Stryker: Net Present Value and Capital Budgeting Process

Target Corporation was founded in 1902 and headquartered in Minneapolis, Minnesota. Target Corporation operates general merchandise and food discount stores throughout the United States. The company’s products range from household essentials, to electronics, to toys, to apparel and accessories, to home furnishings, to food and pet supplies. Most of the merchandise is sold under Target and SuperTarget trademarks, but it also sells under private-label brands, such as Archer Farms, Circo, Merona, and Room Essentials. The company also offers merchandise through programs like ClearRx, Great Save, and Home Design Event. Additionally, Target markets its merchandise under license and designer

Target Corporation uses an interesting capital-budgeting system. Projects are proposed using Capital Project Requests (CPRs) and must be approved before money can be spent. The level of approval needed depends on the amount being requested. For projects requiring less than $100K, lower management can approve, but anything above this amount goes to the Capital Expenditure Committee (CEC) which is comprised of 5 executive officers. For projects requiring greater than $50 million, the Board of Directors must approve.

The capital budgeting process of healthcare organizations: A review of surveys. Journal of Healthcare Management, 61(1), 58-77. This report reviewed past surveys to further explore four different stages of healthcare capital budgeting practices. The study found that physicians play a key role in the identification stage and healthcare organizations are increasingly conducting formal evaluations of capital budget proposals and the decision is made based on the impact to the organization’s mission.

Design procedures that allocate resources strategically: Within any company, competition for resources is inevitable. Every function and business unit needs funding for both capital and operating expenses - usually in excess of the actual resources available. This makes it critically important for companies to design procedures so that resources are allocated to support key strategies. Organizations that adopt best practices find that resource allocation is part science, part art. Fortunately, following certain best practices leads to better results. One such practice is coordinating the review of operating and capital budgets. Doing this gives managers insight into the ways in which changes in one budget affect the other.

Improve processes within the project SDLC by developing and implementing department standard documents; project scope, business requirements, and change control requests; cost benefit analysis and alternative solutions for project approval; project prioritization processes, procedures, and peer

There are several factors that guide the choice among debt financing and equity financing such as potential profitability, financial risk and voting control. Equity financing is a method used to obtain capital in order to finance operations, growth or expansion. Sources of equity financing are extremely important. Major sources of equity financial are Retained Earnings, sale of stock, and funds provided by venture capital firms. Profits that are kept and reinvested are called Retained earnings, which is a very attractive source fund due to the savings it provides to the entity by not paying the interests, dividends or underwriting fees related to issuing securities. This source of financing does not dilute ownership, but it

Target Corporation was founded in 1902 as Dayton Dry Goods Company, headquartered in Minnesota. In 1962, the first target store was initiated with the purpose of catering customers with discounted values. In United States and Canada, there are currently 1888 stores, in addition to this, in 2004, all of the subsidiaries were sold by the company following the objective of focusing on select stores of Target Corporation. Currently, it is second largest and renowned discount retailer throughout the world. In contrast to this, the company has been facing fierce and strong competition from market leaders such as Wal-Mart and Costco. There is also a need that the company must adjust its capital budgeting process.

In Clarke’s et al (2004) article “Inside the real world of capital allocation”, Jeff Costello the vice president and CFO of Memorial Health System Inc. emphasizes on segregating capital budget into several categories which he labeled as a “strategic capital”. Hence, of all his suggestions, the concept

Finance: Evidence from the Field” in the Journal of Financial Economics Vol. 60, 2001, pp. 187-243.

Healthy capital formation in the health care industry is crucial for organizations to achieve their long-term objectives (Cleverley, Cleverly & Song, 2010). Long-term projects require large investments and cash outlay, which precedes the receipt of cash inflow in future time (Finkler, Calabrese and Ward, 2011). Therefore, organizations tend to predict profitability by evaluating if the long-term projects expected return is great enough to justify the risk (Finkler et al., 2011). This analysis or evaluation is capital budgeting (Finkler et al., 2011). There are three approaches to assess capital budgeting, the payback method, the net value method and the internal rate of return method (Finkler et al., 2011). To understand net value and internal rate of return, acknowledgement of the time value of money is necessary (Finkler et al., 2011). However, the money needed to make these investments needs to come from somewhere. This money is referred to as capital (Finkler et al., 2011). The dominant sources of capital are stock issuance, or charitable donations (equity financing) or loans (debt financing) (Finkler et al., 2011). The choices (equity or debt) made respect to obtaining resources determines the capital structure of the organization (Finkler et al., 2011). A successful capital structure maintains the cost of capital low (Finkler et al., 2011). The cost of capital is the weighted average of the cost common stock, preferred

Capital Budgeting is the planning process used to determine whether an organization's long term investments are worth the funding of cash through the firm's capitalization structure.

By using the same concept above we can determine the present value of Gold Mine.

a. Capital budgeting is the process of analyzing projects and determining which ones to accept and include in the capital budget.

The Chairman and Chief Executive Officer of Stryker is Kevin Lobo. He served as president of numerous medical companies before joining Stryker in 2011. The Vice President and Chief Financial Officer of Stryker since 2016 is Glenn Boehnlein. He joined the company as Vice President of Finance in 2003. As of January 31, 2017, Stryker had 2,988 shareholders of common stock (“Company Overview of Stryker Corporation,” 2017).

The capital budgeting process at Stryker is following a very specific procedure to ensure that the company’s goal of 20% growth in earnings per year is met at all times. To be successful, the strategy requires advanced planning and management approval to guarantee that projects are accurately evaluated, prioritized and consistent with the firm’s long term strategic vision. The impressive growth in earnings is solely attainable through tight costs control, which Stryker does almost to perfection. The company’s biggest struggle is to keep up with the required growth. Every investment is made on new and existing products, markets and technologies to support growth and increases the firm’s value. To continue growing earnings they need market shares and the most efficient way for Stryker to do it is to strategically acquire companies that could open the new doors and give them access to new technologies and markets. CERs are facilitating the process in which Stryker makes investments because it lays out specifically all the important steps as well as the people and committee involved in every phase of any acquisition or investment. The underlying goal is to make the best use of Stryker’s money. The CERs goals are twofold: first, departments looking to invest and grow need the approval of their hierarchy. The CER is making that process as simple and efficient as possible. Second, in an industry as competitive as MedTech, Stryker has to make sure that their