Module 8 – Homework Help

 

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Scenario

You have almost completed your analysis of Companies A and B and are scheduled to deliver your proposal to the board. While researching to ensure accurate and up-to-date data, you learn that two of Company B’s aircraft have been grounded over the past couple of months due to technical issues, one of which could have been an FAA safety violation.

The subsequent investigations, technical repairs, and grounded flights have led to a 10% drop in their revenue over the last month. Mitigation expenses have added about $80,000 to their operating costs. Company B has also suffered negative customer feedback due to some of the ground crew’s mishandling of the situation.

In this assignment, you will write an executive summary to capture the situation and share your analysis and perspective on how these safety issues might affect your acquisition recommendation.

Prompt

Write an executive summary describing the newly discovered concerns and your analysis of the situation at Company B.

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Specifically, you must address the following rubric criteria:

  • Summarize the safety issues and their direct impact on the company over the past month.
  • Describe how this news affects factors other than revenue, which will then affect the company’s value.
  • How does this affect your initial performance evaluation and analysis of the company?

    Do you see any additional risks? Explain.

  • Will it impact your recommendation about acquisition? Why or why not?

    What additional information about this situation will you need to make your final decision?

Guidelines for Submission

Submit a 1- to 2-page Word document using double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style. Consult the

Shapiro Library APA Style Guide

for more information on citations.

COMPANY B

Three

Year Data

COMPANY B

2,910

1,354 1,354

1,800

21

2017 2018 2019

90,000

33,685 33,685

Shareholders’ Equity

124,316 123,236 113,301

2017 2018 2019

Net Earnings 2,025 (529) 79

2,814 2,806 2,776

25

)

)

)

(2,706) (2,400) (2,800)

of Debt

– –

– – –

– – (10,000)

82,445 82,914

82,445 82,914 72,944

Accounts Receivable 1,380 1,297 1,336
Inventory 3,078 2,018 1,989
Accounts Payable 1,560 1,009 995

2,306

(10,312) (592) 25

37,413 37,007

2,706 2,400 2,800

2,814 2,806 2,776

37,413 37,007 37,032

90,000 90,000 90,000

Issuance (repayment) – – (10,000)

90,000 90,000 80,000

2,700 1,800 1,800

B_CO_FINANCE Learner Copy Rev 3/14/

21
Illlustrative Data for Educational Purposes
All values shown are in thousands.
2017 2018 2019
Income Statement
Revenue 27,981 26,302 27,091
Cost of Goods Sold (COGS) 15,389 18,411 18,151
Gross Profit 12,591 7,891 8,940
Expenses
Salaries and Benefits 2,910 2,600
Rent and Overhead 1,354
Depreciation and Amortization 2,814 2,806 2,776
Interest 2,700 1,800
Total Expenses 9,778 8,560 8,840
Earnings Before Tax 2,813 (669) 100
Taxes 788 (141)
Net Earnings 2,0

25 (529) 79
Balance Sheet
Assets
Cash 82,445 82,914 72,944
Accounts Receivable 1,380 1,297 1,336
Inventory 3,078 2,018 1,989
Property and Equipment 37,413 37,007 37,032
Total Assets 124,316 123,236 113,301
Liabilities
Accounts Payable 1,560 1,009 995
Debt 90,000 80,000
Total Liabilities 91,560 91,009 80,995
Shareholders’ Equity
Equity Capital 33,685
Retained Earnings (929) (1,458) (1,379)
32,756 32,227 3

2,306
Total Liabilities and Shareholders’ Equity
Cash Flow Statement
Operating Cash Flow
Plus: Depreciation and Amortization
Less: Changes in Working Capital (10,312) (592)
Cash from Operations 15,151 2,869 2,830
Investing Cash Flow
Investments in Property and Equipment (

