Growth Analysis – Organic & Merger/Acquisition
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mergergrowth.docxCompany : WalMart
Growth Analysis – Organic & Merger/Acquisition
(Rev. 030917)
MAKE SURE THAT YOU DOWNLOAD THE FILE SO THAT THE ATTACHMENTS ARE VISIBLE
Students may elect to use the eVal Financial Forecasting Model or Prof. Stevens’ Excel Financial Forecasting model for this assignment.
The assignment requires two separate financial projections – one examines the organic growth alternative and the other examines the merger/acquisition alternative.
If the eVal model is selected, make sure that financial information is available for the company that is selected for the assignment (See: http://www.lundholmandandsloan.com). Similarly, if Prof. Stevens’ model is used for the assignment make sure that financial information is available (e.g., Yahoo Finance, etc.).
The two (organic and merger/acquisition) growth forecast Excel models (using either eVal or Prof. Stevens’ model) must be submitted with the assignment.
Assignment
Using the company selected for the assignments, determine two growth strategies for the selected company (one strategy shows organic growth, the other shows merger or acquisition).
Prepare financial projections using eVal or Prof. Stevens’ Financial Forecasting Model for the two growth strategies. The projections need to show the results of company operations following implementation of each strategy.
Then, prepare a written analysis and recommendation for the growth strategy that is recommended for the selected company and defend the recommendation.
The assumptions used in No. 1 and No. 2 below must be summarized using one of the sample tables provided below. The Excel file with the assumptions also must be submitted with the assignment.
The analysis needs to include:
1. Explanation and Analysis of Assumptions and Results of the Projections for Organic Growth Strategy – Explain the assumptions that are used in the projections. Discuss the results of the organic growth strategy along with its strengths and weaknesses. These data must be summarized in the table format provided below, which must be included and then discussed in the written analysis.
2. Explanation and Analysis of Assumptions and Results of the Projections for Merger or Acquisition Growth Strategy – Explain how the balance sheets and income statements were combined and some initial observations about the financial statements of the combined company. Explain the assumptions that are used in the projections. Discuss the results of the merger/acquisition growth strategy along with its strengths and weaknesses. These data must be summarized in the table format provided below and then discussed in the written analysis.
3. Examination and Discussion of Comparison of Results of the Growth Strategies – Compare and discuss the two growth strategies. This analysis should include an examination of the comparative strengths and weaknesses of the strategies. This analysis must include data that compare a number of indicators of performance (e.g., ratios, revenues, costs, profitability, growth, etc.)
These data must be presented in a table showing a comparison of the results of the two forecasts. The data in the tables are then to be discussed in the written analysis. Preparing a table comparing the resulting ratios is a good method to make the comparisons.
4. Recommendation and Justification of Most Appropriate Growth Strategy – Recommend and justify which growth strategy is most appropriate for the company.
Writing Instructions
The discussion portion of the analysis should be three to five pages in length, double spaced, and should employ APA style and format for reference citations. Supporting data (e.g., figures, tables, etc.) and references should be submitted limited to four separate attachments in an appendix after the written portion of the paper.
The paper should begin with a short introduction and then proceed to examine the four topics outlined in the previous section.
The subheadings used in the paper must be:
1. Introduction
2. Explanation and Analysis of Assumptions and Results of eVal Projections for Organic Growth Strategy
3. Explanation and Analysis of Assumptions and Results of eVal Projections for Merger or Acquisition Growth Strategy
4. Examination and Discussion of Comparison of Results of the Growth Strategies
5. Recommendation and Justification of Most Appropriate Growth Strategy
Evaluation: 12.5% of final course grade.
Completeness of analysis: The analysis must demonstrate a solid understanding organic growth and growth by merger and acquisitions. All assumptions used in preparing the projections for the project need to be thoroughly explained.
Organization: The paper should be well-organized and follow a logical pattern of analysis and discussion.
