Seminar 2

Question 1

Frameworks/Structure for “financial” management analysis

Answer 1

1. Macro:
   - PESTLE
2. Industry:
   - Porter’s 5 Forces
   - Competitive Analysis (Porter’s generic strategies)
   - Product Life Cycle curve (2nd S curve)
3. Company:
4. 1 Product market strategies
   - Operating: Revenue, Costs
   - Investing: Working Capital, Fixed Asset

3.2 Financial market strategies

Question 2

When to start searching for 2nd S curve?

Answer 2

When current product is hitting its stride – launch new strategy before current biz matures

Question 3

2 types of growth strategies - which is preferred?

Answer 3

Inorganic v Organic

• change from raising money to invest in new projects to acquiring companies
• inorganic faster, organic takes ~8 years
• high growth firm with high P/E ratio: $1 profit from acquired co = $15 profits for buyer

Question 4

Preferred financing strategy (equity v debt v internal financing)

Answer 4

Internal financing > Debt > Equity

Question 5

Preferred dividend policy

Answer 5

Distributing dividend – share price of co who distribute dividend increase rapidly

Question 6

Preferred stock dividend policy doing poor markets

Answer 6

Dividend paying stocks – no capital gain

Question 7

Types and preferred shareholder return policy (S/H POV)

Answer 7

1) Share Buyback
2) Dividend

• Share price = Value of firm / # of shares outstanding.
• When company buy back, # of shares outstanding decrease, share price increase
• Share buy back have no tax implication for shareholders (capital gain) but dividends usually subjected to dividend tax

Question 8

Preferred shareholder return policy (firm POV)

Answer 8

• Maintain dividend payout
• Leftover cash used to buy common stock, especially after crashes with stock prices are cheap (too ex cannot buy)
• Buyback will increase share price (CEO’s performance measure)

Question 9

2 areas of analysis for companies

Answer 9

1) Strategy

2) Outcome