Accounting - Finance?

Question

Need advise on a company?
Can anyone give me suggestions as to which areas of a Company( i.e. Wal-Mart, K-Mart, Kohls) do I need to look into, in order to answer these four questions. For instance, would it be finacial statments, md&a, financial summary, etc?

I.Would you loan money to the company?
II.Would you purchase the company’s equity?
III.Would you enter a supplier or client relationship?
IVWould the company be a good merger or acquisition prospect?

Any help, suggestions and/or advise would be appreciated.

Answer 1

I. I would look at the company's assets and liabilities to see how much in assets they have relative to the amount of liabilities on their books. The big thing I would look at is how much cash, how much in notes receivables, and how much in accounts receivable the company has and see how much in current liabilities the company has. You can find all that on the balance sheet. I would also check to see their credit rating such as AAA or if it is AA rating.

II. If you mean stock, I would look at both the balance sheet and income statement. I want to know how fast the company is growing, is the company having higher operating costs as a percent of the previous year's income statement and if operating costs have gone up a lot, why it did so. Reading the footnotes written by auditors can help in this matter. I would look at the price of the company's stock and track their history and would look at the company's potential and what the future holds for them. I would also try to keep current to see if a lot of upper management is leaving the company because if that happens, that is not a good sign.

III. To do this, you might have to talk to the company itself to see if the 2 of you would get along. You want to see how the size of your company is versus their company size. If you are a small company and trying to partner with Wal-Mart, they can take advantage of you because Wal-Mart is so big. My friend works at Procter & Gamble and says selling to Wal-Mart is tough because Wal-Mart demands P&G sell to them at a really low price that P&G either makes no money on the sale or very little. P&G has to sell to Wal-Mart because so many people shop there and you cannot tell Wal-Mart you will not sell to them. The company my mom works for mom's sells to Wal-Mart. Her company is a small business and when Wal-Mart purchasing people come, they demand a lot and want so many price breaks and contigency deals, that my mom's company makes very little on the sale. Her company only can hope that with Wal-Mart buying in volume will allow my mom's company to make money. Meeting with the company allows you to know how dealing with these people will be; will it be easy or difficult.

IV. To see if a company is a good m&a candidate, you want to see if their products and services complement yours. Ex. P&G buying out Gilliette. You want to see how integrating the 2 companies will work. Sometimes a company purchases another one and they don't integrate well or later on they decide that they want to focus more on their core business. Pepsi used to own KFC, Taco Bell and Pizza Hut. Then they spun the companies off to become Tri-Com Global. Doing so allowed Pepsi to focus more on their core business. So you want to see if the prospect will cause you to deviate too much from your core business.

Answer 2

IV. To see if a company is a good m&a candidate, you want to see if their products and services complement yours. Ex. P&G buying out Gilliette. You want to see how integrating the 2 companies will work. Sometimes a company purchases another one and they don't integrate well or later on they decide that they want to focus more on their core business. Pepsi used to own KFC, Taco Bell and Pizza Hut. Then they spun the companies off to become Tri-Com Global. Doing so allowed Pepsi to focus more on their core business. So you want to see if the prospect will cause you to deviate too much from your core business.

Answer 3

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