Introduction 200

It is an evident fact that making a million dollar investment may cost a company huge

loss when capitals are invested in other businesses without any proper evaluation. ____ in their

work have lay emphasis on the fact that investment analysis must be based on a number of

factors that ultimately affects the business operations as well as the bottom line of the

organization. According to the point of view of the academics______, having a complete

overview of the industry in which the potential investment organization operates must also be

evaluated using diverse dimensions which as a result provides a complete evaluation of the

factors that might affect the proposed investment.

This report provides a thorough evaluation of the trucking industry as well as the

Covenant Transportation Group, its current strategies and capabilities, SWOT analysis. Along

with it, an illustration of multi-year financial analysis have also been made along with the

Overview of the Trucking Industry 200

According to the point of view of the academics______, having a complete overview of

the industry in which the organization operates is an essential approach towards company

evaluation. I not only help in understanding the macro environment but also the micro aspects

that would have a crucial impact on the investment options. The trucking industry denotes the

use of road transportation, for instance the semi-trailers as well as light trucks, for the purpose of

moving goods all across the overland route. _____ in their work suggests that generally goods

are transported by means of using trucks from the manufacturing organizations to retail

distribution center, however, there are also other common use of trucks like the transport of

building materials as well as the construction industry wastes. The trucking industry serves the

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American economy by transporting large quantities of raw materials, works in process, and

finished goods over land—typically from manufacturing plants to retail distribution centers. The

U.S. trucking industry is huge. It moves billions of tons of freight and employs millions of

people each year. Moving freight in the United States continues to be highly trucking dependent.

According to the American Trucking Associations’ annual survey, released in August, trucks

carried 10.77 billion tons of freight last year, a 3.8% increase over 2016. Trucks carry 70.2% of

all freight moved domestically. As per the market reports, the revenue of this industry has finally

crossed the benchmark of $700 billion.

https://www.freightwaves.com/news/infographic/breaking-down-trucking-industry. There is a

significant advancement in the technology led trucks that have created a revolution in the

trucking industry.

Table 1:

Competitor Analysis Key Success Factors

The major competitors of the company The key success factors of Covenant

include Transport America and Celadon. Transportation Group in the trucking industry

Transport America provides truckload would include:

carriage as well as logistics services; whereas, 1. Getting transportation business from

Celadon logistics firm provides long haul logistics

along with the management & brokerage 2. Low logistics and overhead costs

service and intermodal freight transportation. 3. Improved business conditions in terms

Compared to other firms, Covenant of constant revenue generation.

Transportation Group has been able to gain

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competitive advantage in the industry with an

annual revenue reported for $885.5 million

whereas Celadon Group has been able to

generate annual revenue around $1.1Billion.

Thus, Covenant Group must strive to improve

its strategies and capabilities to reach that

benchmark

Analysis of CTG’s Current Strategies and Capabilities 200

According to the point of view of the academics______ while evaluating the business for

investment purpose, it is essential for the analyzer to have a comprehensive understanding of the

existing capabilities and strategies adopted by the business. _____ in support of the above view

point has emphasized on the fact that assessing though the core capabilities and strategies are

helpful in gathering in depth information of the current state of operations. In the present case,

The Covenant Transportation Group has been able to enter the market and establish itself as the

most renowned trucking business. The company is operating with a unique approach to the

expedited and long haul, as well as refrigerated businesses through a team-driver system. This

strategy has enabled the organization to gain competitive advantage for the time-sensitive freight

customer requirements in comparison to the intermodal or the solo driver system.

SWOT Analysis 250

According to the point of view of the academics______, SWOT analysis is one of the

most effective tools that have been used by a number of researchers to assess the competence,

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strengths, weakness as well as the challenges faced and opportunities gained by the organization.

