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Question:
Discuss about the Financial Statements Evaluation for Lightweight Metals Technology.

 
Answer:
Financial Statements Analysis of Cadence Company
Three Years Information on Financial Statements of Cadence

Financial Statements

2016

2015

2014

Total Equity

$1075

$1376

$1334

Current Assets

$5,380,636

$5,279,525

$18,891,137

Fixed Assets

$320,750,485

$315,829,479

$245,691,848

Total Assets

$342,212,110

$336,312,044

$264,657,154

Net Income

$76,513

$85,375

$30,190,056

Amount Paid to Shareholders in Cash

$12,341,213

$11,111,185

$9,898,166

Amount Paid to Shareholders in Stock Buybacks

$421,915

$421,915

$421,915

Total Amount Distributed with Shareholders

$123,834,128

$11,533,100

$10,320,081

Short Term Debt

50

0

342

Long Term Debt

643

349

349

Cash Flow Analysis of Cadence

Cash Flow Statement

2015 ($)

CASH FLOWS FROM OPERATING ACTIVITIES

 

Proceeds from the sale of investments

540,473,533

Payments for the purchase of investments

(653,026,793)

Capital return on investments

 

Dividends received

8,761,126

Interest received

2,035,499

Other income received

13,950

Management fees paid

(2,784,335)

Performance fees paid

(12,800)

Brokerage expenses on share purchases

(575,514)

Interest paid

(683,116)

Dividends paid on shorts

(242,449)

Payments for administration expenses

(707,717)

Income tax paid

(5,196,425)

NET CASH USED IN OPERATING ACTIVITIES

(111,945,041)

CASH FLOWS FROM FINANCING ACTIVITIES

 

Dividends paid

(15,650,799)

Proceeds from shares issued

66,440,227

NET CASH PROVIDED BY FINANCING ACTIVITIES

50,789,428

NET (DECREASE)/ INCREASE IN CASH HELD

(61,155,613)

CASH AND CASH EQUIVALENTS AS AT BEGINNING OF THE FINANCIAL YEAR

93,826,031

CASH AND CASH EQUIVALENTS AS AT END OF THE FINANCIAL YEAR

32,670,418

Positive cash flow of Cadence that the company is increasing its liquid assets and using its increased cash flow in reinvesting in its business operations, providing a huge return to its shareholders, paying expenses and generate a safeguard against upcoming financial challenges (Cadence.com. 2016).

MVA Calculation of Cadence

Market Value Added (MVA) of Cadence in the year 2014:

MVA+ Capital Invested = Market Value

MVA= $231,197,359- $137,735,570

= $93,461,789

Market Value Added (MVA) of Cadence in the year 2015:

MVA+ Capital Invested = Market Value

MVA= $302,996,147- $280,018,162

= $22,977,985

Market Value Added (MVA) of Cadence in the year 2016:

MVA+ Capital Invested = Market Value

MVA= $330,896,158- $290,210,184

= $40,685,974

From the MVA analysis, it was gathered that the MVA of Cadence has decreased in the year 2015 and then increased in the year 2016. Such increase is because of the reason that it is generating positive returns and having strong leadership along with sound governance (Frattini et al. 2013).

 
Analysis and Conclusions

From the financial statement analysis, it was gathered that the company experiences positive ash flow in the year 2015. This is because of the reason that the company is increasing its liquid assets and using its increased cash flow in reinvesting in its business operations, providing a huge return to its shareholders, paying expenses and generates a safeguard against upcoming financial challenges (Golez 2014). Moreover, MVA analysis it was gathered that an increase in MVA of Cadence is for the reason that it is producing positive returns and maintaining strong corporate governance. Financial analysis over three years of the company revealed that the net income of the company has decreased over the past three years. Such decrease is because of the reason that its expenses have increased over the past three years. The company is dealing with increasing overhead costs, specially as the company increased the payment of long term employees ever year (Healy and Palepu 2012). Total assets of Cadence is observed to increase over the years from 2014 to 2016 because of the reason that it is not utilizing its assets efficiently in gaining maximum profits or has made increased investments in its assets hose are not contributing effectively to the bottom line.

