CFO Presentation Background • This is a presentation to a banker who the company wants a loan from and is a targeted financial statement analysis. • This is NOT a sales job. You are presenting the facts only regardless of how good or bad they might be. • This is a focused financial analysis and everything you talk about should be restricted to information that you think will be of use to the banker • The banker is NOT interested in lots of detail, but only in the areas that will affect the company’s ability to pay. CFO Presentation Question A1 • A1. Key Points – This is analogous to the Horizontal, Vertical and Trend Analysis in Task 1, but restricted to accounts that the banker is interested in. – The banker is concerned about Profitability, Liquidity and Solvency. – Don’t use ratios since you’ll be talking about them in A3. – State the line item, provide a status, describe why the line item is important to the banker. CFO Presentation Question A2 • A2. Risks – Put yourself into the shoes of the banker and define risks that a banker might be concerned about in looking at Custom Snowboards’ financial statements and how the company can mitigate them. – Key Thought: What is going to give the banker nightmares? What worries the banker? These are NOT internal control risks, but risks associated with poor performance of the company. – You’ll need three or so risks. You can base them on line items that you discus in A1. e.g. Declining Sales could be a risk. – You might think of writing down the risks and how CS will work to mitigate on two sides of a piece of paper to make sure you’ve got both the risks and the mitigations included with you answer. CFO Presentation Question A3 • A3. Ratio Analysis – Discuss the key ratios that a banker will be most interested to detect the company’s ability to pay the interest payments and the loan principal. Useful tab: Horizontal Analysis – ratio section. – – – – Ratios should address Profitability, Solvency and Liquidity What is the ratio? What is the current status of the ratio (like Task 1) Why is it important to the banker and the company’s ability to pay? CEO Presentation Bring the Board Up to Speed – B1, B1a, and B2 are questions that follow an informational discussion with the Board of Directors. – This is another targeted financial analysis to give the Board an idea of how the company has performed in the past three years. – Do not contemplate the European expansion. CEO Presentation Question B1 – B1. Historical Analysis – This analysis is more broad than the Key Points answer in the CFO presentation, because the Board is interested in more aspects of the company and ‘how we got here’ kind of information • Show selected accounts – Year 12 to Year 13 to Year 14 • Useful tabs: Horizontal Analysis, Vertical Analysis CEO Presentation Question B1a – B1a. Future Performance – The historical analysis is extended to project the future results of the company. The prime focus is on the past three years and how they lead up to the results forecasted in the next three years. • Outline the sales changes in dollars and percentages • The Horizontal and Vertical Analysis might provide a bit more perspective and what trends in the first three years might provide indicators of what could happen in the three future years. • Useful tabs: Trend Analysis CEO Presentation Question B2 – B2. Improvement – Discussion on what you would do to improve operational results. It is suggested to come up with at least two cost improvement programs, one being Activity Based Costing. • Useful tabs: Activity Based Costing • ABC counts as only one measure and you should bring data in from the spreadsheet that shows how Custom Snowboards can use ABC to reduce costs. • You can discuss another big program like Just In Time inventory, Six Sigma quality control or Lean Manufacturing. You need to make sure that you include discussion on how that program will benefit Custom Snowboards. – Describe the cost control program – Provide a paragraph that outlines how Custom Snowboards can specifically benefit from the program. CEO Presentation The Expansion • The rest of the task deals with your presentation to the CEO of your analysis of various aspects of the European Expansion. • B3 questions are business risks • B4, B5, and B6 are based on the same principles discussed in Task 3. – B4 – Capital Budgeting, Lease/Buy – B5 – Merger/Acquisition – B6 – Capital Structure CEO Presentation Questions B3 and B3a • B3. Internal and External Risks – Use the European expansion as the basis for risk identification. You are NOT discussing internal control risks, but general business risks. – Internal risks are things that management has some control over (e.g. technology transfer, work environment, information systems) – External risks come from outside the company (currency, regulation, economy, competition) – Suggestion: Three internal risks and three external risks – There are no tabs required for the B3 questions • B3a. Recommendation – Discuss in detail how the above identified risks will be mitigated. – Make sure that for each risk you have defined a mitigation. – Mitigations may not solve the risks, but minimize their effects. CEO Presentation Question B4 • B4. Potential Returns – This is similar to the Capital Budgeting question in Task 3, but there are no multiple scenarios. – Please state that this project is the Build a New Plant in Europe (or Direct Expansion) alternative… Not merger, not acquisition. – Define NPV and IRR. Why are they important measures? – What is the goal (hurdle rate)? – Discuss the impact of your interpretation of the result on the Build expansion option decision – Lease/Buy tab is applicable as additional financing options to be considered if the Build option is chosen. • Lease/Buy is a secondary decision AFTER you choose to build a new plant in Europe. – Useful tab: Capital Budgeting for overall discussion. Lease / Purchase tab for lease vs. purchase discussion CEO Presentation Question B5 • B5. Summary – Discuss and choose a specific expansion alternative in this question. – Discuss the Pros and Cons of Merging, Acquisition, and Build a New Plant. Suggest a separate paragraph for each alternative. You need to determine which of the alternatives are financially viable. • Build: discuss result of Capital Budgeting (B4) – Lease/Buy, if applicable – Other pros and cons. • Merger: Business combo with ESF via Stock Swap – Discuss the result of EPS affects and stock dilution effects. – Other pros and cons. • Acquisition: Business combo with ESF via Stock Purchase – What is NPV? (total present value – investment = NPV) – Other Pros and Cons • Your decision. – Useful tabs: Merge/Acquire, Capital Budgeting CEO Presentation Question B6 • B6. Presentation –Present a specific choice on best capital structure alternative for your recommendation. – State expansion choice • If merger, will it require large cash outlay? If it doesn’t will you finance the merger? • Regardless of your expansion decision, you still must discuss the capital structure as if company has to raise significant capital. – Similar to Task 3 Questions 1 and 1a, complete Capital Structure tab. – Which capital structure has optimum EPS for the entire 5 year period? That is your final financing recommendation. – Make sure you state all four capital structure alternatives along with the five-year EPS results. • Pertinent tab: Capital Structure Submission Tips • For your discussions, make your point/decision obvious and back it up with detail found in the spreadsheets. Insufficient data and insufficient analysis will result in a rejection. • Remember to always apply analysis. Don’t just put in the numbers, but explain why they are different and if you can put them in a context with other numbers do so. A lack of analysis will result in that element not passing. • Make sure you organize your work according to the rubric questions, so that the grader can easily identify your specific answers. • Don’t overthink your answers, but base them on the information given. If in doubt on details, refer back to the story line or the spreadsheet. If you find yourself guessing, it’s better not to guess and stop your discussion.