You are a Financial Analyst for a large corporation. The Chief Financial Officer
ID: 2789680 • Letter: Y
Question
You are a Financial Analyst for a large corporation. The Chief Financial Officer (CFO) of the company has just reviewed preliminary 3" quarter earnings with the company CEO. The meeting did not go well. The company publicly announced a target of 5% growth in earnings (or net income) for this year over the previous year. Earnings growth will be closer to 3% based on quarterly income statements thus far. The CEO has directed the CFO to make recommendations by the end of the week as to how the company could quickly boost reported earnings (or net income) in the 4" quarter and potentially meet the 5% earnings growth target. The CFO has called a meeting of all financial analysts on her staff. She has given all of you the following assignment: recommend two actions that can be implemented quickly and fully explain how each action would potentially increase reported net income.Explanation / Answer
Reduce operating expenses and utilize tax laws : Operating expenses are day to day expenses needed to operate the firm. Check for the operating expenses which does not generate revenue or growth and reduce such expenses. High efficient firms have high operating margin resulting in increased operating income. Increase the operating margin with reduction in margin costs of production and reducing unneccesary expenditures. Check for the rules in taxation, which allows deductions in the form of depreciation and other costs. Such deductions in tax, reduces the tax levied and increases the cash flow.
Reduce the cost of finance: Try to match the firms assets to debts, to increase its debt bearing capicity and reduce the cost of capital. This can be achieved by derivatives and swaps to reduce the difference in assets and debts within short period of time.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.