The following table represents the SWOT analysis of the Covenant Transport Group

Table 2: SWOT Analysis

Strengths Weakness

 Expertise at entering new markets and  Higher days inventory compared to the

making success of them. competitors

 Build new revenue stream and diversify  Higher attrition rate among the human

the economic cycle risk in the markets resources in the organization

 Limited level of expansion in the adjacent

 Strong distribution network
product sections
 Good Returns on Capital Expenditure
 This limits success beyond core business
 High level of customer satisfaction

 Strong Free Cash Flow

Opportunities Threats

 New Policies on environmental aspects  In the American economy there is

 Implementation of innovative increasing trend in isolationism

technology for enhanced business  Exposed to currency fluctuations due to

practices increased operations

 Stabilize free cash flow  Lack of skilled and expertise workforce

 Changes in the preferences of customer in the American economy

group brings immense opportunity to  Increase in environmental regulation on

create new revenue streams fuel

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 The above table represents the internal strengths and weakness of Covenant Transport

Group along with the opportunities and threats that lies ahead. The overall analysis indicates that

though the company has been able to gain competitive edge in the American and global market

however, the rising challenges as listed above must be taken into consideration before making

any investment decision.

Multi-Year Financial Proforma 500

According to the point of view of the academics______, while taking out the valuation of

an organization, it is essential to anticipate multi-year financial performance by means of using

the existing growth and progression. The following table represents the financial performance

analysis of Covenant Transportation Group for three years from 2018-2020.

Table 2: Multi-year Financial Performance Analysis

COVENANT TRANSPORTATION GROUP INC.

INCOME STATEMENT
2017- 2018- 2019- 2020-
Fiscal year ends in December US$ 12 12 12 12
853.0 938.3
Revenue 705 775.5 5 6
740.5 814.5
Cost of revenue 612 673.2 2 7
112.5 123.7
Gross profit 93 102.3 3 8
Operating expenses
Sales, General and administrative 55 57.75 60.64 63.67
Other operating expenses 10 10.5 11.03 11.58
Total operating expenses 65 68.25 71.66 75.25
Operating income 28 29.4 30.87 32.41
Other income (expense) -5 -5 -5 -5
Income before income taxes 23 34.4 35.87 37.41
Provision for income taxes -32 16 24 32
Net income from continuing ops. available to common
shareholders 55 50.4 59.87 69.41

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 The above table represents the income statement from 2017-2020. The anticipation has

been done for the years 2018-2020 based on the amounts of the year 2017. It has been

anticipated that due to the investment in the company, there would be a rise in the demand of the

products which in turn would also increase the revenues of the company as well. In addition to

this, it is also evident from the annual report of the firm that the company is facing a high

volatility in its business operations. This indicates that after investing in the company there

would be stabilization in its operations owing to the rise in the funds of the company.

Table 3: Statement of Cash Flow

COVENANT TRANSPORTATION GROUP

INC. Statement of CASH FLOW
Fiscal year ends in December. US$ 2017-12 2018-12 2019-12 2020-12
Cash Flows From Operating Activities
Depreciation & amortization 72 64.8 58.32 52.49
Investments losses (gains)
Stock based compensation 1 1 1 1
Inventory 0 0 0 0
Prepaid expenses 2 2.4 2.88 3.46
Accounts payable -3 -10 -15 -25
Accrued liabilities -1 -5 -5 -5
Other working capital -24 -21 -16 -12
Other non-cash items 59 64.9 71.39 78.529
Net cash provided by operating activities 83 97.1 97.59 93.473
Cash Flows From Investing Activities
Investments in property, plant, and equipment -111 -250 -325 -550
Property, plant, and equipment reductions 49 65 85 100
Acquisitions, net
Purchases of investments
Net cash used for investing activities -62
Cash Flows From Financing Activities
Debt issued 1393 1741.25 2176.56 2720.70

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 -
Debt repayment -1405 1654.19 -979.45 -1224.32
Net cash provided by (used for) financing
activities -13 87.06 1197.11 1496.39
Net change in cash 8
Free Cash Flow
Operating cash flow 83 112.05 151.27 204.21
Capital expenditure -111 -250 -325 -550
Free Cash Flow -28 -137.95 -173.73 -345.79

The above table represents the anticipated cash flow statement of the Covenant Transport

Group Inc. from 2018-2020, based on the parameters of the year 2017. It has been assumed that

the cash inflow each year would increase due to the increase in the amount of investment made.

