Track Software Inc. Essay Example for Free

Track Software Inc. Essay1.) Stanleys financial polish he seems to be focusing on is maximizing pull ins. This is the correct goal be slip the goal of any firm and therefore its financial manager, should be to maximize its lever and by extension the wealth of the shareholders. 2.) There is potential for an post problem if Stanley decides to go ahead and invest in the software developer. This investment will cause a temporary decrease in the earnings per share of the firm which will mean fewer earnings at the present time for the stakeholders. This may be a problem if the goal of the shareholders is to gain money sooner than later. Since, the goal of the shareholders is simply to maximize wealth, there may not be an agency problem since the goal of the financial manager, Stanley, is the same as the shareholders. B. Since there is no preferred stock Earnings available for common stockholders Net return afterward taxes. No of shares of common stock outstanding = 50,000Earni ngs per share = ______Net profit after taxes____________ No. of shares of common stock outstandingEPS show a loaded increase over the past five years indicating that Stanley is achieving his goal of maximizing profits. C. Operating Cash Flow (OCF) for 2012OCF = Earnings before Interest and Taxes (1 Tax position) + disparagement OCF= EBIT (1 T) + Depreciation= $89 000 (1 0.20) + $11 000= $82 200Free Cash Flow (FCF) for 2012FCF = OCF1 Net Fixed Assets Investments Net Current Assets Investment FCF= OCF NFAI NCAINFAI = Change in net fixed assets + Depreciation= ($132 000 $128 000) + $11 000= $15 000NCAI = Chance in current assets Change in (Accounts Payable + Accruals)= ($421 000 $62 000) ($136 000 + $27 000) ($126 000 + $25 000)=$47 000FCF = $82 200 $15 000 $47 000= $20 200Both the operating cash flow and the reconcile cash flow are verificatory indicating that Stanley was able to generate adequate cash flow to cover both operating expenses and investments in asse ts. There was also $20 200 left over to pay to investors.1.) LiquidityAlthough the liquidity of the firm has improved slightly (current ratio) or remained steady (quick ratio), the firms performance is considerably below ordinary. 2.) ActivityThe constitutional asset turnover of the firm has improved alone the inventory turnover and average collection period has deteriorated. The activity of the firm is also considerably below the industry average. 3.) DebtThe debt ratio decreased in the times interest earned ratio improved. This indicates that the firm used more of its own money to generate profit in 2012 (rather than that of its creditors) and its ability to make contractual interest payments has improved. However, the firm fails to measure up to the industrial average yet again. 4.) ProbabilityThe gross, operating and net profit margin and the return on total assets (ROA) have improved slightly showing that the profitability of the firm is fairly stable, demonstrating little improvement. Even so, these ratios are any still subpar. The return of common equity (ROE) has deteriorated, falling to below the industrial average. 5.) MarketThe firms P/E ratio improved but remained bellowed the industry average, showing that the investors are gaining confidence in the firms future performance. The M/B ratio fell below, from above the industrial average in 2011 to below in 2012 but still remains fair. E. Stanley should try to find the money to hire the software developer since the ratios show that the firm should be performing better for a firm in this particular industry. In addition, the blockbuster sales potential implies a potential for increased profitability which falls in line with Stanleys focus. F. The present value of a perpetuity creating a cash flow of $5 000 per year with a 10% interest rate =_____Cash Flow____Interest Rate= $5,000 = $50 000.10The investor would be willing to pay $50 000 for the firm.G. The present value of a firm generating a perpe tual stream of free cash flow of $20 200 per year with an interest rate of 10 % = ___Cash Flow___ Interest Rate=__$20,200__ =$202,000.10I would be willing to pay $202 000 for the firm.