You are a Financial Analyst for a large corporation. The Chief Financial Officer
ID: 2790023 • Letter: Y
Question
You are a Financial Analyst for a large corporation. The Chief Financial Officer
(CFO) of the company has just reviewed preliminary 3rd 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 4th
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:
recommend
two actions
that can be
implemented quickly and
fully explain
how each action would potentially increase
reported net income.
Explanation / Answer
Since there is a gap of 2% in the net income figures growth till 3rd quarter against the target of 5% growth announced this year, the following actions may be taken to achieve the target:
1.) Increase in Sales Price: This will increase the operating margin of the company and will also impact the bottom line. The percentage increase will be proportional to the projected sales for this fourth quarter and the gap that will exist against the target growth figures with the prevailing unit price.
2.) Reduction in Costs: The manufacturing and overhead costs need to be re-evaluated if they are resulting in lower profit margins. Any redundant resources or overheads should be pulled out to reduce the costs and improve the margins. This will result in increasing the bottomline and meeting the target.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.