It can be seen that the depreciation on the capital asset decreases year after year, due to the

weighted average methodology and the increase in the number of years for which the truck has

been used. In addition to this, it can also be observed that there is a fluctuation in the net cash

flow from operating activities which increases to $97.51 million in the year 2018 from $83

million in the year 2017. Further, it also increased to $97.59 million in 2019 due to 10%

anticipated increase in the operating cash.

The net cash that is anticipated to be used during the three years’ time period is around

$450 million due to increase in business operations owing to the investment made by the

proposed company.

A Valuation of CTG 400

According to the point of view of the academics______, valuation of any business is

essential for the purpose of evaluating whether it is worth investing or not. There are a number of

methods that are used to analyze the value of the business, one of them is the discounting cash

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flow method and the other is the internal rate of return method. Both these methods are used

together to find whether the present value of the business shows positive return or not. The

following table represents the business value of CTG In.

Table : Business Valuation

2018 2019 2020

Free Cash $ $
Flow ($37.95) (18.73) 94.21

Rate of
Discount
Assumed 20%

Free Cash Future

Year NPER Flow Value
$
1 2 (37.95) $54.65
$
2 1 (18.73) $22.48
$
3 0 94.21 ($94.21)

Total Present
Value ($17.08)

Year Future Value

1 $54.65 `
2 $22.48
3 ($94.21)

IRR 12%

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 The above table represents the valuation of business using the discounted cash flow

method and the internal rate of return. With the aid of the discounted cash flow, the present value

has been computed through the free cash flow. The present value of the firm is a negative

balance, which indicates that the company is not worth investing at all or it might case enormous

loss to the proposed investors. However, the IRR has a positive value and that too 12%,

signifying great scope for the business organization.

Another method that is commonly being used by the business values, namely, ratio

analysis. The ratios used in this research are mainly the liquidity ratios, solvency rations as well

as efficiency turnover. The below table represent the Ratio Analysis of the proposed cash funds.

Table: Ratio Analysis

All figures in $ m

Types of Ratios Formulae Amounts Ratios

2018 2019 2020 2018 2019 2020
Profitability
Ratio:
112.5 123.78
Gross Profit 102.3 3 3 13.19 13.19 13.19
Gross Profit Sales/ Revenues 776 853 938

Net Profit Net Profit 50.4 59.87 69.41 6.50 7.02 7.40
Sales/ Revenues 776 853 938

Solvency ratios Current assets 212 265 318 1.67 1.67 1.67
158.7
Current Ratio Current liabilities 127 5 190.5

Total Current Assets -

Inventory 212 265 318 1.67 1.67 1.67
Acid Test Ratio Current liabilities 127 158.7 190.5

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Efficiency Ratio

Asset turnover
Ratio Sales 776 853 938 0.88 0.81 0.81
Assets 774 967.5 1161

The profitability ratio, i.e. the gross profit ratio and the net profit ratio helps in

determining the capabilities of the organization to gain on business operations. These ratios are

positive and thus, signify that the company has a good scope in the future. In addition to this, the

solvency ratio, i.e. current ratio as well as the acid test ratio (without inventory), is above 1,

which indicates a good scope for the business in the future. In addition to this, the efficiency

ratio, asset turnover ratio shows a positive value which signifies that the company has enough

assets to cover the losses that arises, if any, from the business operations.

Recommendation for Sources of Capital 250

Making investments in any business requires a lot of funds which must be arranged by

the investors. There are a number of options available for the company either to raise or to

borrow funds from the financial institutions. The required amount of fund would be the amount

of total assets of the firm net liabilities. This amount can be borrowed from the local bank at the

prevailing rate of interest. In addition to this, funds could also be utilized towards the

development of the proposed exiting business in which the company strive s to seek for jop

opportunities.

Apart from the above two sources, another sources is by raising equity capital or debt

capital at a predetermined rate. This will in turn help in floating the shares in the target market as

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well as raise finance without any extra efforts. Only public notice, notice of the meeting as well

as reports over the news, must be circulated as soon as possible.

The three target to gain synergy are the business operations, cash flow as well as the

assets of the firm. The three targets mean those who have participated in such activities. The

most an

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Conclusion 150

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