Financial Management
1.

Date

Price

Return

Dividend

Return of dividend

7/1/2016

9.522239

3.02%

   

6/1/2016

9.243052

0.00%

   

5/4/2016

   

0.03

-3%

5/2/2016

9.243052

-16.77%

   

4/1/2016

11.105247

16.60%

   

3/1/2016

9.524464

7.28%

   

2/3/2016

   

0.03

-14%

2/1/2016

8.878232

23.03%

   

1/4/2016

7.216544

-26.14%

   

12/1/2015

9.770547

5.45%

   

11/4/2015

   

0.03

36%

11/2/2015

9.265686

5.15%

   

10/1/2015

8.811746

-7.56%

   

9/1/2015

9.532079

2.22%

   

8/5/2015

   

0.03

9%

8/3/2015

9.32486

-3.96%

   

7/1/2015

9.709269

-11.48%

   

6/1/2015

10.968424

-10.80%

   

5/7/2015

   

0.03

13%

5/1/2015

12.29644

-6.65%

   

4/1/2015

13.172549

3.87%

   

3/2/2015

12.681769

-12.64%

   

2/4/2015

   

0.03

-3%

2/2/2015

14.517288

-5.32%

   

1/2/2015

15.333686

-0.89%

   

12/1/2014

15.470857

-8.68%

   

11/5/2014

   

0.03

1%

11/3/2014

16.94054

3.35%

   

10/1/2014

16.391502

4.16%

   

9/2/2014

15.736234

-3.13%

   

8/6/2014

   

0.03

-4%

8/1/2014

16.244801

1.53%

   

7/1/2014

16.000385

10.07%

   

6/2/2014

14.536044

9.40%

   

5/8/2014

   

0.03

-9%

5/1/2014

13.28647

1.27%

   

4/1/2014

13.120182

4.66%

   

3/3/2014

12.535764

9.63%

   

2/5/2014

   

0.03

-4%

2/3/2014

11.43511

2.27%

   

1/2/2014

11.18171

8.28%

   

12/2/2013

10.326809

10.61%

   

11/6/2013

   

0.03

-7%

11/1/2013

9.335901

3.99%

   

10/1/2013

8.977975

14.16%

   

9/3/2013

7.864202

5.45%

   

8/7/2013

   

0.03

-12%

8/1/2013

7.457433

-2.78%

   

7/1/2013

7.670355

1.66%

   

6/3/2013

7.544929

-8.00%

   

5/9/2013

   

0.03

-1%

5/1/2013

8.201009

0.34%

   

4/1/2013

8.173272

-0.23%

   

3/1/2013

8.192504

0.00%

   

2/6/2013

   

0.03

1%

2/1/2013

8.192504

-3.30%

   

1/2/2013

8.471679

1.84%

   

12/3/2012

8.318345

3.21%

   

11/1/2012

8.059594

-1.87%

   

10/31/2012

   

0.03

-3%

10/1/2012

8.212928

-2.94%

   

9/4/2012

8.461397

3.50%

   

8/1/2012

   

0.03

3%

8/1/2012

8.174894

1.42%

   

7/2/2012

8.060293

-3.20%

   

6/1/2012

8.326749

2.34%

   

5/10/2012

   

0.03

4%

5/1/2012

8.136423

-11.84%

   

4/2/2012

9.228986

-2.89%

   

3/1/2012

9.504054

-1.47%

   

2/1/2012

   

0.03

3%

2/1/2012

9.64633

0.39%

   

1/3/2012

9.608389

17.46%

   

12/1/2011

8.18037

-13.67%

   

11/2/2011

   

0.03

-15%

11/1/2011

9.475991

-6.61%

   

10/3/2011

10.146461

12.43%

   

9/1/2011

9.024315

-25.23%

   

8/3/2011

   

0.03

-11%

8/1/2011

12.07014

-12.92%

   

7/1/2011

13.860662

-7.12%

   

6/1/2011

14.923971

-5.65%

   

5/12/2011

   

0.03

8%

5/2/2011

15.817904

-0.94%

   

4/1/2011

15.968544

-3.74%

   