Presentation: Papers should meet professional business standards and meet APA formatting requirements.
Spelling, punctuation, and grammar: There should be few errors in grammar and punctuation. All sentences must be complete and well-structured.
Submission and Format: The completed paper is to be submitted to the “Gradebook” location designated for the assignment. The paper must be in Word format otherwise no credit is earned for the assignment. The two projection models (organic growth and merger/acquisition) must also be submitted.
The paper is also to be submitted to the Online Classroom. This will allow students to examine and discuss the various projects.
Required Submissions:
Assignment 4 – Suggestions for Preparing the Financial Forecasts
Assignment 4 requires the preparation of two separate financial forecasts, one for the Organic Growth Strategy, the other for the Merger/Acquisition Strategy.
Either the eVal Excel Forecasting Model of the Prof. Stevens Excel Financial Forecasting Model can be used for the forecasts.
Using eVal Excel Financial Forecasting Model – Suggestions
Organic Growth Strategy Forecast
The Organic Growth Strategy forecast should reflect the anticipated performance of the company if it implements the strategy that you have developed.
Your assumptions should be developed using the “eVal Assumptions for Organic Growth & Merger / Acquisition Strategies” Excel worksheet that is provided with the Assignment 4 materials in the online classroom. These assumptions then need to be entered into the “Forecasting Assumptions” section of the eVal Financial Forecasting Model. The eVal model will then prepare the Organic Growth Strategy forecast and the output will be reflected in the various eVal worksheets.
This step can be done by updating the eVal model that you prepared for Assignment 1. Alternatively, you can start with a fresh eVal model (download from the online classroom).
Merger & Acquisition Strategy Forecast
The Merger & Acquisition Strategy forecast should reflect the anticipated performance of the company after it acquires (or merges with) another firm.
The first step in preparing this forecast is to adjust the existing financial statements (balance sheet and Income statement) to reflect the most recent annual performance of the company. Essentially, this means that it is necessary to combine (add together) and enter into eVal the combined balance sheet and income statement data of the company as it would appear following the acquisition or merger. This adjustment is completed in the “Financial Statements” worksheet in the eVal model (go to the “Financial Statements” workbook and scroll down to the bottom of the worksheet and locate the “Raw Data Inputs” section). It is only necessary to update the most recent balance sheet and income statement data (the last column of data) in the “Raw Data Inputs” section of the worksheet.
The second step is to return to the Excel input sheet (“eVal Assumptions for Organic Growth & Merger / Acquisition Strategies”) that was prepared for the Organic Growth Strategy (see above). Then, proceed to record and explain your forecasting assumptions for the combined company following the merger or acquisition. These assumptions then need to be entered into the “Forecasting Assumptions” section of the eVal Financial Forecasting Model. The eVal model will then prepare the Organic Growth Strategy forecast and the output will be reflected in the various eVal worksheets.
Using Prof. Stevens Excel Financial Forecasting Model – Suggestions
Organic Growth Strategy Forecast
The Organic Growth Strategy forecast should reflect the anticipated performance of the company if it implements the strategy that you have developed.
Your assumptions should be developed using the “Assumptions for Prof. Stevens Financial Projection Model” Excel worksheet (Forecast Organic Growth column) that is provided with the Assignment 4 materials in the online classroom. These assumptions then need to be entered into the “Forecast Organic Growth - % of Current Sales or Assets” column of the “Inputs” worksheet (first worksheet) of the Prof. Stevens Financial Projection Model. The “Next Year Forecast“ data need to be inserted in the “Additional Inputs” section of the second worksheet in the model (at the bottom of the “Inputs & Projections” worksheet). The Excel model will then prepare the Organic Growth Strategy forecast and the output will be reflected in the various worksheets of the model.
This step can be done most efficiently by updating the Prof. Stevens Financial Projection Model that you prepared for Assignment 1. Alternatively, you can start with a fresh copy of the model (download from the online classroom), which will require reentering the financial statement data.
