PowerPuff Co.

, Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161

Fin Game Project: Assignment 3

Analysis of Company Super Wealthy Corporation (SWC) Overview
By the end of quarter 12, SWC company share price was $53, increased 56%
from their initial share price of $34 in the first quarter. This may not have been
an impressive number but if we were to examine the company action in Quarter
11, we can see that they made a mistake of overlooking the ordering additional
machine for production; this resulted in a very low production capacity of units in
quarter 12. This paper will as such analyze if SWC Company is a worthwhile
company to invest in and if current investors should hold on to the stocks; in
other words what potential this company holds.
Company Objective & Strategies
Company SWC mission and vision is to make strong mutually beneficial
relationships with their stakeholders by developing revenue and profits in a
sustainable routine to generate worth for shareholders and afford satisfactory
returns on investments.
Consequently, we would requirement to analyze SWC Company strategies to
perceive that they will be proficient to match the goals and objective.

PowerPuff Co., Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161
SWC strategy is maintaining production capacity close to the market is good.
They follow the forecasted of demand and production. They are able to move up
production with the demand of the market as the inventory level stocked in term
of undersell and that helps provide for the period where they stock out. Such as
undersold inventory in Q9 helps with high demand in Q11. In our view, the units
capacity work in the second year need to adjust up to approximately 120,000
continuing into the third year (2 stocks out of period). However, we disagree
when the company choose to reduced capacity in Q11 to 103,000 units as the
trend going forward is actually encouraging of 120,000 units upward.

Cash Management Strategy

From quarter 2 through quarter 12, Company has a very low of cash ratio which
measure that is unhealthy for creditor and a bad sign for investors. That would
be greater sing if company maintains enough cash balance to pay off all of their
current debts as they come due. A cash ratio show that the company needs more
than just its cash reserves to pay
off its current debt. The company
should manage higher cash
coverage ratio and maintain more
liquidity of cash ratios, which is
more easily to fund its debt
instead of lay emphasis on
marketable securities. To make a
good view for investor as sure
that company repaid their loan. In
the beginning periods, quarter 212, we feel the amount is too low
as such might not be able to
provide much cushion in case anything goes wrong this eventually leads to shortterm loan penalty in quarter 2. In the later period, quarter 8-12 that company

PowerPuff Co., Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161
seems to be holding too much in marketable securities instead of save for the
raining day or for capital reserve.
Dividend Payout Strategy

Company SWC did not pay dividend in quarter 4 to quarter 6 as they expected to
have additional capitals for their investment purposes; which eventually they
started to pay out by quarter 7 and 8 but stop paying dividend for awhile in
quarter 9. That shows this company havent grown to a point where they are now
leaders in the industries, characterized by having slow and steady earning
growth. This company may not concern with keeping shareholder happy with
dividend payment and providing a sense of safety to investors looking to
diversify into the equity market with out the high risks of investment. Therefore,
the company seemed to be typically growth company since expenses from
growth initiatives were close to their net earnings. We feel that the company
have decided not to pay dividends may under the principle with their
reinvestment strategies will through stock price appreciation lead to greater
returns for their investor. And this can be a good for investor who prefer to see
this company reinvest their earning to fund expansion and other projects which
they hope will yield greater return via rising stock price and in the hopes that
management can provide greater returns to shareholders through reinvestment.
The trend of accumulated wealth has made investor confident in the company as
shown by the stock price leading up to the final quarters. Our recommendation is
that they may need to adjust the dividend paid to be higher as for investors; they
may not want to wait until the third year to receive the same amount of dividend
they received in the first quarter.
Capital Structure Policy
Super Wealthy Corporation was operated under conservative approach; they
aimed to control their debt to equity ratio to not higher than 1.25 times. The bar
chart shown below shows that the company could follow their policy.