3/1/2011

16.588499

4.81%

   

2/2/2011

   

0.03

4%

2/1/2011

15.827645

1.87%

   

1/3/2011

15.537673

7.67%

   

12/1/2010

14.43119

17.21%

   

11/3/2010

   

0.03

-7%

11/1/2010

12.311989

0.15%

   

10/1/2010

12.293448

8.51%

   

9/1/2010

11.329805

18.49%

   

8/4/2010

   

0.03

-8%

8/2/2010

9.561571

-8.27%

   

7/1/2010

10.423245

11.03%

   

6/1/2010

9.387453

-13.57%

   

5/5/2010

   

0.03

-10%

5/3/2010

10.861825

-13.12%

   

4/1/2010

12.502271

-5.69%

   

3/1/2010

13.256317

7.07%

   

2/3/2010

   

0.03

6%

2/1/2010

12.381251

4.71%

   

1/4/2010

11.824618

-21.03%

   

12/1/2009

14.973516

28.75%

   

11/4/2009

   

0.03

27%

11/2/2009

11.629555

1.04%

   

10/1/2009

11.509328

-5.34%

   

9/1/2009

12.158002

8.88%

   

8/5/2009

   

0.03

6%

8/3/2009

11.166458

2.71%

   

7/1/2009

10.872259

13.84%

   

6/1/2009

9.550207

12.04%

   

5/6/2009

   

0.03

-12%

5/1/2009

8.523999

1.96%

   

4/1/2009

8.360489

23.57%

   

3/2/2009

6.765821

17.82%

   

2/4/2009

   

0.17

-17%

2/2/2009

5.742651

-18.30%

   

1/2/2009

7.02879

-30.82%

   

12/1/2008

10.159715

4.65%

   

11/5/2008

   

0.17

47%

11/3/2008

9.708572

-5.14%

   

10/1/2008

10.234806

-49.07%

   

9/2/2008

20.095819

-29.72%

   

8/6/2008

   

0.17

98%

8/1/2008

28.595158

-4.29%

   

7/1/2008

29.876507

-5.25%

   

6/2/2008

31.531885

-12.24%

   

5/1/2008

35.93148

16.71%

   

4/30/2008

   

0.17

14%

4/1/2008

30.788292

-3.07%

   

3/3/2008

31.764774

-2.91%

   

2/6/2008

   

0.17

4%

2/1/2008

32.716129

12.83%

   

1/2/2008

28.996864

-9.47%

   

12/3/2007

32.028873

0.49%

   

11/1/2007

31.871138

-8.13%

   

10/31/2007

   

0.17

0%

10/1/2007

34.692833

1.64%

   

9/4/2007

34.132946

7.09%

   

8/1/2007

   

0.17

-1%

8/1/2007

31.873121

-3.94%

   

7/2/2007

33.1819

-5.75%

   

6/1/2007

35.205822

-1.82%

   

5/2/2007

   

0.17

7%

5/1/2007

35.8573

16.89%

   

4/2/2007

30.67713

4.69%

   

3/1/2007

29.302752

1.47%

   

2/1/2007

28.8792

3.44%

   

1/31/2007

   

0.17

-1%

1/3/2007

27.919729

8.20%

   

12/21/2006

   

0.15

-3%

12/1/2006

25.803797

-3.24%

   

11/1/2016

   

0.15

-7%

11/1/2006

26.667381

8.38%

   

10/2/2006

24.605515

3.10%

   

9/1/2006

23.865053

-1.92%

   

8/2/2006

   

0.15

-2%

8/1/2006

24.33316

-4.05%

   

7/3/2006

25.360125

     

Rate of return

-0.11%

 

 

3%

2.

Type of Debts

Cost of Debts

Amount

Weight

Tax Rate

E/V

D/V

Common Stock

0.00%

1391

12.99%

35.00%

15%

85%

preferred stock

3.75%

58

0.54%

Commercial Paper

0.60%

198

1.85%

Debt Capital

1.61%

9065

84.62%

Total

 

10712

100%

 

   

 

 

 

 

 

   

WACC

2%

   
3.

