Topic: Financial Statement Analysis

Case: Fantastic Manufacturing Inc

Detailed Question: First, preparing monthly forecasts of Fantastic's financial statements and monthly cash budgets for 1981 and 1982,
Then, evaluate the company's

1. Financial health

2. Need for increased financing

3. Level fan-parts order strategy

Analyzing a case generally involves five steps:

1. Identify the problem;

2. Define the alternatives (options);

3. Gather information about the alternatives;

4. Analyze the relative merits of the options;

5. Make a decision and recommend a course of action.

QUESTIONS AND REFERENCES FOR SPECIFIC CASES

Analyzing a case generally involves five steps:

1. Identify the problem;
2. Define the alternatives (options);
3. Gather information about the alternatives;
4. Analyze the relative merits of the options;
5. Make a decision and recommend a course of action.

A series of questions for each case is provided below to direct your attention and guide your analysis. I want you to address these questions, but not to feel constrained by them. There may be important issues not addressed by these questions that need to be identified in your analysis. You should also be guided by the preceding five steps in your thinking process, but do not follow them slavishly. Do not, for example, enumerate the steps in a paper or presentation.

Fantastic Manufacturing, Inc.

After preparing monthly forecasts of Fantastic's financial statements and monthly cash budgets for 1981 and 1982, evaluate the company's

1. Financial health

2. Need for increased financing

3. Level fan-parts order strategy

Requirement:

Written assignments will be 5 to 7 double-spaced printed pages (plus appendices and a title page) and will be stapled once in the upper left hand corner. (No report covers, please.) The appropriate style is that of an executive brief prepared for the chief executive officer -- clear, concise, to the point, devoid of unnecessary background material; but nevertheless, complete, self-contained, logically consistent and well-supported with technical appendices. Your assumptions must be listed and justified, either in the text or in the first appendix.

Executive briefs are written in a style that is quite different from academic term papers. By far the most significant difference is that executive briefs must be self-contained. That is, the reader should never be forced to interrupt his/her reading of the paper. If the reader must refer to an attached appendix to follow (or completely understand) your executive brief, then the paper is not self-contained. In many cases you will include one or more spreadsheets as appendices. Generally, only summary data from these spreadsheets will be of immediate interest to the CEO. These summary data should be presented as exhibits in the body of the paper. Exhibits should generally be either short tables or graphs and should indicate the source of the data (appendix or external source).

The purpose of technical appendices is to provide the detail necessary to validate the important results presented in your brief. Thus, from the reader's viewpoint, the appendices are reference material (optional). If you are having difficulty visualizing what is meant by self-contained, ask yourself this question. Would the development and the important results and conclusions of my analysis be completely understandable to a high-level executive if the appendices were removed?

Although the appendices may, or may not, be examined by the executive reading your report, they are very important for the purpose of validating your analysis. The CEO will usually have his or her technical staff go over your analysis in detail. It is very important that the models contained in your spreadsheets be well documented. Use variable names wherever possible. For example, SALES IN YEAR 1 is much more understandable than B3. Have sufficient notes in the body of each appendix to explain the assumptions and the calculations contained therein. What is being done in this spreadsheet? What should the reader be told to help understand the model developed here?

Spreadsheet analysis is an essential part of this course. You are always expected to use sensitivity and/or scenario analysis to test the robustness of your results to variations in the critical assumptions underlying your analysis.

You may wish to make photocopies of your written cases before turning them in. I will retain written cases (and other assignments) turned in for grading because they will contain my comments. No late Assignments will be accepted. (Note: corporate recruiters sometimes ask to see examples of your case solutions.)