Subject: Economics
2. Financial Environment 1) Competition in Financial Markets
2) Competition in Product Markets
3) Relationship between the two markets
4) General outline of debt and equity markets
5) Business Risk
6) Financial risk
7) Importance of financial environment in strategy development.
8) Major participants in financial markets
9) Junk bonds and derivatives
10) Market capitalisation
11) The origins of the 2007–09 financial crisis and its impact on financial markets and financial institutions:
12) Various case examples on the topics above
1) By using real life examples explain the differences between achieving sustainable competitive advantage in product markets and sustainable competitive advantage in financial (trading ) markets
2) Briefly compare and contrast the two terms “business risk “ and “financial risk “ Select any five FTSE 100 companies and identify the examples of business and financial risks that might impact on them in the next year
3) Critically evaluate, compare and contrast the strategic and financial reasons for Northern Rock (UK) and Lehman Bros (US) collapse in financial services industry. What lessons can be drawn from your analysis?
4) Choose two companies from production markets and repeat the question 4 above
Lafarge Case Study 1) The impact of financial and business markets on the companies’ financial and business strategies
2) Debt reduction strategies
3) Raising debt and equity finance during crisis
4) Management of business and financial risks
5) Right issues
6) Measuring the riskiness of loan capital 1) Identify a firm which has had dramatically modify its strategy due to pressures from financial markets and explain how they handled the situation. Analyse how the firm has used external finance to support its strategy in such situation. Do you agree with the extent of riskiness in the capital structure?
Easy Jet Case Study 1 1. Strategic objectives vs. Financial objectives : Similarities, differences , key characteristics
2) “Tolerance Zone “ concept
3) Management in the tolerance zone and managerial implications
4) “Hoarding cash “and conditions for holding cash
5) Mature vs. Growth firms : Similarities, differences and key characteristics
6) Dividend policy
7) Brief description of theories on dividend policy decisions
8) Types of Dividend Policy 1) What are the differences between wealth maximisation and profit maximization as company objectives? Is it possible to pursue both objectives at the same time? Argue your case by providing examples from the companies of your choice
2) Analyse the key stakeholders and objectives of a company of your choice. To what extent was objective congruence between different stakeholders achieved? How might the efforts of all individuals or stakeholder groups be channelled more effectively?
3) The primary financial objective of corporate finance is usually taken to be the maximisation of shareholder wealth. Discuss what other objectives may be important to a public limited company and whether such objectives are consistent with the primary objective of shareholder wealth maximisation.
4) Consider the dividend policy of a firm you know well. Write a report detailing the factors contributing to the selection of this particular policy. Make recommendations on the decision- making process, range of influences considered and how a change in policy could be executed.
5) Write a report which relates the dividend frameworks and theories discussed in this session to the evidence provided by the following UK companies: Marks and Spencer and Vodafone. You can use the company websites for dividend information and / or dividend per share and earnings per share figures from accounts over the past 5 years.
6) Choose a growth company and a mature company from FTSE 100 companies. What are the similarities and differences between the two? Discuss the likely dividend policy of these different types of companies
7) Identify two companies that could be regarded as being ‘mature companies’, and two companies that could be regarded as being ‘growth companies’ from FTSE 100. Explain why each one matches this definition.
Easy Jet Case Study 2 1. Conflicts between managers and shareholders
2. The concept of agency problem
3. Path dependency and political process in strategy development 1. Assume you were asked to advise a chief executive of a long-established, historically successful multinational business with highly experienced managers that is experiencing declining profits, falling market share. What might you expect to be the financial related causes of these problems? ((Focus only on Financial not Strategic) what processes of strategy development would you propose to address them?
