Reference no: EM132382978
Assignment Task
1) 1. Develop and explain a recommended corporate strategy for the selected company. What competitive strengths does this strategy exploit? How is the strategy different from the current strategy? What are the risks associated with the new strategy and its chances for successful implementation? If the current strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?
Verizon currently employs a Broad Differentiation strategy, but I would the recommended the Best Cost Provider Strategy since it is within the telecommunications market and it has relatively competitive firms . This strategy brings out some of Verizon's competitive strengths, to include their popular cell network, products, and contracts with with other firms (Thompson, 2007).
The "Best Cost Provider" strategy differs from the current strategy because its goal is to bring down costs, without bringing down quality. In contrast, the Broad Differentiation Strategy, attempts to do so by offering a bigger, better, and unique product. This transition may be difficult if the companies qualities in products suffer, or if they are unable to bring costs down.
2. For the selected company, develop and explain a recommended financing strategy. How much additional financing is needed? What should be the sources(s) of that new financing and why? Estimate the costs of the new financing? If the current financing strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?
Since Verizon's debt makes up around 90% of the firm's capital structure, it's highly leveraged. Nearly all of this debt is comprised of long-term bond issues (Wei, 2016). This may seem like an unhealthy, business model, but this has raised Verizon's enterprise value, consistently in the past pushing investors towards Verizon's securities.
I think It would be much cheaper for Verizon to issue more long-term debt and service it, in order to raise funds for the firm to issue more common stock.
3. What are the most important things that you learned from the study of this week's readings and assignments? Remember to always include appropriate references.
This week I particularly enjoyed analyzing the corporate and financial strategies. This understanding of the Balanced Scorecard principle was interesting, especially in the context of corporate finance. I also thought it was interesting that studies have found that most attempts by corporations to execute new strategies like these most likely fail due to poor planning. I think planning should be in almost everyones top priorities when making major moves like this within big companies.
References:
Wei, J. (2016). Understanding Verizon's Capital Structure (VZ). Investopedia.
Thompson, A., et. al. (2007). Distinguishing Features of the Five Generic Competitive Strategies. Crafting and Executing Strategy, 15th ed., New York: McGraw-Hill/Irwin.
2) Develop and explain a recommended corporate strategy for the selected company. What competitive strengths does this strategy exploit? How is the strategy different from the current strategy? What are the risks associated with the new strategy and its chances for successful implementation? If the current strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?
Under Armour's current corporate strategy is beginning a five-year plan of expansion to be completed by 2023. The corporate strategy as of current is selling to consumers who are already customers. Under Armour's mission statement is, "To make all athlete's better through science, passion, and relentless pursuit of innovation."
They are also implementing direct-to-consumer sales such as online, outlet stores and specialty as opposed to their previous strategy of wholesale ("Under Armour Presents 2023 Strategic Growth Plan; Updates 2018 And Provides Initial Full Year 2019 Outlook | Under Armour, Inc.", 2018). This plan is working better and has even made them receive contracts with supplying sports teams with football cleats or soccer. The new five-year strategy Under Armour has come up with is on the rise. They have closed down big stores and opened the outlets and made a bigger online presence as used the science to create innovative sports gear to sell direct to consumers or loyal customers.
2. For the selected company, develop and explain a recommended financing strategy. How much additional financing is needed? What should be the sources(s) of that new financing and why? Estimate the costs of the new financing? If the current financing strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?
Due to the CEO, Kevin Plank, wanting to restructure the business model there is also a five-year strategy for the financing. The current end of year revenues has been low as restricting is in progress, but the end of fiscal year 2019 revenue is supposed to be up 3 to 4 percent ("Under Armour Presents 2023 Strategic Growth Plan; Updates 2018 And Provides Initial Full Year 2019 Outlook | Under Armour, Inc.", 2018).
By 2023 the plan is to be in the low double digit which is primarily from direct-to-consumer and international business ("Under Armour Presents 2023 Strategic Growth Plan; Updates 2018 And Provides Initial Full Year 2019 Outlook | Under Armour, Inc.", 2018). The CFO, David Bergman, emphasized how the financial strategy will take place, "Focusing on sustainable, profitable growth while increasing returns on capital and generating substantial cash will empower our ability to deliver industry-leading innovation, compelling premium consumer experiences and drive toward our targets, while steadily increasing returns to our shareholders" ("Under Armour Presents 2023 Strategic Growth Plan; Updates 2018 And Provides Initial Full Year 2019 Outlook | Under Armour, Inc.", 2018).