Merger & Acquisition Strategy Forecast
The Merger & Acquisition Strategy forecast should reflect the anticipated performance of the company after it acquires (or merges with) another firm.
To prepare this forecast it is necessary to adjust the existing financial statements (balance sheet and Income statement) to reflect the most recent annual performance of the combined company. Essentially, this means that it is necessary to combine (add together) and enter into the Prof. Stevens Financial Projection Model the combined balance sheet and income statement data of the company as it would appear following the acquisition or merger. This adjustment is completed in the “Income Statement” and “Balance Sheet” sections of the “Inputs” worksheet (the first worksheet in the model). Make sure that the balance sheet balances (the worksheet tests for balance in a calculation at the bottom of the worksheet).
Your assumptions for this forecast should be developed using the “Assumptions for Prof. Stevens Financial Projection Model” Excel worksheet (Forecast Merger/Acquisition” column) that is provided with the Assignment 4 materials in the online classroom. Proceed to locate the column headed “Forecast Merger/Acquisition” (the second column). These assumptions then need to be entered into the “Forecast Organic Growth - % of Current Sales or Assets” column of the “Inputs” worksheet (first worksheet) of the Prof. Stevens Financial Projection Model. The “Next Year Forecast“ data need to be inserted in the “Additional Inputs” section of the second worksheet in the model (at the bottom of the “Inputs & Projections” worksheet). The Excel model will then prepare the Organic Growth Strategy forecast and the output will be reflected in the various worksheets of the model.
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GRADING RUBRIC FOR GROWTH ANALYSIS - ORGANIC & MERGER/ACQUISITION |
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Student: |
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Description of Evaluation |
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Failing, undeserving of credit |
Passing, but below standard |
Satisfactory, meets essential requirements |
Superior Work and clearly above average |
Work of Distinction |
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Related Grade |
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F |
D-, D, D+ |
C-, C, C+ |
B-, B, B+ |
A-, A, A+ |
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Category |
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Input |
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Required Topics |
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Grade |
Points |
Weight |
Score |
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1. Introduction - Provide a brief overview of the assignment and include a preview of the contents of the report. |
Introduction is not presented or undeserving of credit. |
Only a superficial effort to develop the introduction. |
Satisfactory presentation of the introduction. |
Superior presentation of the introduction and clearly above average. |
Distinctive and very thorough presentation of this first section. |
A+ |
98 |
15.00% |
14.70 |
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2. Explanation and Analysis of Assumptions and Results of eVal Projections for Organic Growth Strategy – Explain the assumptions that are used in the projections. Discuss the results of the organic growth strategy along with its strengths and weaknesses. |
Virtually no effort to explain the variables used in the organic growth projections or results of the analysis; or, section not completed. |
Marginally passing development and presentation of the description of the variables used in the organic growth strategy and the results. May be some significant weaknesses in the overall description and related financial data. |
Satisfactory development and presentation of the description of the variables used in the organic growth analysis and the results. |
Superior development and presentation of the description of the variables used in the organic growth analysis and the results. The analysis is understandable and the cash flows seem to be relatively realistic. |
Distinctive development and presentation of the description of the variables used in the organic growth analysis and the results. The assumptions and the cash flows are clear, realistic, and understandable. |
A+ |
98 |
17.00% |
16.66 |
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3. Explanation and Analysis of Assumptions and Results of eVal Projections for Merger or Acquisition Growth Strategy - Explain the assumptions that are used in the projections. Discuss the results of the merger/acquisition growth strategy along with its strengths and weaknesses. |
