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Financial Engineering to Enhance Shareholder Value

Question Description

Scenario

Fast forward to when you have successfully completed the MBAprogram. You are now a Chief Financial Officer of a large, publiclytraded company at (go ahead and insert your dream company here). Usingyour dream company, conduct extensive research on the current situationof the company using resources like the Wall Street Journal,Bloomberg, GuruFocus, Yahoo Finance, EDGAR, and the Capella library. Asthe CFO, you have been given a project by the CEO and Board of Directorsto prepare a report on ways to financially engineer the company toincrease stock price.

From the company’s website, go to the financial section and examinethe financial statements (income statement, balance sheet, and statementof cash flows) and 10K and 10Q reports, and conduct a financial ratioanalysis including the following: current ratio, debt to equity ratio,return on equity (ROE) ratio, dividend yield, earnings per share (EPS orthe last 4 quarters), price to earnings ratio (P/E), and market to bookratio. Compare these ratios to those of the company's nearestcompetitor.

Assume that the objective of upper management is to maximizeshareholder value by increasing the price of the stock. Describe thesubjective impacts (threats, opportunities, competitive edge) that areunique to the firm and its industry that you found in your research.

Based on the ratio results and research, from the following list ofways to financially engineer an increase in stock price, evaluate eachmethod, examine its pros and cons, and then select the best ways for thefirm to increase the stock price. Be as specific as you can by usingqualitative assessments without proprietary company information:

  1. Capital expenditures—new equipment, plant, machinery,marketing/advertising campaign, computer infrastructure (only choose ifyour research of the firm has discovered some specific opportunityhere).
  2. Merger/acquisition of a competitor.
  3. Stock repurchases.
  4. Dividend policy change—increase, decrease, stock split, stock dividend.
  5. Reduction of debt.
  6. Expansion into a new geographic market.
  7. Introduction of new products/services.

Your Role

You are the Chief Financial Officer of your selected company.

Requirements

The report you submit to the CEO should meet these expectations:

  • Evaluate strategies used to increase stock prices and shareholder value.
    • Analyze strategies to employ cash to potentially increaseshareholder value and the impact on financial risk of the entity, suchas capital expenditures, mergers/acquisitions, stock buybacks, dividendincreases, reduction of debt, expansion into a new geographic area, andintroduction of new projects.
  • Analyze financial statements and ratio analysis to determine the optimal strategies.
    • Describe the subjective impacts that are unique to the firm andits industry through ratio analysis of the financial statements andqualitative research.
    • Relate the analysis to the strategies.
    • Identify the pros and cons regarding each strategy. Usebehavioral models and theories to support your analysis and evaluation.Determine the best strategies, and describe how earnings and stock pricecan be increased by these choices. Comment on how the efficient markethypothesis may impact stock price with the recommendations.
  • Recommend the best strategies to gain the most optimal performance.
    • Provide justification and rationale for your recommendation.
    • Align your recommendation with analysis and data.
    • Provide examples and analysis to defend recommended strategies.
    • Connect the recommendation to methods and models of financing and investing.
  • Evaluate how the recommendation will be financed and howit will impact the capital structure and the risk of the company and theWACC.
    • Calculate the firm’s current WACC and capital structure(percentage of assets financed by liabilities versus percentage ofassets financed by shareholder equity).
    • Determine whether the firm has sufficient finances to fund yourrecommendation internally (with cash) or if it needs to raise fundsexternally.
    • If external financing is required, decide between common stock and debt (bonds) and explain the rationale for your decision.
    • Examine how your strategy recommendation will potentially impactWACC, capital structure, the overall risk of the company stock, and theeffect on the stock price.

Deliverable Format

Report requirements:
  • Ensure written communication is free of errors that detract from the overall message and quality.
  • Use at least three scholarly resources.
  • Your report should be between 8 and 10 pages.
  • Use 12 point, Times New Roman.
Related company standards:
  • This report is a professional document and should therefore followthe corresponding MBA Academic and Professional Document Guidelines(located in the MBA Program Resources), including single-spacedparagraphs.
  • Use APA-formatted references.

Evaluation

By successfully completing this assessment, you will demonstrateyour proficiency in the following course competencies throughcorresponding scoring guide criteria:

  • Competency 2: Analyze financing strategies to maximize stakeholder value.
    • Evaluate strategies used to increase stock prices and shareholder value.
  • Competency 3: Apply financial analyses to business planning and decision making.
    • Recommend the best strategies to gain the most optimal performance.
  • Competency 4: Use data to support evidence-based financial decisions.
    • Analyze financial statements and ratio analysis to determine the optimal use of cash.
    • Evaluate how the recommendation impacts the capital structure and the risk of the company and the WACC.

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