Hello class,
Class lecture today covered a wide variety of topics, but a major focus was identifying and evaluating companies and what stage they are in based on their financials. For today, please comment on how today and Tuesday’s lectures will help you in your business model creation and project presentations.
Have a great weekend!
Today’s class together with tuesday’s class will absolutely benefit us when it comes to analysing Wipros financials. The two classes have given us an overview of ratios but also the basics of how to size up a company. Of course, we will have to dig deeper and crunch more numbers than that but now we now where to start. We can also analyse Wipro to see were in the business life cycle they are now and what they are currently doing to sustain growth. Then it is time for us to turn things upside down see if we can come up with some smart ideas they can benefit from. Without knowing the financials of Wipro it will be hard for us to seriously present an alternative business model if we can’t show how to finance it.
I agree with Gustav, we learned a lot a useful tools about how to analyze a company from a financial perspective. These tools will allow us to explore the company is a way that we haven’t explored that much yet. Becoming familiar with a company’s financials is extremely important and will shed light on a lot of other information. For example, if a company’s business model sounds great and their product is great, but their financials are lagging for some reason, it allows us to realize that there is some disconnect between what management is trying to do and what is actually getting accomplished. Being able to analyze financial models isn’t only a useful skill to have, it is something necessary to do in order to fully understand a company and give it useful advice on how it can change its business model to further grow.
I found today’s class discussion to be very helpful. During our analysis of Wal-Mart vs. Target, I found it insightful to discover that Wal-Mart had achieved a higher ROE with a lower leverage ratio than Target. It was interesting to see how this competitor analysis quickly revealed the stronger player in the market. As our team moves forward with an analysis of Coke’s financial statements, it will be similarly helpful for us to conduct comparative analyses with other players in the beverage industry.
Another interesting takeaway was the idea of “telling a story” with our project presentations – I definitely think that storytelling will enable our team to communicate recommendations in an engaging manner. This will also challenge us to consider any “gaps” in the story we are telling so that we can fill those “gaps” with additional research and insight.
I definitely agree with Jacqui. After realizing how to analyze companies and their current state in the market, it is important to analyze them with respect to their competitors. By doing so we can see where they truly stand in the market aside from what we perceive as efficient ROA and ROE. In addition to telling a story, it is important to provide a guideline that showcases the transition from the past to the present in terms of financials and in terms of innovation. This will show how the company has progress.
Something I learned is that it is important to really look into the company’s numbers because numbers are very deceiving. Also by knowing their financial statements, we can better understand what we can implement to increase overall revenue.
The last part of Jacqui’s comment resonated with me the most through this past class. I took a look at the IBM presentation, where they told the presentation in a story format and saw how much more powerful it was. The story helps transform the classroom into actual rural India, and envision the technology and innovation much more. While the story may not be as powerful for some of our challenges (i.e. little impact on poverty), there are still opportunity areas to present in a story-format.
I think the past two lectures really provided us with the necessary tools to understand our client from a financial standpoint. As Professor Darwin said, this will really help us back up our ideas and proposals during our final presentation with real statistics and data. By knowing what to look for in the companies’ financial statements, we can rationally identify the weak points in the company’s cash flow, and make sure that our proposed business model can attempt to address it. Furthermore, the financial figures of Apple showed us how finding a great business model and innovation can truly “resurrect” a declining company and make it great again. I hope that our business model can do the same for our client as well!
After these past two lectures, I feel more confident as I begin to analyze GE’s financial statements. I was surprised at how quickly I understood the topics, especially when I was able to tell what stage each company was in just by looking at their financials. I became even more impressed with the significance of having an open and innovative business model when we analyzed Apple’s “resurrection.” Prior to yesterday’s class, I only thought of businesses being born or dying, never “resurrecting.” Moving forward, I will look at the companies we evaluated as a reference for GE. I will use the tools I gained from this past week to really understand GE’s current position and find ways to help turn the company around if we find that GE has many financial challenges to tackle.
I agree with you, Robert, and also think that these past two lectures have enabled us to really use Wipro’s financials to an advantage when developing a business model. Prior to the class, I had a general understanding of ROA and ROE were, but was unsure of what they showed about the company. I now know that the ROA represents stewardship, while ROE represents the amount of leverage that a company continues to take on.
I particularly enjoyed the exercises we did to figure out which stage each company was in the business life cycle. I found it useful to be able to look at many of the important factors that determine the life cycle and learn how to read them. This activity really helped me understand how to analyze financial statements and could be extremely helpful when moving forward with Wipro.