3. What are the most important things that you learned from the study of this week's readings and assignments? Remember to always include appropriate references.
I learned about future strategy's and how they can benefit a company. Although these plans are detailed in how they should achieve the goals set forth by the company it does not always mean the company will obtain the end goal. I guess I will have to see in 2023 if Under Armour has kept up any of their strategies.
3) 1. Enterprise value is how much a company would cost if it were bought outright and is also a measure of a company's operating assets ("Enterprise Value", n.d.). I think this is useful as long as you know that enterprise values generally favor companies with lots of cash and little debt.
2. Hawaiian Electric Industries had Enterprise Value of $5,797 million in 2018.
3. 2 competitors for my company are Alliant Energy and AEP. Their Enterprise Values for 2018 are $18,845 million ("Alliant Energy Enterprise Value", n.d.), and $74,220 million ("American Electric Power Company", n.d.). It looks like the EV of Hawaiian is much less than its competitors and this is most likely because Hawaiian has a much smaller customer base.
4. For the years 2018, 2017, and 2016, Hawaiian Electric Industries saw dividends of $1.24 each year (HEI, n.d.). Alliant Energy went from $1.175 in 2016, to $1.26 in 2017, to $1.341 in 2018 ("Dividend History for Alliant Energy Corp", 2019). AEP saw dividends of $2.39 in 2016, $2.27 in 2017, and $2.53 in 2018 ("Stock & Dividends", 2019). My company's dividends are less than the competition but I don't think my company should increase the amounts because of the huge difference in valuation between the companies.
5. This week I learned about Enterprise Valuation. One thing I found particularly interesting was the "Enterprise Value in a Bear Market" update that was in the "Enterprise Value" (n.d.) article from the readings. In the update, Google and Walmart are compared during the financial recession. During this period Google lost around 61% of its market value while Walmart actually gained 11%. I found this interesting because I think most people thing everything declined or lost money in the recession when in reality there were still some positives.
Explain the significance of the Enterprise Valuation measure? Do you think it is useful? Why or why not?
Enterprise value measures "how much a company would cost, if it were bought outright-free and clear" (Enterprise Value, 2019). To calculate the enterprise value, the company's market capitalization, debt, and other liabilities are added and then subtracted with the company's cash and cash equivalents.
The use of enterprise valuation measure is a more useful comparison tool because it accounts the company's debt along with their cash and cash equivalents, which is not included in other ratio measures such as the P/E ratio and P/EBIT ratio. Furthermore, "it allows investors to compare companies in underlying terms, disregarding the impact of their capital structure" (Enterprise Value Model 1116, 2019).
2. Using the Enterprise Valuation model (provided by the Instructor) determine the EV of the company that you selected for the Company Analysis Project?
Based on the Enterprise Value model spreadsheet provided on the assigned readings, the EV of Charter Communications is $168,103 million.
3. How does the EV of the company you selected for the Company Analysis Project compare to the competitors that you included in the analysis?
In comparison to Charter Communication's EV, Comcast Corporation has an EV of $319,006 million. The market capitalization difference between Charter Communications and Comcast Corporation is $116,527 million, which was primarily affected by the difference between both companies' stock price. Charter Communications reported a stock price of $425.00 while Comcast Corporation reported a stock price of $46.40 (Yahoo Finance, 2019).
4. What distributions has the company that you selected for the Company Analysis Project made during most recent three years? How do those distributions compare to competitors? Should the amounts be increased or decreased and why?
Charter Communications made distributions to the following accounts: Distributions from subsidiaries, Distributions to noncontrolling interest, Distributions to parent, and Distributions to variable interest entities noncontrolling interest. Meanwhile, Comcast Corporation made distributions to the following accounts: distributions to member and distributions to noncontrolling interests.
5. Most Important Things Learned - What are the most important things you learned from the study of this week's readings, discussions, and assignments?