The essay is indented to conduct an evaluation on Alcoa stock and computation regarding return rate of the company’s stock is done from July 1, 2006, to July 1, 2016. By taking into account the gathered information from Yahoo Finance, calculation for return rate has been conducted and a negative figure is found with 0.11% (Dumont and Schmit 2013). On the other hand, after consideration of the holding period return initiative that encompasses dividend in computation and the figure is found to be 3% that is positive. Regarding computation, it can be stated that technique of holding period return is an advantageous strategy for obtaining increased return. After computation of weighted average cost of capital that is computed through extracting current information of the company and corporate tax rate taken into regard is 35% as per the US Federal rate. WACC is deemed 2% that is reasonable (Alcoa.com. 2016).

Based on public source, the Acola split news has been famous and it is also deemed that it might further split within publically trading organization. This was acknowledged to be a legacy in aluminum operation and diversification within automotive industry. The organization has attained increased growth through its titanium and aluminum manufacture and from aerospace industry. As mentioned by Aloca’s CEO, it was the appropriate time for attaining split. The company’s business division has attained a superior position and strategy for an organization attaining increased profit and revenue. After the split up of the company, it might add 40% of its profits within the sectors of Alcoa's Aerospace, automotive and transportation and in building construction. After the organization’s decision of splitting Aloca’s shareholders might attain 80.1% shares in fresh shares (Chauhan and Singh 2014). Aloca might acquire 85% of the organization’s shareholding worth $9 billion in the debt form by offering support to Alcoa’s existence within aluminum sector. Such split might facilitate the company in boosting anticipated trading price of a common stock, which further can support in enhancing the company’s liquidity position.

After evaluating the financial situation of Alcoa’s stock, it is gathered that the organization might earn increased profit after the split in two different organizations. Moreover, it was also gathered that recently the organization has authorized shares worth 1.8 billion (Davis and Haegler 2016). Within this division, Aloca will consider the specialty of value added offerings made of aluminum. Conversely, the company’s another division is focused on automotive and aerospace and the transportation industry in attempt to attain increased return and revenue.

 
Reference List

Alcoa.com., 2016. Alcoa | Global Leader in Lightweight Metals Technology, Engineering & Manufacturing. [online] Available at: https://www.alcoa.com [Accessed 29 Sep. 2016].

Cadence.com., 2016. EDA Tools and IP for System Design Enablement | Cadence. [online] Available at: https://www.cadence.com [Accessed 29 Sep. 2016].

Chauhan, A. and Singh, A.P., 2014. Optimal replenishment and ordering policy for time dependent demand and deterioration with discounted cash flow analysis. International Journal of Mathematics in Operational Research,6(4), pp.407-436.

Davis, P.J. and Haegler, U., 2016. Mergers and Market Definition: Does a Focus on ‘Value Added’Add Value?. Journal of European Competition Law & Practice, p.lpw015.

Dumont, G. and Schmit, M., 2013. Tier 1 MFIs Financial Performance: Cash-flow statement analysis (No. 13-054). ULB--Universite Libre de Bruxelles.

Frattini, F., Dell'Era, C. and Rangone, A., 2013. Launch Decisions and the Early Market Survival of Innovations: An Empirical Analysis of the Italian Mobile Value‐Added Services (VAS) Industry. Journal of Product Innovation Management, 30(S1), pp.174-187.

Golez, B., 2014. Expected returns and dividend growth rates implied by derivative markets. Review of Financial Studies, 27(3), pp.790-822.

Healy, P.M. and Palepu, K.G., 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.

Koopman, R., Wang, Z. and Wei, S.J., 2014. Tracing value-added and double counting in gross exports. The American Economic Review, 104(2), pp.459-494.

Maio, P. and Santa-Clara, P., 2015. Dividend yields, dividend growth, and return predictability in the cross section of stocks. Journal of Financial and Quantitative Analysis, 50(1-2), pp.33-60.

McMillan, D.G., 2014. Stock return, dividend growth and consumption growth predictability across markets and time: Implications for stock price movement. International Review of Financial Analysis, 35, pp.90-101.

Park, K. and Jang, S.S., 2013. Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management, 33, pp.51-63.

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