MBA FPX 5014 Assessments 3 Financial Engineering to Enhance Shareholder Value

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MBA FPX 5014 Assessments 3 Financial Engineering to Enhance Shareholder Value

Student Name

Capella University

MBA-FPX 5014 Applied Managerial Finance

Prof. Name

Date

Introduction

This presentation provides a summary of the initiative and measures taken to discover methods of generating greater shareholder value. Maria Gomez, the founder and president of ABC Healthcare Corporation, entrusted the Finance Team with the task of finding ways to improve the company and its long-term financial health.

Overview

Summary of analysis
Data and information used during analysis
Recommendations
Tactical Objectives
Financial Tools

Summary Report: Financial Condition Analysis

Deliverables
Overall Financial Analysis
Financial Ratio Analysis
Trend Analysis
Competitive Comparative Analysis
Recommendations
Summary

The goal of the financial condition analysis was to focus on ways to enhance stakeholder value. Financial Analysts evaluated computations to provide insights into the company’s business decisions, compared ABC Healthcare to industry competitors, and assessed ABC’s overall financial health.

Summary: Evaluation of Capital Projects

Deliverables
Capital Project Evaluation
Decision Recommendations
Summary

The goal of evaluating capital projects was to understand the capital budgeting tools used to evaluate potential investment projects. After reviewing each project, the finance team recommended the best investment project that would bring the most value to the company.

Overall Financial Health: ABC Healthcare Corporation

ABC Health does not appear to be competitive compared to industry standards.
After comparing ABC Healthcare to HCA Healthcare, the company is also below financial trends.
Positives were shown in areas such as the price-to-earnings and price-to-book ratio.
Overall, ABC Healthcare Corporation is undervalued and should consider the recommendations provided in the financial condition analysis.

Data used for the Financial Condition Analysis

Price/Ratio	Ratio	2019	2018	2017
Market Price		83.62	83.62	83.62
Book Value per Share		199.1	209.05	226
Price to Book Ratio		0.42	0.40	0.37
Price/Earnings Ratio	2019	83.62	83.62	83.62
Market Price	2023	6.91	7.87	9.15
Earnings Per Share		12.10	10.63	9.14

Financial Condition Analysis – Trend Analysis

Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data (Hayes, 2021). A trend analysis gave the team insight into the short-term steps that can be taken for longer-term gains. It is clear from the earnings ratio chart that the market price will remain the same. A decrease in earnings per share shows an increase in the price-to-earnings ratio. It is important to keep an eye on the price-to-book ratio as it continues to increase because it measures how much equity shareholders will pay for the net assets value of the company.

Recommendation to Increase Shareholder Value

Shareholder Value (SHV) is the value to an investor of owning a single share in your company (What is shareholder value? 2018). Increasing the company’s shareholder value is crucial to ABC’s success. The following action items were recommended to increase shareholder value:

Maximizing Profitability:
- Decrease costs by lowering unnecessary testing and providing more quality service to customers.
Minimizing Debt:
- Pay off company debts to positively impact investors and generate more revenue.
Paying Dividends:
- Pay dividends to shareholders for a short-term return on investment, increasing the value of company shares.

Evidence-Based Financial Decisions: Capital Projects

Project A: Major Equipment Purchase

Cost: $10 million
Projected to reduce cost of sales by 5% per year for 8 years.
Safe investment with a required rate of return of 8%.

Project B: Expansion Into Three Additional States

Forecasted to increase sales/revenues and cost of sales by 10% per year for 5 years.
Start-up costs: $7 million, upfront needed investment in net working capital: $1 million.
Risky investment with a required rate of return of 12%.

Project C: Marketing/Advertising Campaign

Cost: $2 million per year for 6 years.
Forecasted to increase sales/revenues and costs of sales by 15% per year.
Moderate-risk investment with a required rate of return of 10%.

Evidence-Based Financial Decisions: Financial Data- Advertising/Marketing Campaign

Net Present Value: $33,470,904
Internal Rate of Return (IRR): 90.36%
Payback Period: 1.23
Profitability Index (PI): 4.84

Tactical Objectives

Carry only assets that maximize value.
Focus on high value-added activities, such as a marketing and advertising campaign.
Return cash to shareholders when there are no credible value-creating opportunities.
Reward middle managers and frontline employees for delivering superior performance on key value drivers.

Financial Tools

Financial Statements: Provide updates on the company’s financial position, performance, and changes.
Financial KPIs: Monitor profitability, liquidity, solvency, efficiency, and valuation.