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The front desk receptionist routinely takes an extra 20 minutes of lunch to run personal errands. Agency Problem: she took an extra 20 minutes to do her personal errands instead of working, which she puts her own self interests before the best interests of the company. Occurred cost: the salary that the company pays to her. The solution would depend on the boss on her work performance in the past. If she has an important personal errand to do during that time, then boss might need to talk to her and explain the solution for her.
This problem can be final dealt by clocking-in and clocking-out even time for lunch hours.
Division managers are padding cost estimates so as to show short-term efficiency gains when the costs come in lower than the estimates. Agency Problem: Division managers use their authority to mislead information and a problem exists when management and stockholders have conflicting ideas on how the company should be run in short-term.
It will mess up the management in order to plan costs. Also it might ruin the number balance sheets and which could affect future gains. This might mean that the division managers who wish to engage in capital expenditures can now secure a short-term benefit from lower estimates.
Occurred cost: The solution is management should monitor division managers performance and might give managers the performance shares which result in meeting the stated performance goals. These goals must be more efficient and accurate in order for management to plan goal to generate profit.
Agency cost: By reducing and by providing appropriate incentives to align the interests to division managers. C) The firm’s chief executive officer has secret talks with a competitor about the possibility of a merger in which he would become the CEO of the combined firms.
Agency Problem: The chief executive officer risks negative behavior because of dealing with the competition and did not involve his company’s best interests. He is putting his needs of planning a secret merger with his competition, which most likely can result potential profit for him, and possibly his company, if the merger is a positive one. Since he knows that his merger will occur (due to the fact of his direct “under the table” dealings with his competition), he can then go forward openly with his own company to promote the merger. Occurred cost: The CEO should know himself and the risks of CEO overconfidence.
His behavior results in exactly this type of good faith mismanagement of the business. It is very important that the company should continue improving both legal and non-legal mechanisms that remedy conflict-of-interest problems by guarding against looting, fraud, and other forms of corporate corruption and disloyalty and by incentivizing managers to maximize shareholder value. The added challenge for corporate governance is to move beyond managerial motives to account more for human psychology and how managers actually behave and make business decisions when they are well-intentioned.
D) A branch manager lay off experienced fulltime employees and staffs customer service positions with part-time or temporary workers to lower employment costs and raise this year’s branch profit. The manager’s bonus is based on profitability. Agency Problem: the branch manager created the personal goal to get more bonuses which depends on profitability and did not look into the company’s performance. Occurred cost: the management should be able to see that profitability does not come from sales.
The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. Time-Series analysis evaluates performance overtime by comparing current to the past performance. To look at significant year-to-year changes may be symptomatic of a major problem. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data.
So, I will compare the actual year 2007, 2008 and 2009. Liquidity by look at the current ratio and quick ratio that evaluating the speed with which certain accounts are converted into cash and its look at the ability of a company to meet its short-term obligations. As actual year 2009 the current ratio (2. 48) and quick ratio (1. 35) higher than the industry average and the higher is the better for company. If we look at the balance sheet we will see that the current asset and the current liability is decreased which is the big decreased from accounts payable.
This shows that Marin Manufacturing Company have enough quick assets to pay off all current liabilities. Activity It shows relationship between the sales & the assets. By evaluate inventory turnover, average collection period, and total asset turnover. As the inventory turnover of the Marin Manufacturing Company is less the industry average which I recommends that the company should manage inventory more efficiently. The average collection period is higher than both industry average and the past year which the manager should emphasis on the collection to decrease this number.
It means that they have to change their policy of lending business for more efficiency of debt collection. The total asset turnover for the actual year is 1. 6 which more then the past year but it still less than the industry average. So, the company needs to increase sakes to meet the industry average. Debt can analyze by debt ratio and time interest earned ratio. The debt ratio of actual year 2009 is higher than the industry average it continue increasing since year 2007-2008. Its means that the company has high leveraged and might borrows more money in the year 2008.
Also the higher debt ratio means higher risk for lenders and investors. For the time interest ratio which decrease from year 2008 at 1. 9 to be 1. 6 in year 2009 and lower than industry average it means the company might facing the risk that cash flows from operations will be insufficient to cover interest and principal payment. Profitability by evaluate gross profit margin, net profit margin, ROA and ROE. Gross Profit Margin is measuring how much amount is left to meet other expenses & earn net profit which actual 2009 is at 27% that higher than the industry average (26%).
Its mean that the company has high ability to sell goods at intended selling price. At 0. 65 % of net profit margin that decrease from 1. 1 % in 2007 to 1. 0% in year 2008 and less than industry average (1. 2%) that create low safety to the company. The higher risk that a decline in sales will erase profits and might result in net loss. The ROA and ROE both in year 2009 are decreasing to be less than the industry average and decresing from the past year. This show that the managerment is not managing asset effeicincy or assets are not being utilized effectively and lower ROE might caused by high debt.
It seem like when this company are not very attractive for invertor if they looking at return on stockholders investment which is decreasing to be lower than industry averange. Market can analyze from P/E ratio and M/B ratio. For P/E in year 2009 is 34. 4 compare with the industry average at 43. 4 which lower and if compare to the past year it lower than year 2008. It means that investors are not perceive good growth potential of Marin Manufacturing Company.
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