COURSE OUTLINE IBA2 - Spring 2005

INSTRUCTOR: Prof. Murad J. Antia

OFFICE: BSN 3121

PHONE: 813-974-6350 (Office) or 813-974-2081 (Finance Dept.)

OFFICE HOURS: To be determined

E-MAIL: mantia@coba.usf.edu

(Please email all team members when emailing questions to me so others can learn from your questions)

Optional Text: Higgins(6^th ed) Analysis for Financial Management, Irwin

Reminder: Set up team meeting schedule.

Students/groups should continually check Blackboard (myUSF) for class notes, assignments and instructions.

Copies of reports prepared by groups in prior semesters will be made available to you for your perusal. They should provide a framework for the content and format of your final product.

Purpose of this course: To complete a business plan by adding operating and financing plans to the marketing plan (revenue forecast and action plans) with emphasis on five year projected financial statement spreadsheets and developing a balanced scorecard.

The business plan should include:

1. An executive summary (maximum three pages), that focuses on a particular target audience for which the report is being prepared. They may be investors, boards of directors or other decision makers in the firm (CEO), loan officer, etc. The report should focus on: business concept, industry analysis, revenue forecast, expected return to investors, firm profitability, financial viability, management and other areas as needed.

You might use color graphics to illustrate the most important points.

2. A separate section containing the actions plans timing graph, chart or schedule (Sometimes referred to as a Gantt chart), and the quarterly/yearly dollar outlays required to implement the action plans.

3. A balance sheet for initial funding and investment position for the new company or the financial statements at the end of the most recent year for an existing company.

4. Projected income statement for each forecasted marketing period in: 1) absolute dollars, 2) common size, and 3) year over year percentage changes. Type each on a separate page. Estimate quarterly projections for the first three years, annual thereafter. The common-size statements should highlight gross, operating and net margins. Use 35% for the corporate income tax rate. Include year-end sum column for the quarterly income statements. Use straight-line depreciation with zero salvage value when depreciating PP&E.

5. Projected balance sheet for each forecasted marketing period in: 1) absolute dollars, 2) common size, 3) year-over-year percentages. Type each on a separate page. Estimate quarterly projections for the first three years, annual thereafter.

6. Statement of shareholders’ equity or statement of retained earnings for each period. Estimate quarterly projections for the first three years, annual thereafter.

8. Projected statement of cash flows for each balance sheet interval. Cash flow in the first period includes all flows from very beginning where all figures were zero for a new company. Put marketable securities in the Cash Flow from Investments section. Please use the indirect method.

9. Amortization schedule for long-term debt (maturity greater than a year), if any. Interest payments should equal interest expense on the income statement.

10. Financial analysis/ratios. Definitions/formulae of many of these ratios and other information are posted on Blackboard. Ratio analysis needs to be performed on annual data. Estimate the value of the firm’s equity. Determine, if possible, the (incremental) NPV of your recommendations/action plans.

11. Comparison to industry averages, if possible, such as Robert Morris Associates or MultexInvestor (which can be accessed from www.financeyahoo.com). Include a copy of industry averages in your report.

12. Report of the “tweak” exercise. A tweak exercise analyzes and discusses the results of the worst-case sales scenario on the financial statements, particularly net income. Your financial analysis needs to determine if a worst case sales forecast will lead to inadequate returns for investors, or possibly insolvency. It is essentially a “what if” analysis. Some thought should be given to the components of profit margin with varying sales forecasts.

13. List all the assumptions behind your projections and the rationalization behind your assumptions.

Each team member should attempt to lead at least one of the weekly presentations.

Grades: (Graded +/-) Your final grade will be an aggregate of the team grade, your individual presentation grade and peer review grade. A substantial portion of the team grade will depend upon the timeliness and quality of the work your team submits each week during the semester. Error laden reports that require substantial modifications and analysis on the instructor’s part will hurt the team grade. Reports that are e-mailed to me have to be in printable format. I should not have to spend time formatting your spreadsheets. The peer review grade form is on the last page.

Key Points to remember:

· Common sense and logic is the pervading principle for your analysis

• No “fudge” figures on any of the financial statements
• Be mindful of whether a particular cost needs to be expensed, or capitalized and subsequently amortized
• Make sure that you are neither, significantly undercapitalized or overcapitalized
• Make sure that PPE (fixed assets) is expanded &/or replaced as needed, and is in line with schedule for action plan implementation from IBA 1.
• Include an amortization schedule for debt repayment. Monthly/quarterly interest payments should add up to the interest expense on the I/S. Cost of debt should be commensurate with the risk level of the firm
• Discuss the company’s cash management plan if appropriate. Provide reasons for keeping excess cash
• Include annual common size and comparative growth (year1/ year0) rates financial statements
• Justify the firm’s dividend (or lack thereof) policy.
• The company’s cost of equity will change as the amount of debt is increased
• Perform a sensitivity analysis with the company’s equity cost of capital
• Agreement among statements - e.g. change in cash on SCF agrees with the change in cash on the B/S, etc.
• The impact of economies of scale on financial statements
• Reasonable liquidity position
• Reasonable financial ratios relative to industry averages
• Reasonable terminal value (for NPV analysis). Be mindful of the impact of marketability and liquidity of securities on their value
• Common size and comparative financial statements reveal no distortions

Class Schedule

Date

Meeting 1 Orientation and Instruction

Meeting 2 Most recent financial statements templates (Year 0) and time schedule for your IBA 1 action plans
(Gantt type chart) are due. Include cost estimates of your action plans from IBA1. Year 1 financials
are also due.

Meeting 3 Year 2 and 3 financial statements are due. Revisions made to Years 0 & 1 statements are also due.

Meeting 4 All five years financial statements are due. Instruction on valuation

Meeting 5 Worst-case (tweak exercise) financial statements are due.

Meeting 6 Ratio analysis and valuation are due.

Meeting 7 Executive summary and other written analysis components of the report is due. Peer evaluations are
due.

Meeting/Week 8 Final report is due

PEER EVALUATION

Percentage Contribution

Name of Group Member to group effort

1. _____________________ _____%

2. _____________________ _____%

3. _____________________ _____%

4. _____________________ _____%

5. _____________________ _____%

6. _____________________ _____%

7. _____________________ _____%

Total 100%

Your own name should be included in the above list. It is mandatory that each team member complete this form.

Signed___________________________

Name ___________________________

Group ____________________________

Due meeting 7