive at the below table. Net Cash Provided by/Used in Fiscal 2014 Fiscal 2013 Operating activities 14,751. 41 11,614. 96 Investing activities (9,667. 08) (6,085. 66) Financing activities 5,673. 24) (5,729. 48) Exchange difference on the translation of foreign currency 21 5. 41 48. 5 Net (decrease)/increase in cash and cash equivalents after translation (373. 50) (152. 13) Purchase of fixed assets accounted for (3126. 15).
• (d) Did the cash flow from operations cover both the capital expenditures and payment of dividend, if any? AnNASDividend paid accounted for (5480. 7) CrScoresf the Net Cash of (5673. 24) crscoressed in financing activities.
• (e) How did your firm invest its excess cash (if any)? Cash flow statement from Investing Activities indicates that the excess cash that remains after investing and financing is in Short-term bank deposits.

I want you to look at the Finnish company Seeks Corporation which Is ranked 91 In the Global Powers of Retelling Report, 201 2, (we are ranked at 25). We seem to be at least 3 times bigger than them, so acquisition might be something well within our abilities. Our Management Accountant has already provided some basic data which you can use. This includes a summary of Asked recent financial reports, together with some of our own ratios which we are using in all similar investigations for consistency.

You can of course add to this if you wish, but don’t spend time trying to reconcile these summaries with the original data – we are more interested in the general trends so that we can Judge whether to go forward with more detailed investigations. (Question 1 continued on next page) I want your analysis of Seeks to focus particularly on their performance and fallopian debility, to see if they have the potential to make a positive contribution to our activities. I have already asked our financial advisers to have a look at market value, possible price we might have to pay, etc. So if we decide to proceed with the full acquisition option you do not need to worry about that side of it too much. In short, try and be objective; focus on the performance of the company – strengths and weaknesses – and make appropriate comparisons. You might include consideration of how the performance and financial stability compares to ours as well as Identifying key areas that we might need to address If we were to acquire hem. The main point is to keep it focused and succinct at this stage. Make a substantial investment in their shares, say up to around 20% in order to become a major shareholder.

Their share price seems to have had a bit if a roller- coaster ride over the last couple of years so could you include in your report some conclusions on their shareholder performance… ” Required Write the report on Seeks as requested by your boss including the following: a) A brief contextual background to the company (10% of question marks) b) Present and discuss an overview of the recent performance (10% of question marks) ) Discuss the performance and profitability of Seeks using ratio analysis, clearly showing your calculations. 20% of question marks) d) Discuss the relative working capital, liquidity and solvency positions of Seeks using ratio analysis, clearly showing your calculations.