Financial Analysis and Forecasting There's More to Us Than Meets the Eye! "Scott, the board of directors' meeting is scheduled two weeks from today, and I'm depending on you to come up with a realistic and honest appraisal of our company's position," said Tom, to his assistant Scott Beasley. "I'm sure that 'there's more to us than meets the eye!'" euipped. "But those darn analysts are still punishing us for ogers ogers accounting #ugglery!" he said with a frown. $%hy don't you prepare prepare a detailed &nancial performance analysis of the &rm for the most recent three years, complete with industry comparisons and a u(ont )nalysis* It will help me make thecae to the rating agencies that they need to raise our rating. $)fter that, I'd like you to prepare a +month pro-forma forecast using a scenario analysis. se our current current a/erage compound growth rate in sales as the base estimate and /ary that up and down by +01 for the best case and worst case scenarios respecti/ely. respecti/ely. This will help us &gure out how much additional funds we are going to ha/e to acuire o/er the ne2t year. The (roduction folks tell me that we are currently operating at 301 of capacity, so we should be able to support some growth without additional plant and euipment," he added looking rather stressed. Tom Tom )nderson, the new 456 of The (remier (remier (aper (aper 4o, was hired last last year to replace oger oger 7olland. oger was &red because the &rm had come under 5ederal 5ederal in/estigation for non-compliance of the Sarbanes-62ley )ct 8009. nder oger's watch, the stock had plummeted to its all-time a ll-time low despite reasonably strong sales and income growth. Tom Tom implemented implemented /arious measures to bring the &rm incompliance incompliance with the 00 )ct. The &rm's sales had been increasing steadily due to its e2cellent commitment to uality. 7owe/er, the stock market analysts had been unforgi/ing in that the stock price was still ho/ering around its all-time low of :+.The signi&cant growth rate that the &rm had been e2periencing had necessitated the infusion of more capital. But lenders were reluctant to lower the interest rates due to their suspicions about the &rm's past reporting practices. Tom Tom had a hunch that tha t the company could sa/e bundle in interest costs if the markets markets were con/inced that the &rms accounting and reporting reporting practices were clearly clearly within the Sarbanes-62ley guidelines. 7e knew that an upward hike in the &rm's credit rating would help e2pedite the process. ;oreo/er, when he took o/er from oger, Tom reali
employer, =astern (aper. Scott had been working for =astern for o/er +0 years. %hen the opportunity came up, Scott initially hesitated. 7e was en#oying a fairly comfortable lifestyle and the city had a lot to o>er. But Tom made him an o>er that he found /ery hard to refuse. The remuneration package included a /ery attracti/e stock option plan as well as a signing bonus. ;oreo/er, Scott knew that Tom was an honest, ethical person and he en#oyed working for him. "I'll get on it right away, Tom," promised Scott. "%e'll show those dumb analysts #ust how wrong they are! "Scott had the folks in accounting send him the &rm's &nancial statements for the past three years along with the aggregate &nancial statements for the select group of ? &rms that were their main competitors. In addition, he collected data regarding the &rm's sales history, its beta estimate, and other market information. Scott was fully aware that the &rm's stock price and capital cost structure depended on his analysis and he was determined to present a comprehensi/e and con/incing appraisal of the &rm's performance to the board.
Questions: +. sing a cash @ow statement for the most recent year, e2plain how Scott would sum up the company's cash position. . )naly
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