Financial Analysis Of Excelsior Corporation

Evaluation of Key Financial Indicators

There are several financial factors which need to be analysed for making the effective business decision. It is observed that financial tool such as ratio analysis, capital budging and other tools which have been assisting in evaluating the internal and external factors of the business. This report reflects the financial performance of Excelsior Corporation which will be assessed by using the different financial analysis tools. It has been evaluated that company has faced high losses in its business due to its non-effective business.

It is the American company which have been indulged in manufacturing and distribution of packed, cushioned and engineering of products for the flexible foams and erosion. The Key managerial people of this company are William D. Albers (Owner/Chairman of the Board who have been providing instruction to employees for running the business effectively.  

It is evaluated that the present CEO of company is Terry A. Sadowski (Excelsior Corporation. (2017).

However, the major Shareholder of company is VA College America Smcap World 529E

There are several major owners of the company. However, the CEO of the company has found high loss in its business due to the negative market factors and less profitable business factors.

Computation of the Return on Assets of Company

Computation of the return on Assets of Company

It is observed that the net income of the company has been showing the negative results which are not positive for the business growth of the company. Excelsior Corporation decreased the overall outcomes of the business throughout the time. The net income of company has gone down to 5 million in 2014 and it has been consistently decreasing to USD 9 million in 2017. It is not showing the positive indicator for the business growth (Excelsior Corporation. (2015).

 Interpretation

The return on equity is the amount of return available to equity shareholders. The return on equity has gone down due to decrease in its overall earning. Excelsior Corporation decreased the overall return on equity throughout the time. The return on equity of Excelsior Corporation has gone down to 25% negatively in 2017 which shows that company will soon have to face liquidation and winding up (Excelsior Corporation. (2016).

Debt to equity of company

The debt to equity ratio of company is highly stable which shows less amount of financial leverage. However, Excelsior Corporation increased its financial leverage in 2015 with a view to reduce its cost of capital. In 2017, Excelsior Corporation kept 29% debt to equity ratio which is balanced equity ratio for the effective business management. The debt to equity ratio should be decreased as company has decreased its overall its outcomes (Excelsior Corporation. (2015).  

The equation of the company is both sided proved and should be aligned with the increased factors.

(This table shows all the both sides’ data is equal to left sided data.

The both side of the data is equivalent.  

The share price graph and calculation for the movement of the share priceGraph reflecting the share price movement of the Excelsior Corporation

Computation of the Return on Assets of Company

This above given graph shows that the share price of Excelsior Corporation  is highly fluctuated due to its increased loss of business and downfall in tis overall earning. However, the market factors are also reflecting the systematic and unsystematic risk which is not good indicators for the investors for investing money in this company. It is observed that if company wants to win over the market then it will first have to decrease its overall financial leverage and increase tis overall selling. Investors will not be investing their capital in Excelsior Corporation as the market condition of this company is not stable. Therefore, due to the uncertainty of the sustainable future, Excelsior Corporation may face destruction of its business in long run which will also affect the fund raising capacity in near future (8^th May, 2018). 

It could be inferred that if investors wants to create value on their investment then they will better off to invest their capital in other business that are doing good in this market as compared to Excelsior Corporation.

There are several factors which might impact on the financial performance and share price of company. It is observed that the company has increased its overall fixed investment which has increased the overall expenses of company.  It is observed that company has also introduced the new product line which has increased the potential outcomes of the company and will eventually increase the share price of company (Tseng, &Chiang, 2016). 

The reduction in the interest rate charged by the Company is also the major announcement which will reduce its possible losses in near future.

Another announcement is related to increased employee turnover which shows that company needs to manage its experienced employees in its business otherwise it will result to high loss. In addition to this, company needs to increase its debt funding to raise funds in market.

Stock information and Beta calculation

The beta of Excelsior Corporation has been calculated by using the regression analysis. The beta shows the % increase and decrease of company based on the market premium. The positive beta shows that the market and company will be affected in the same direction. For instance, if the beta of company is 1 then if market premium changes by .5 points then the Excelsior Corporation will also be changed in the same direction with same point.

The beta value of Excelsior Corporation

The beta value of Excelsior Corporation has been showing 0.0097416 which shows that if the market factors shows 1 % change then company will also be affected by 0.0097416 in same direction.

E(R) =

E(R) = expected Amount of rate of return

 = Risk free % rate of return

β = Computed Beta

= Market premium risk factor

(Excelsior Corporation, 2017).

 (Please see the excel)

Notes- The risk free rate of return is based on the USA government bonds for 10 years.

The investment method of Excelsior Corporation is highly dormant due to its less effective business functioning. The management of Excelsior Corporation are more inclined towards following aggressive investment methods in other diversified market with a view to create value on their investment.  This investment method shows that company has been facing high amount of loss in its business which has resulted to the destruction of its business. The management of Excelsior Corporation has planned to invest more and more capital in other diversified market so that it could create value on the invested capital.  The investment method should be based on the net profit earning capacity of company and how well company will take its investment decision. Company have been following conservative investment decision to invest its capital in other potential business sectors.