PowerPuff Co., Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161
D/E Ratio

By using debt, the company tried to match up maturity of assets and debts.
They mostly financed debts by long-term borrowing which comprised of 3-year
loan and bond because these amounts of money will be used to invest in fixed
assets (plant and machine) with for 5 and 2 years useful life respectively. The
new common stock issuing was applied when the company needs to reduce their
D/E ratio or whenever the company requires huge amount of fund for expansion
and cost of debt was too high to bear. Moreover, the company also concerned on
the cash on hand which ensure that the company could have enough cash to
repay the existing loan and need no more refinancing.
Since the company tried to control the capital structure by relying too much on
equity financing and maintaining low debt portion, the company experienced
with high cost of capital (WACC).

kd
ke
wd
we
WACC
(Quarterly)
WACC
(Annualized)

Q1
2.15
%
4.82
%
5.88
%
94.12
%
4.61
%
18.45
%

Q2
2.41
%
3.50
%
9.64
%
90.36
%
3.30
%
13.21
%

Q3
2.36
%
3.40
%
7.99
%
92.01
%
3.24
%
12.97
%

Q4
2.36
%
2.49
%
15.38
%
84.62
%
2.32
%
9.30
%

Q5
2.34
%
2.55
%
11.39
%
88.61
%
2.42
%
9.68
%

Q6
2.32
%
1.79
%
16.10
%
83.90
%
1.73
%
6.90
%

Q7
2.32
%
2.61
%
10.67
%
89.33
%
2.48
%
9.92
%

Q8
2.31
%
2.93
%
10.36
%
89.64
%
2.77
%
11.08
%

Q9
2.31
%
2.75
%
12.12
%
87.88
%
2.59
%
10.34
%

Q10
2.31
%
2.77
%
10.06
%
89.94
%
2.63
%
10.52
%

Q11
2.31
%
2.59
%
8.27
%
91.73
%
2.49
%
9.96
%

Declining in D/E ratio above indicates that the company has very high potential
to borrow but they didnt use this benefit so they couldnt enjoy tax saving as
they could be. Moreover, maintaining too low D/E ratio, the company had a bit
high WACC which affected on the difficulty of the project investment decision
making.
Based on our point of view, we would suggest the company to finance by debt
for the business expansion in the future or the company can also repurchase the
share in order to push up EPS and ROE.

Q12
2.31
%
3.33
%
7.01
%
92.99
%
3.19
%
12.77
%

PowerPuff Co., Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161
Investment Policy
One of the primary objectives of the company was to improve production costs
by continually increasing operating efficiency. Capital budgeting was used to
identify the best project in terms of financial throughout the life time. Beside of
NPV and IRR calculation, they also used discounted payback period to choose the
right project given the game would be ended at Q12. Although the company
found that the combination of investment on both project A and B was worthiest,
its needed a large amount of initial investment. Because the company had not
much cash on hand and wanted to control low D/E ratio, they considered to
invest only one project on particular quarter. They started to invest in project B in
quarter 8 since they knew that this project could enhance their cost efficiency by
reducing labor cost, and also could offer the highest NPV and IRR at the end of
the project with useful life of 3 years.
However, in the future, we would recommend the company utilize their unused
debt capacity to invest in both project A and B as the company already knows
that investment in both project A and B can generate better return to the
company. According to D/E ratio, the company is still able to borrow money to
invest in the project that improves business operation. It is worth to invest
because in the long-run, cost efficiency will be improved which affect in higher
net income.
Project A&B
Capital budgeting model is used to analyze and make decision to invest in which
project(s). They forecasted the revenue over the life of the project asset to assist
them in making decisions whether to purchase the project or not. They used the
NPV analysis to evaluate the investment choices and they finally decided to
invest in project B only in Q8 and Q9. This decision had helped them greatly in
terms of cost saving when compare to the profit but just for quarter 8 and
quarter 9. Although, our recommendation is they should invest on project, which
is NPV positive in every quarter to improve net income and get cost saving which
can improve their performance.

Overall Performance / Recommendation for investors

PowerPuff Co., Ltd

Miss Prapaporn Sombrunsri 5749156

Miss Monnaporn Netsawang 5749152
Mr.Peiyuan Song
5749161

The company is doing well overall with the increasing income and earning
per share. There was a major drop of profit during the 8th quarter is
because of economy downturn, comparing with other peers also has the
same problem, so we consider the company is having a stable growth in
the last 12 quarters.

We choose 3 multiples to evaluate the value of our target company. The forward
P/E, P/BV, P/S ratio are all calculated from the peers average which has almost
the same scale, went through the same economy conditions. The final target
price we get from those 3 methods are 54.7, 48.9 and 46.9. Comparing to the
current price 52.3, there are 2 methods indicated this company is overvalued. To
be conservative, we suggest a SELL on this company.
Recommendation: SELL