Analysis has been distributed among different categorizes that include financial analysis, investment analysis and operational analysis. It is an essential tool that has a great condition in particular. All of these analyses will be done on the basis of Financial Analysis and Strategic Analysis, and then effective recommendations would have been posted accordingly (Debarshi, p.67).
In this particular analysis, it is required to compute the financial analysis of Loews Corporation, and there are number of sections that needed to be completed accordingly in an effective manner. All of the sections would have been considered in a perfect manner for the entire analysis.
Environmental Scan/Background
Loews Corporation is an American based company that has its physical main hub found in the New York City (NYC), the United States (Walton, p.56). Loews Corporation is known as Value investing company. It is a financially stable company, and the products of the company are insurance, hotels, oil drilling and pipeline transport. The shares of the company are increasing robustly in the financial market, and in the past few years the stock value of the company increased with a pace of 16% in particular, which was actually higher than that of the level of Standard & Poor (S&P)-500 Index. One of the best things associated with the company is their effective and large amount of cash reserve which is showing the tendency of the company to grow effective and substantially in the market. The operating revenue which reported by the company in the financial year 2013 was US$ 15.053 billion with net income provision of US$ 1.069 million in the same year (Finance.yahoo.com).
For the environmental scan of the company, it is required to adopt External Factor Evaluation Matrix (EFEM). The EFEM is basically a subtitle of the SWOT analysis, in which special focus will be given only to two factors, Opportunities and Threats. This particular thing is extremely effective and essential for the sake of an entity, and it will be equally beneficial for the Environmental scan.
Opportunities of Growth for Loews Corporation
- There is a great opportunity exist for Loews Corporation in terms of increasing their revenue in a perfect manner owing to the growth in the property market in the entire world, along with the growth in the causality insurance market in particular.
- Technological advancement is increasing tremendously well for this particular company, and the technological advancement is giving an opportunity to the company to serve their customers in a better and organized manner
- There is an online presence as well that associated with the global insurance and property market, and it is equally associated with the Loews Corporation as well, and the company should create effectiveness in their core market
Threats for Loews Corporation
- Insurance industry subject to frauds in particular, which will be ineffective for the companies already exist in the market
- There is a probability of climate changes in the market, and the existence of catastrophic events that are going to affect the property and insurance market heavily
Ratio/Valuation Calculations
There are number of ratios that needed to be use in this particular analysis, and all of these ratios will certainly give an insight knowledge and information related to the company. The ratios are as follows
DuPont Identity
DuPont Analysis is one of the most important measures that usually associated with the Return on Equity of the company. The DuPont analysis will be computed for the four years of operations of the company. The DuPont component tells the affection of Asset valuation, operational efficiency and financial leverage stance of the company (Finance.yahoo.com).
Current Ratio
The computed Current Ratio of the Loews Corporation is as follows for the three years of time period
This particular analysis is showing that the Current Ratio of the chosen organization was 1:33 in the financial year 2011 that remained like the same till in the year 2013. The average CR of the company for these three years is 1:32, showing that the company has the tendency to meet with its short term financial promises and obligations (Finance.yahoo.com).
Quick Ratio
The computed Quick Ratio of the chosen organization will be the sale as the current ratio, because the company doesn’t have any inventories from 2011 to 2013 in particular.
Inventory Holding Period
Loews Corporation is not a manufacturing company; therefore it doesn’t have any implication of the inventory holding periods particularly (Finance.yahoo.com).
Average Collection Period
The average collection period of the company was nearly 238 days which decreased for two consecutive years 2.9% and 3.3% respectively for years 2012 and 2013. The average collection period for these three years of period is 231 Days. It is showing that the company will get cash after every 231 days, which is very high.
Debt Ratio
The computed debt ratio of the chosen organization is as follows
The proportion of debt in the equity of the company is very high that can be analyzed with the help of above mentioned table particularly. It should be decreased in an effective manner.
Free Cash Flow
Free cash flow is the amount of cash flow which has been remained untouched, and the free cash flow of the company is as follows which can be used for the future investment purpose
Market Value Added
This particular valuation can be applied over the assumption, as it has some items which are totally based upon the level of assumptions
MVA = Company’s Value – Invested Amount
Invested Amount = $ 1,000,000
Market Value = 15.43 Billion
MVA = 15.43 B – 1 M
MVA = 14.99 billion
The Market Value Added of the company is extremely high and significant
Economic Value Added
A measure of company’s financial performance based on its residual wealth will be computed through the Economic Value Added (EVA)
The economic value added of the company is in negative term, which is not effective for them in the future.
Dividend Yield
Dividend Yield is an important tool that used for the analysis of get an idea that how much the company provides dividends to their shareholders. The dividend yield of the company is as follows
It is computed through the Capital Asset Pricing Model
CAPM = RRF – Beta (RM – RRF)
RRF = 4.2%
Beta = 0.7
RM = 6%
= 4.2 – 0.7 (6 – 4.2)
CAPM = 2.94% (Required Rate of Return)
Recommendations
All of the critical analysis regarding the financial capability of Loews Corporation, it is clear that the financial position of the company is sound but it will not be effective for the investment purpose. The company has a high Cash Conversation Cycle, with a very low required rate of return and dividend payout, showing the inefficiency of the company as far as investment is concerned. It is recommended to the investor to not to park the money in the stocks of the company, while existing shareholders have to wait for the right time to sell the shares of the company.
Capital Budgeting Decision
Capital Budgeting is an important measurement tool that used by the companies to analyze the feasibility of their investment (Finance.yahoo.com). Loews Corporation uses some of the important tools of capital budgeting like Net Present Value (NPV) and Internal rate of Return (IRR) for the analysis, as both of these methods are essential and effective for the company. NPV is a tool that will value down the future cash flow in the present value, while IRR is all about computing the rate of return; it is higher than the actual hurdle rate of the company.
Cost-Volume Profit Analysis
The costs to sales ratio of the company for these three years are
The cost benefit analysis of the company is showing that the company is efficient as far as managing its direct cost which has a direct linkage with the financial position of the company. The company has to maintain this benefit for their future effectiveness.
Work Cited
Debarshi, Bhattacharyya. Management Accounting. Chicago: Pearson Group, 2010. Print.
Finance.yahoo.com,. 'L Balance Sheet | Loews Corporation Common Stock Stock - Yahoo! Finance'. N.p., 2014. Web. 2 Dec. 2014.
Finance.yahoo.com,. 'L Income Statement | Loews Corporation Common Stock Stock - Yahoo! Finance'. N.p., 2014. Web. 2 Dec. 2014.
Walton, Peter. Financial Statement Analysis: An International Perspective. New York: Saga, 2010. Print.