Rate of Return on Equity

The cost of equity capital has been computed by using the Capital Assets pricing model

Cost of debt- It would be kept zero due to the zero level of interest payment by company.

The cost of debt is computed on the basis of interest payment by the company.

WACC= cost of debt* portion of the debt capital+ cost of Equity * portion of the Cost of equity

The weighted average cost of capital is very low which shows that company could raise more funds from market with a view to invest it in the market. However, the debt funding of company has been kept zero due to the low interest payment.

If Excelsior Corporation has higher weighted average cost of capital then it will not only decrease the overall outcomes of the business but also result to failure to accept the particular project. It is analysed that if company has higher weighted average cost of capital then it must find the project investment option which would render it higher return on capital employed. If company has higher return on capital employed then it will not only increase the overall output but also increase the sustainability of investment option in long run. In the present case, company has low weighted average cost of capital which reflects the positive indicators for organization.

The financial leverage of company was very low in 2014 which suddenly increased to 35% in 2015. After that in 2017 it went down to 29%.

The debt to equity ratio of company is highly stable which shows less amount of financial leverage. However, Excelsior Corporation increased its financial leverage in 2015 with a view to reduce its cost of capital. In 2017, Excelsior Corporation kept 29% debt to equity ratio which is balanced equity ratio for the effective business management. The debt to equity ratio should be decreased as company has decreased its overall its outcomes. .

The gearing ratio reflects Excelsior Corporation’s ability to cover its interest payment out of the EBIT. The interest payment of Excelsior Corporation is zero which shows that company has zero level of gearing ratio. It is observed that company could raise more funds from the market which may increase the it’s capital funding and also reduce the overall cost of capital.

The dividend policies of Excelsior Corporation are highly based on the profit earned by company. Excelsior Corporation has been following the profit based dividend policies. It has not been offering any dividend to its shareholders due to the negative profit earning of its business. It shows that company will issue dividend to its shareholders soon after when it will have positive net profit in its business.  The dividend policies of the company should be formulated on the basis of negative and positive factors of the business. In this case, company has been running its business in sluggish market condition which is not positive indicators. It will eventually reduce the overall output and decrease the business efficiency of company.

To,

Directors or Manager of Excelsior Corporation

Address:-

There are several positive and negative points of the Excelsior Corporation which could be used by directors of Excelsior Corporation to increase the overall output of the business. It is observed that company should focus on the raising funds from its debt capital as company has been paying zero interest payment. In addition to this, the net profit earning capacity of Excelsior Corporation is also negative which could be improved by improving the business performance. The directors of the company should enter into the strategic planning to win over the market. In context with the, profitability, it is considered that the net income of company has gone down to 5 million in 2014 which is not good indicators and it has been consistently decreasing to USD 9 million in 2017. It is not showing the positive indicator for the business growth (Excelsior Corporation. (2015). If company does not improve its profitability in short span of time then it may destruct the sustainable future of organization. The share price of company has also affected by its negative business outcomes.  These business organizations will assist company to reduce its overall cost of services and help company to drag its business from the negative business factors. Now in the end, it could be inferred that the management of Excelsior Corporation should follow the divestment strategic plan to lower down its losses to win over the market (Wangi, and Murga, 2015). 

Conclusion 

After evaluating the financial performance of company, it could be inferred that Excelsior Corporation needs to follow divestment strategic function. It has faced high amount of loss in its business. Excelsior Corporation should also increase its debt funding and invest its capital in other diversified business which could offer good amount of return to company. The main negative factor which needs to be overcome by the company is related to its overall sales. Company needs to increase its overall sales which will eventually increase the overall output and return on capital employed.

References

Wangi, M. & Murga, J.W., (2015). The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

Tseng, F.M. & Chiang, L.L.L., (2016). Why does customer co-creation improve new travel product performance?. Journal of Business Research, 69(6), pp.2309-2317.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., (2015). Financial & managerial accounting. John Wiley & Sons.

White, G.L., Sondh, A.C. and Fried, D., (2015). Analysis of Financial Statement. Analysis

Excelsior Corporation. (2015). Annual report. retrieved from https://www.excelsiormining.com/index.php/corporate/financialstmts., Accessed on 8^th May, 2018

Excelsior Corporation. (2016). Annual report. Retrieved from https://www.excelsiormining.com/index.php/corporate/financialstmts.,

Accessed on 8^th May, 2018

Excelsior Corporation. (2017). Annual report. Retrieved from https://www.excelsiormining.com/index.php/corporate/financialstmts

Accessed on 8^th May, 2018

Excelsior Corporation. (2018). Annual report. Retrieved from https://www.excelsiormining.com/index.php/corporate/financialstmts.,

Accessed on 8^th May, 2018

Yahoo finance, 2018 retrieved from https://in.finance.yahoo.com/,

Zhu, J., 2014. Quantitative models for performance evaluation and benchmarking: data envelopment analysis with spreadsheets (Vol. 213). Springer

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