Virtually no effort to explain the variables used in the merger/ acquisition growth projections or results of the analysis; or, section not completed. |
Marginally passing development and presentation of the description of the variables used in the merger/ acquisition growth strategy and the results. May be some significant weaknesses in the overall description and related financial data. |
Satisfactory development and presentation of the description of the variables used in the merger/ acquisition growth strategy and the results. |
Superior development and presentation of the description of the variables used in the merger/ acquisition growth strategy and the results. The analysis is understandable and the cash flows seem to be relatively realistic. |
Distinctive development and presentation of the description of the variables used in the merger/ acquisition growth strategy and the results. The assumptions and the cash flows are clear, realistic, and understandable. |
A+ |
98 |
17.00% |
16.66 |
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4. Examination and Discussion of Comparison of Results of the Growth Strategies – Compare and discuss the two growth strategies. This analysis should include an examination of the comparative strengths and weaknesses of the strategies. |
Virtually no effort to develop a strengths and weaknesses analysis of the two growth strategies; or, section not completed. |
Marginally passing development and presentation of the strengths and weaknesses of the two growth strategies. May be some significant weaknesses in the overall description and interpretation of the financial data and results. |
Satisfactory development and presentation of the strengths and weaknesses of the two growth strategies. May be some weaknesses in the description of the data and interpretation of the results. |
Superior development and presentation of the description of the strengths and weaknesses of the two growth strategies. The analysis is understandable and the results seem to be relatively realistic. |
Distinctive development and presentation of the strengths and weaknesses of the two growth strategies. The assumptions and results are clear, realistic, and understandable. |
A+ |
98 |
17.00% |
16.66 |
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5. Recommendation and Justification of Most Appropriate Growth Strategy – Recommend and justify which growth strategy is most appropriate for the company. |
Virtually no effort to develop and support an appropriate recommendation; or, section not completed. |
Marginally passing development and presentation of a recommendation and supporting justifications. May be some significant weaknesses in the overall description and interpretation of the financial data and results. |
Satisfactory development and presentation of a recommendation along with supporting justifications. May be some weaknesses in the description of the data and interpretation of the results. |
Superior development and presentation of a recommendation along with supporting justifications. The analysis is understandable and the results seem to be relatively realistic. |
Distinctive development and presentation of a recommendation along with supporting justifications. The assumptions and results are clear, realistic, and understandable. |
A+ |
98 |
17.00% |
16.66 |
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6. Writing, Grammar, Spelling, & Presentation - Logical and Smooth Flowing Transitions and Relationships Among Sections of the Written Report. Avoidance of Personal Pronouns; Avoidance of Referring to Company as They, Their, or Them; etc. Appropriate use of reference citations. |
Paper is poorly written and presented; not worthy of a passing evaluation. May have failed to use appropriate subheadings for the assignment. |
Passing written presentation; may have major weaknesses. |
Satisfactorily written presentation with some weaknesses. |
Superior written presentation with very limited minor weaknesses, omissions, etc. |
Distinctively written presentation with no obvious weaknesses. |
A+ |
98 |
17.00% |
16.66 |
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1
Table 1
eVal Assumptions for
Organic Growth & Merger / Acquisition Strategies
Company Name
McCormick & Co., Inc.
Current Year
Forecast
Organic
Growth
Forecast
Merger /
AcquisitionExplanation of Assumptions
Income Statement Assumptions
Sales Growth
2.9%2.9%2.9%
Cost of Goods Sold/Sales
57.3%57.3%57.3%
R&D/Sales
1.5%1.5%1.5%
SG&A/Sales
25.0%25.0%25.0%
Dep&Amort/Avge PP&E and Intang.
