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FinGame Written Assignment Q1-Q4

FinGame Written Assignment Q1-Q4 - Message from the CEO...

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October 21, 2010 Message from the CEO: Since becoming the CEO one year ago, we at DMM Manufacturing have almost doubled the value of our company in terms of the total market value. Overall, an 82.68% return was gained in the last year. The market value of the company has increased from $14.1 million to $31.8 million in just one year’s time (See Exhibit 1). This is in part due to the financial strategies implemented. As we were unsure of the stability of the market, we decided to follow a very conservative financial strategy. After carefully analyzing the industry and our competitors, we decided that it would be optimal to use approximately 30% debt to fund future projects. This plan was carried out through the entire year; the debt ratio never dipped below 28.58% and never exceeded 33.75%. We were also very conservative in issuing new debt. We wanted to minimize the risk in the debt that we took on, so mostly 10-year bonds were used. The strategy involving debt could not have been much more conservative without eliminating growth potential. Besides this, extra cash was to be kept on hand. This was to ensure that no penalty loans would be applied. It would give a cushion during a poorly performing quarter. Excess cash above $500,000 was placed into marketable securities. Dividends were paid during quarters with good performance. This included the first three quarters of the year; however, we were very constrained on funding during the fourth quarter due to the need to replace machinery and plant. Thus, we deemed it appropriate to not pay dividends and reinvest all funds back into our company. To help gain extra profits, we evaluated two capital budgeting projects per quarter. Any that yielded a positive NPV were accepted, no matter how small the gain was. We have had a very successful first year, and we look forward to future business with you. Sincerely, David Mowers, CEO of DMM Manufacturing Future Outlook
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We have gained valuable experience throughout our first year at DMM Manufacturing. We have taken a conservative approach thus far to maintain financial stability. As the economy and our company continue to grow, we will begin to take more risks.
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FinGame Written Assignment Q1-Q4 - Message from the CEO...

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