The financial advice given to us over the past two lectures was very useful for me, especially because I am currently in my first financial accounting class at Haas right now. The difference between financial accounting in a formal traditional accounting class and this class is that this class pushes you to question the ratios in the financial statements. For example, often, I have heard that EPS is the most important ratio in determining the valuation of a company, but the past two classes taught me that it is important to examine the Notes and ROA and ROE ratios as well.
Saundarya,
I took two accounting courses at my community college and also heard that EPS was one of the most important ratios. However, these past two lectures, I learned that ratios can be deceiving. It is essential to decompose them in order to diagnose the company’s financial problems. I appreciated how he broke down Apple’s ROA and ROE ratios to show that these ratios take into account all the numbers on an income statement and balance sheet.
Apart from the takeaways that my peers mentioned. I also find very useful the theory (used in marketing) of choosing an strategy, between product differentiation or cost leadership . I consider the comparison between Target and Wal-Mart really clarifying .This concept was written by Porter, he defined this two types of competitive advantage .
Product differentiation: This is Target strategy. They take care of the customers (small segment) ,they sell few units but have high margins.
Cost leadership: This is Wal-Mart. They sell a lot of units with low margin.They target most of segments of the industry. The days receivable and payable are much less than Target, they sell and get paid fast.
From today and Tuesday’s accounting classes, I am able to examine the health of the company from its financials. From the three levels of income statement, I am able to see how is the company operating. I really like the part when Prof Solomon was using Target and Walmart to illustrate how retailer differentiate itself among others, by having lower profit margin and higher volume (asset turnover) or by having higher profit margin and lower volume. As for business life cycle, a company could resurrect from declining by new innovations and therefore grow exponentially. From a single company’s perspective, it is hard to manage its financials to keep growing.
This week’s two lectures equipped us with the necessary methods and knowledge to understand a company’s financials as well as other aspects, such as marketing strategy (Target vs. Walmart example), business life cycle, that are indicated in the financial data. By applying these methods, we will be able to better understand not only J&J but also how J&J is doing comparing to its competitors. Moreover, we when are creating financial forecast for our business model, we will be able to know if our model will be profitable and sustainable. I think all we learned in financial analysis will allow us to not only show financial data in the presentation, but also explain what those financial data really indicate and therefore further support our business model.
I liked the Amazon example where the company was considered to be in bad shape before it managed to take off. I think that there are many cases of businesses that have to find their right business model through trial and error and it’s not always easy to tell if the company will be successful. Sometimes, investors can return belief in a company that’s not doing well and resurrect it.
Financials is the company’s bill of health. When analyzed, stakeholders are able to diagnose the company’s cycle stage, the effectiveness of its management and even which areas the company is failing at (i.e. liquidity, solvency). Financials are also used to predict what the future of the company is going to be like -when taken along other variables such as industry, competition and economy.
For purposes of the project, the platform we are going to create for UH will have the potential to reduce the cost side of the Income Statement and, with that, increase profitability. In order for us to “sell” the idea to the executives, we need to pinpoint exactly how our new platform will affect costs and how fast ($X within X years). Tuesday and Thursday classes where a great starting point for us in order to make that happen.
Utilizing the tools Professor Darwin gave us will allow for us to have a better understanding of Uniteds business model. United core business is health insurance and are consistently expanding into different businesses. United is the only healthcare company to own a bank. They also aqquire at least a company a month. It will be interesting to see via their financials how much these expansions affect the business and to do an overall analysis of how the business is functioning.
Last Thursday we looked at the different life stages of a company and how you determine that by examining their financial statements. My takeaway from this lecture was that even though we judge a company as dying, it resurrected and became profitable. Just another reminder of how important the business model is and fixating on the financials can be hazardous. It will be important to keep that in mind as we move forward with Wipro.
Thursday’s lecture was really useful as we learn how to use specific financial ratios (ROA and ROE and the breakdown components of both) to analyze and compare the health of companies. We also learn how to identify the stage of the life of a company. I find the session particularly useful as it provides us with the basic guidelines as to what are the important pointers of a healthy and established business. These guidelines will help us direct our research for our group project and also provide us with the understanding on how to innovate within different stages of company’s life cycle.
Learning how to distinguish a company’s performance of core business practice vs. their other business was very interesting. I had previously learned about companies taking “big baths” as a strategy for making performance seem stronger than it really is, but the calculations of RNOA were new to me. Previously I had not considered “big baths” as a sign of weakness in a company, as from the investor/ stock holder point of view, these traditionally are signs that a company’s management is capable of continuing to raise earnings which in turn results in high stock prices. Ignoring a company’s ability to seem impressive, finally this lecture was able to help me understand the reality of a company’s performance past the face they put up on paper.