3.1%3.1%3.1%
Net Interest Expense/Avge Net Debt
3.9%3.9%3.9%
Non-Operating Income/Sales
0.6%0.6%0.6%
Effective Tax Rate
25.0%25.0%25.0%
Minority Interest/After Tax Income
-19.3%-19.3%-19.3%
Other Income/Sales
0.0%0.0%0.0%
Ext. Items & Disc. Ops./Sales
0.0%0.0%0.0%
Pref. Dividends/Avge Pref. Stock
0.0%0.0%0.0%
Balance Sheet Assumptions
Working Capital Assumptions
Ending Operating Cash/Sales
2.0%2.0%2.0%
Ending Receivables/Sales
11.6%11.6%11.6%
Ending Inventories/COGS
29.4%29.4%29.4%
Ending Other Current Assets/Sales
2.9%2.9%2.9%
Ending Accounts Payable/COGS
15.3%15.3%15.3%
Ending Taxes Payable/Sales
0.0%0.0%0.0%
Ending Other Current Liabs/Sales
-18.4%-18.4%-18.4%
Other Operating Asset Assumptions
Ending Net PP&E/Sales
14.2%14.2%14.2%
Ending Investments/Sales
6.3%6.3%6.3%
Ending Intangibles/Sales
48.4%48.4%48.4%
Ending Other Assets/Sales
1.7%1.7%1.7%
Other Operating Liability Assumptions
Other Liabilities/Sales
8.5%8.5%8.5%
Deferred Taxes/Sales
2.5%2.5%2.5%
Financing Assumptions
Current Debt/Total Assets
6.1%6.1%6.1%
Long-Term Debt/Total Assets
23.0%23.0%23.0%
Minority Interest/Total Assets
0.4%0.4%0.4%
Preferred Stock/Total Assets
0.0%0.0%0.0%
Dividend Payout Ratio
43.9%43.9%43.9%
Table 1
Assumptions for
Prof. Stevens' Financial Projection Model
Company Name
Forecast
Organic
Growth
Forecast
Merger /
Acquisition
Inputs (First Page)
% of Current
Balance OR
Forecast If
Different
% of Current
Balance OR
Forecast If
Different
Cost of Sales %
0.00%0.00%
Explanation of Assumptions
Selling/General/Administrative
Expenses %
0.00%0.00%
Other Expenses %
0.00%0.00%
Other Expenses%
0.00%0.00%
Cash %
0.00%0.00%
Accounts Receivable %
0.00%0.00%
Inventories %
0.00%0.00%
Other Current Assets %
0.00%0.00%
Other Current Assets %
0.00%0.00%
Other Assets %
0.00%0.00%
Other Assets %
0.00%0.00%
Other Assets %
0.00%0.00%
Other Assets %
0.00%0.00%
Accounts Payable %
0.00%0.00%
Notes Payable %
0.00%0.00%
Other Current Liabilities %
0.00%0.00%
Other Current Liabilities %
0.00%0.00%
Other Long-Term Liabilities %
0.00%0.00%
Other Long-Term Liabilities %
0.00%0.00%
Other Equity %
0.00%0.00%
Inputs & Projections (2nd Page - Bottom)
Next Year
Forecast
Next Year
Forecast
Growth Rate for Sales Revenues
(%)
0.0%0.0%Explanation of Assumptions
Growth Rate for Other Revenues (%)
0.0%0.0%
Other/Extraordinary Items $ ( + ) or
( - )
$0.00.0%
New Long-Term Debt $ (+)
$0.00.0%
Common Stock Dividends $ (+)
$0.00.0%
(90% to Paid-in Cap. & 10% to
Com. Stk. ) New Common Stock
Issued $ (+)
$0.00.0%
(90% from Paid-in Cap. & 10% from
Com. Stk.) Common Stock
Repurchased $ (-)
$0.00.0%
Preferred Stock Issued $ (+)
$0.00.0%
Preferred Stock Redeemed $ (-)
$0.00.0%
Preferred Stock Dividend Rate (%)
0.0%0.0%
Tax Rate % (+)
0.0%0.0%
Depreciation Rate as Percent of
Gross Fixed Assets % (+)
0.0%0.0%
Capital Investments / New Fixed
Assets $ (+)
$0.00.0%
Interest Expense for Short-Term &
Long-Term Debt % (+)
0.0%0.0%
Interest Income % (+)
0.0%0.0%