Focus DIY Case Study Various instruments and definitions in Raising Finance and Capital Structure , including
1. Leveraged Capitalisation
2. Distressed debt
3. CVA
4. Mezzanine finance
5. Senior debt notes
6. Debt restructuring
7. Short term vs. long term debt
8. Private Equity (firm) vs. Venture Capital ( firm )
9. Balance sheet restructuring
Working Capital Management
1. Components of working capital and cash flow
2. Retained earnings as a means of raising finance
Firm failure
1. Strategic reasons
2. Financial reasons 1. ‘Private equity is an important source of risk capital for smaller businesses.’
Required:
(a) Explain the term ‘private equity’ and discuss the main types of business that are likely to prove attractive to private-equity firms.
(b) Identify the main issues that the board of directors of a business should take into account when deciding whether to use private equity finance.
(c) Identify and discuss the factors that a private-equity firm will take into account when assessing an investment proposal
(d) Use various examples to support your answers
2. ‘Smaller businesses experience greater problems in raising finance than larger businesses.’
Required:
(a) Discuss the problems that smaller businesses may confront when trying to obtain long-term
finance.
(b) Describe how smaller businesses may gain access to long-term finance.
(c) Use various examples to support your answers
3. Consider the capital structure (gearing) of Next PLC. Write a report outlining the equity and debt options available should Next PLC need to raise further debt or equity finance. Also consider if preference share capital should be employed.
4. Discuss fully by giving various examples from various companies of your choice, how poor working capital management can be a source of corporate failure? What effective working capital practices may help to remedy the situation
My Travel Case Study Capital Structure and Sources of Finance
1. External Finance
2. Internal Finance
3. Short term Finance
4. Long term Finance
Risk and reward profiles of ordinary shareholders, preference shareholders, convertible bond holders and secured bond holders
5. Capital restructure
Corporate restructuring
1. Differences between causes of failure and symptoms of failure
2. Elements of successful turnaround strategies
Capital Structure Decision
1. Strategic Factors affecting capital structure decisions
Business Models of Sources of Finance
(McDonald’s Model)
Measuring corporate performance (Altman Index ) 1. Review the long- term debt instruments used by a FTSE 100 companies such as M&S. Consider the merits and drawbacks of these and explain alternative long- term debt strategies.
2. We avoid debt finance because of the unacceptable constraint placed on managerial actions.’ Explain what this executive means and suggest forms of long- term borrowing which have few constraints. Support your answers with examples from various companies
3. Consider the long- term financing of a company from FTSE 100. Evaluate each of the main sources of finance and suggest, with reasons, two methods of finance that are not currently used, but which may prove attractive to the company.
4. Is corporate restructuring a good thing for businesses that are pursuing a shareholder wealth maximisation objective? Explain your answers by giving various examples
Chrysler Case Study 1. Causes of decline
2. Symptoms of decline
3. Financial restructuring
4. Turnaround attempts and strategies
5. Profiles of various firms in Turnaround
6. Mergers and Acquisitions
7. Strategic alliances
8. Corporate distress and bankruptcy 1. It is not difficult to find firms that are in financial distress. Download the financial accounts for five firms of your choice that have performed poorly over the last year. Carry out a Z- score analysis (Altman Index) for these companies. Now download the financial accounts for five firms that performed strongly in the past year and carry out a similar analysis. Write a report on your analysis, briefly stating the possible reasons for the differences
2. Choose two firms one with recovery strategy failed and one with recovery strategy successful to date. Compare and contrast both firms in terms of the causes of decline, symptoms of decline, severity of crisis and recovery strategies pursued. Write a report on your findings
3. Mergers fail to produce value for the shareholders of acquirers in many cases. Describe and explain some reasons (financial and strategic ) for merger failure by giving examples from various past mergers
4. Select one of the merger/ takeover situations that has been given prominence recently in the media. Analyse your selected case under the following headings A) Strategy – How does the ‘victim’ appear to fit into the acquirer’s long- term strategy? B) Valuation and bid tactics – Has the acquirer bid or paid ‘over the odds’? What were the pros and cons of the financing package? C) Defence tactics – Were the tactics employed sensible ones? Were the managers of the target company genuinely resisting or simply seeking to squeeze out a higher offer? D) Impact – Will the acquired company be difficult to integrate? Are any sell- offs likely?