2,706 (

2,400 (

2,800
Cash from Investing
Financing Cash Flow
Issuance (repayment) (10,000)
Issuance (repayment) of Equity
Cash from Financing
Net Increase (decrease) in Cash 12,445 469 (9,970)
Opening Cash Balance 70,000
Closing Cash Balance
Supporting Schedules
Working Capital Schedule
Net Working Capital (NWC) 2,898 2,331
Change in NWC
Depreciation Schedule
PPE Opening 37,521
Plus Capex
Less Depreciation
PPE Closing
Debt and Interest Schedule
Debt Opening
Debt Closing
Interest Expense

MBA 620 Company B Information

Location, Size, and Age of the Firm

• Name:
• Location: Orlando, FL
• Size: 98 employees
• Age: began operations in 1988

Customer Segment and Target Market

• Market: Florida and nearby destinations

• Destinations: eight (the Bahama Islands; Savannah, Georgia; Atlanta, Georgia; Tampa, Florida; Fort
Myers, Florida; Miami, Florida; Tallahassee, Florida; and New Orleans, Louisiana)

• Market segment: tourists and business

• Aircraft capacities: 12–50 seats

• Customer segment: vacationers, tourists, business travelers

• Retention: 40% repeat customers

• Seat occupancy average: 62% (middle of industry benchmark data)

• Average customer fare: $249 USD

Major Competitors

• Delta Connection

• American Eagle

• Sun Country

• Frontier

Company Leadership

Privately held, with a board, president, VP admin, CFO, COO, VP sales

Company Strategy and Direction

As a smaller player, the company is more of a follower than a leader; however, the new president has a desire to
shake things up. The image of the company as cheap transportation is no longer sufficient, and the leadership
team seeks to demonstrate that even a small company can be an innovation leader. They hope to do this by
emphasizing the potential benefits of agile problem solving and a lean and clean working environment.

These 10-year goals were adopted in 2015; they were reaffirmed in 2019 shortly before the arrival of the new
president:

• Demonstrate adaptability, flexibility, and speed in decision making and innovation

• Build the best workforce; be a winning team

• Do the right thing; provide excellence in customer service

• Enjoy the short run; invest in the long run

Current Financial Highlights

• Annual revenues: $26-27 million

• Annual growth YoY: 3%

• Gross profit margin: 33%

• Net profit margin: 0.2%

• Aircraft in fleet: 40

• Average age of aircraft: 18 years (25 years of useful life is typical)

• See financial statements for more information

Background

• The company is known as a value leader.

• In 2016, the company sold its ownership in a regional hotel chain, resulting in substantial cash holdings.

• The company has strong business relationships with area employers in the theme park industry.

• The company president is new this year; prior experience has been heavily influenced by organizational
transformation initiatives.

• Turnover among employees is higher than many airline companies, but average for the central Florida
economy; maintenance employees are increasingly more difficult to find and retain; overtime is common
in the maintenance department.

• Wage levels in the Orlando area are growing, resulting in upward pressure in compensation.

• Customer feedback received that is at or above industry benchmarks (at industry benchmarks 60th
percentile or higher; positive feedback):

o Short wait times at counter
o Ease of modifying reservations
o Cost
o Overall value

• Customer feedback received below industry midpoint (negative feedback):
o Airplane cleanliness
o Amenities
o Food and beverages
o In-flight noise

Internal Process Highlights

• Within the last 30 days, an investment and joint venture was established with SITA Horizon software
system, including an industry-standard customer portal and a hospitality industry interface functionality.

• Bookkeeping is integrated with the new SITA system; an external accounting firm will still be used for
audits.

• HR function is provided by a consortium partner in the local area (outsourced).

• On-ground operations teams rated fair against industry-wide efficiency standards.

Human Resource Highlights

• Employees with a high school diploma or higher: 95%

• Employees with a post-secondary degree or diploma: 60%

• Average turnover rate: 18% annually

• Internal training offered:
o Regulatory refresher courses (as needed, with supervisor approval)
o Quality and Customer Service Principles (self-study)

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