A Case 4 Growing Pains

Net Margin is the ratio of net profits to revenues of a company. It is used as an indicator of a company’s ability to control its costs and how much profit it makes for every dollar of revenue it generates. Net Margin is calculated using the formula: Net Margin = (Net Profit / Revenues ) * 100 Net margins vary from company to company with individual industries having typically expected ranges given similar constraints within the industry. For example, a retail company might be expected to have low net margins while a technology company could generate margins of 15-20% or more. Companies that increase their net margins over time generally see their share price rise over time as well as the company is increasing the rate at which it turns dollars earned into profits.

This measures the relationship between net profits and sales of a firm. The net profit margin is indicative of management’s ability to operate the business with sufficient success not only to recover revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also leave a margin of reasonable

The questions that follow and the article Comparing the Accuracy and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings Equity Value Estimates will inform your completion of Milestone Three. An understanding of the models in this assignment will assist you in hypothesizing the incremental impact of a new investment project for the company. The understanding of these models will contribute to your ability to look toward the future when considering the direction of an organization. This activity is worth a total of 75 points. See the distribution of points listed before each question.

3. Do you expect this profit level to continue in subsequent years? Why or why not?

Introduction to Financial Planning and how do we create an integrated plan: Focus on cash flow forecast using operations plan

In addition to affecting profits by adjusting useful life and depreciation; key ratios will also be affected. The net profit margin can be influenced both ways to fit the purpose of business strategy. It could be increased to make it seem more profitable, or it can be influenced in a negative way to write off as much expenses as possible – if the year held disappointing results – in order to show next year more positively in comparison.

These changes in prices imply the power of growth rate’s assumption over stock price because “It was growth that drew attention to the brand. It was growth that propelled the stock offering. It was growth that drove the stock price to ever greater heights.” When the growth rate is expected to increase significantly, value of the firm is increased tremendously and so is its stock price. Both the enterprise value of the firm and its stock price change in the same direction with the change in growth rate estimates.

2. Based on Mr. Martin’s prediction for 1996 sales of $28,206,000, and for 1997 sales of $33,847,000 and relying on the other assumptions provided in the Tire City case, prepare complete pro forma forecasts of TCI’s 1996 and 1997 income statements and year-end balance sheets. As a preliminary assumption, assume any new financing required will be in the form of bank debt. Assume all debt (i.e., existing debt and any new bank debt) bears interest at the same rate of 10%.

Pediatric pain management is measured subjectively because it is based off of what the patient says or how the nurse interprets the pain scale. Pain is rated using different scales, unfortunately these different scales could yield different results. Nurses are trained to use pediatric pain scales to analyze and treat pain but parents are not supplied with the tools to manage pain when the patient goes home. With 84% of all pediatric surgical procedures performed on an outpatient basis, the importance of teaching parents how to assess for and manage pain has become more important than ever (Rony, Fortier, Chorney, Perret, & Kain, 2010). According to Rony’s et al. (2010) study, it is apparent that pediatric pain is not being treated effectively. The study showed that 58.8% of children were receiving less than the daily recommended does prescribed by the pediatrician (p.1). Results of the study also showed that parents had false assessments on if their child was actually in pain. 36% of parents believed that if their child was in pain, they would cry out for the parent , 30% agreed that their child would always tell them if they are in pain, while 22% said that the child would report their pain immediately (Rony, Fortier, Chorney, Perret, & Kain, 2010, ). Children do not always verbalize when they are in pain. Sometimes the pain can be so intense that a child is unable to talk. If the child catches on to the parents negative perception of pain medications, the child may not

Analyzing the company’s performance compared to its historical figures is always useful; nevertheless, these historical figures can be also a very useful tool to forecast future ProForma figures. We usually start by forecasting future sales (based on an average increase in sales figure) and other balance sheet and income statement items are forecasted as percentage of sales, this percent is normally consistent from historically figures. A close look should be given to the company’s operations and plan for the coming year while making our assumptions and forecasted figures. Normally we should follow

3. Refer to the monthly sales forecasts given in the first Table. Assume that these amounts are realized and that the firm’s customers pay exactly as predicted.

However, by the end of three-years, the company expects to be serving the entire Greater Phoenix Metro area. The company has rigorously examined its financial projections and concluded that they are both conservative in regards to revenues and generous in estimating expenditures. This was done deliberately to provide budget flexibility for unforeseeable events. The company's principals believe that cash flow projections are realistic.

$100000 + No. of employees * $25000 = No. of employees * Volume of sales * Selling Price * (0.10 - 0.05)

3. When a new business is started, or a patent idea needs funding, venture capitalists or investment bankers will want to see a business plan that includes forecast information related to a profit and loss statement. What type of forecasting information do you suppose would be required?

Break Even Point in Sales = (Total Fixed Costs + Target Profit) ÷ Contribution Margin Ratio