COURSE OUTLINE     IBA2  Summer 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 

 

Optional Texts: Finance for Managers, Harvard Business School Press

                          Higgins(6th or 7th ed) Analysis for Financial Management, Irwin

 

Reminder: Set up team meeting schedule. Would some groups prefer to meet in the afternoon or early evening?

 

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

 

Copies of reports prepared by groups in prior semesters are available in the finance department office for your perusal. These reports should give you an indication of 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. The business plan should also include a Balanced Scorecard and an IT plan.

 

The business plan should include:

 

1. An executive summary (maximum three pages), that focuses on a particular target audience for whom 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, financial forecasts, firm profitability, firm valuation, financial viability and other areas as needed. You should 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.

 

Your forecasts should be dependent on the general economic environment. 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.

 

14. An IT plan which is due next to last class. Be sure to include in the project a comment on how the IT plan would have affected your financial forecasts if it had been done prior to the start of IBAII.

 

15. A Balanced Scorecard, which essentially attempts to translate an organization’s mission statement and business drivers into a series of defined metrics. The scorecard cascades down from the uppermost levels of the company, ultimately providing a personal scorecard for each member of the organization. It develops the roadmap that lets companies identify the key goals they want to achieve and how to get there.

 

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

 

Week 1              Orientation and Instruction

 

Week 2              Instruction and Q&A sessions. Most recent financial statements templates and
                            time schedule for your IBA 1 action plans (Gantt type chart) are due. Include cost estimates
                            of your action plans from IBA1   

 

Week 3              Instruction (if needed), Year 0 (with revisions) and Year 1 financial statements are due.                         

 

Week 4              Year 2 and 3 financial statements are due.

                                                   

Week 5              All five years financial statements are due. (Class meeting to discuss remaining topics?)

                         

Week 6              Worst-case (tweak exercise) financial statements are due.      

                                                                       

Week 7              Ratio analysis, valuation and Balanced Scorecard are due.

 

Week 8              Executive summary and other written analysis components of the report are due.

 

Week 9              Preliminary copy of the final report, IT plan and peer evaluation are due.

 

Week 10             Submit your final reports. Instructor evaluation.                           

 

 

 

 

 

 

 

 

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 every student completes and turns in this form. Your honest appraisal of every group member’s contribution, including your own, is appreciated.

 

 

 

 

 

                                                                                                                          
                                                       Signed___________________________

 

                                                                                                         

                                                                              Name ___________________________

 

 

                                                                             Group ____________________________

 

 

Due week 9