dissonetwo

Student 1

Today, the stockholders are not generally directly involved in the daily business operations and decisions made by corporations. Many corporations employ financial managers who have the professional expertise to make the best decisions on their behalf to optimize the market value of their stock (Ross et al., 2019). Outlined below are the primary business decisions companies need in their business plan.

Capital budgeting: What long-term investments should the firm take?

Capital structure: Where will the firm get the long-term financing to pay for its investments? In other words, what mixture of debt and equity should the firm use to fund operations?

Working capital management: How should the firm manage its everyday financial activities?

As the financial manager and with Josephine nearing its public offer, it is vital to examine Etsy for several reasons. They are a competitor, and their business model is comparable to Josephine's. In 2015, Etsy began life as a public firm and held its initial public offering. The company “closed at $30 a share which was an 88 percent increase from their opening offering price” (Egan, 2015, para. 2). Given my current position, there is an inherent responsibility to warn the company that successful financial outcomes for a new firm like Etsy must also be examined thoroughly with quantifiable documented data before making decisions.

In viewing Etsy’s balance sheet, it is apparent that at the end of December 2015, Etsy had a 39.8 percent increase in revenue compared to the same timeframe in 2014. Etsy’s total revenue was $273.5M on 31 December 2015. There was also an increase in the cost of revenue from 2014 to 2015. The revenue cost climbed 31.7 percent. From December 2013 to December 2015, Etsy's current assets have grown to $359.1M, with 76 percent placed in cash and equivalents and 6 percent in short-term investments. The primary growth in 2015 of $231,993M was primarily a result of the $199.6M from the IPO, which provides vital investment opportunities for Etsy. The company now has a means of funding expansion projects in technology.

To support the development, G&A expanded at 32.8 percent or +$6.1M. However, G&A growths were higher than technology enhancements for future customer satisfaction at +$6.1M or +16.5 percent. Investments for Etsy have been quite lucrative, and the company has expanded fast. They invested+$27.1M to grow its labor force and training, +68.4 percent.

The current investment strategies taken by Etsy are vital to compete in today’s competitive market. However, as investments rise, liabilities also raise both current and total. They increased by +55 percent. Etsy could establish a contract with Skrill to help reduce their accounts payable which currently accounts for 21 percent of their total liabilities. Another area of concern is the deferred long-term liability charges of 61.4M. 

From a liquidity standpoint, Etsy has a current ratio of 4.48, and the company as it stands to date is stable financially. However, they do have a high debt ratio of 0.4. They are using their debt as a financial influence to enhance their stock value and the firm. Because the company has a high debt ratio, it could pose a risk for the company in the long term. However, if the market is stable and consistent, it could yield positive results.

As it pertains to stocks and investing, Etsy does not distribute dividends. More importantly, they primarily base shareholder value on the rise in stock values. The balance sheet shareholder equity for Etsy is $329,498M. It is an indication that they are in good standing with book value.

The business models are comparable in e-commerce. The outcomes will hinge on technology to push new and retained accounts along with market growth. The nature of Josephine, as opposed to Etsy, might be different. Etsy has proven its ability to expand and penetrate the market quickly. They grew from 29 percent to 50 percent. Etsy generated a significant amount of money through its IPO. They can use the revenue to invest in forthcoming opportunities. However, they will still need cash revenue to keep their creditors satisfied. The firm shows significant losses ($54M in 2015 and $15.2M in 2014). The growth of Etsy shows they have great potential. Some projects appear to be promising in the future. Most increase book prices and typically have a substantial shareholder amount. They can show the capital surplus. With close over-watch and control, the model could be rewarding for Josephine.

Katrina

References:

Egan, M. (2015). Etsy now worth over $3 billion. Stock jumps 88% after IPO.

            CNN Money. https://money.cnn.com/2015/04/15/investing/etsy-ipo-16-a-share-

 (Links to an external site.)

            wall-street/

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of corporate

            finance (12th Ed.). New York, NY: McGraw-Hill Companies, Inc.

Securities and Exchange Commission. (n.d.). 10-K

Student 2

D1: Etsy and the Long Haul

Hi, Dr. Halstead and Classmates - as a finance director for Josephine, I aim to provide prudent and reasoned financial advice given a review of our financial statements and will look to glean insights from similarly structured organizations that connect customers to local providers, such as Etsy. 

Present your findings to Josephine’s chief executive officer, speaking as Josephine’s finance director. Evaluate evidence found in Etsy’s basic financial statements that may be interpreted as reflecting managerial goals, features of the firm’s unique operational structure, and high growth:

a. Using the balance sheet identity (which implies that assets must be equal to liabilities plus owners’ equity)

After reviewing Etsy's balance sheet as a potential corollary to our business at Josephine, the first data point I analyzed was the balance sheet identity. To do so, I looked at the calculation of Assets = Liabilites + Stockholders' Equity. In the case of Etsy's reviewed financial statement, those values were, $553,061 = $222,563 + $330,498.  Given that my role as a finance director is to help generate profits for shareholders and inform the management team on how best to accomplish that financially, the 2015 balance sheet identity for Etsy shows $330,498 in equity for this period. Josephine is a growing company, and in this regard, the balance sheet identity of Etsy in 2015 gives us a good reference to model ourselves after. If we were a more mature company with steady cashflow and a pipeline of revenue generating products, I would expect to see a much higher stockholder equity value. 

b. Using the cash flow identity (which implies that cash flow from assets must equal cash flow to creditors plus cash flow to stockholders)

Moving on next to item, the cash flow identity, we leverage the calculation of Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders. Examining this further we show that the operating income is largely being derived from the issuance of equity and not from revenue from normal operations - we have a negative net income of -$54,063 in that regard. That isn't necessarily a concern in an early stage company that is still acquiring customers and values growth over profits. While it seems that Etsy is growing, they are using stock issuance to finance their operations - this is feasible during a growth phase, but not something we would recommend as a sustainable model. Managerially, if we take this approach, we must be strategically thinking about how to convert from a growth phase to a revenue generating phase. 

c. Examining the need to distinguish between book and market values.

Finally, I assessed book vs. market values which shows me for the book value that we have $330,498 vs. a market value, or market capitalization in 2015 of $920 million. Looking at the market capitialization as the factor determining the viablity for shareholders, Etsy represents a very strong value proposition on that standing given its balance sheet. Although we would want to see a higher book value for Josephine, the market value of Etsy is something to strive to emulate. 

After reviewing Etsy's financial statements, I would recommend monitoring their year-over-year progress to model, to a degree, how they grew their business, however they did experience some negative net income events that we'll have to be mindful of shareholders in those situations. 

Thanks,

- Tom

References

Etsy (2016). Annual report

Josephine. (n.d.) Home cooked meals from your community

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance Twelfth Edition. McGraw-Hill Education. New York, NY.