Deepshikha Biswas

 Executive Summary  The purpose of this project was to gain greater breadth and depth of knowledge related to financial functions for our organization. I discussed with Dwight Volz, finance Finance controller Controller of the XYZ, New divisionDivision. This document reflects my understanding of that discussion. , Which which includes different financial functions of XYZ New as well as whole XYZ as a company, XYZ’s decision-making process for an Investments, key factors for decision decision-making, and- analysis of different ratios, and stock dividend.  Company Overview  XYZ is the global leader in human and animal nutrition, and the world's premier agricultural origination and processing company. Our breadth, depth, insights, facilities, and logistical expertise give us unparalleled capabilities to meet needs for food, beverages, health and wellness, and more for the world. XYZ’s last fiscal year’s revenue was 54 billion and there are more than 30000 thirty thousand employees are working for XYZ around the world. XYZ formed this division in 2018 by acquiring a company called FCC in 2018 and later they acquired another company called Ziegler.  Our discussion started with the FCC acquisition process which gave me a huge idea about how XYZ decides on this type of Investmentinvestment. Then we also discussed other financial functions of XYZ.  XYZ’s investment Investment in FCC Co (FCC)- Back in days, FCC Chemical was a family ran business and slowly became the market leader in Orange flavor (industrial and food). Later ,FCC industries Industries bought FCC and XYZ bought the company from FCC. FCC’s yearly revenue is currently 150 million.  Investment Decision:-  XYZ paid 175 million to buy FCC. Before making this huge capital, budgeting decision XYZ did a lot of review and research. XYZ has a specialized team who handle merger and accusation transaction. And based on their report CFO and CEO take the final decision. FCC had to provide 5 five years of financial statements and multiple presentations before XYZ made any decision. The key points that influenced this purchase was 1. FCC is a profit-making company  2. FCC has a lot of potentials to become 300 million companies company if they get an investment of 15 to 20 million in their operations and equipment.  3. XYZ is growing nutrition business and they were the major buyer of the FCC  4. After the purchase in is complete Intracompany transaction will provide huge tax savings.   Considering current cash flow as and projected cash flow after 3 three years (plus tax shavings), As as per my calculation  In 9th year NPV = 15,225,168.66 (Considering 10% as average rate of return) Payback period - 5.27 Years. Also, as XYZ is expanding the nutrition business more than the commodity business this helped XYZ to increase their product line which was a major win.  Other iInvestment decision Decision for NEW Division: XYZ is also spending on buying new equipment that is not included in the Merger merger and accusation project rather coming from XYZ's yearly operating budget. This is also being influenced by the global market trend. Currently, the NEW business is divided into 2 two categories. 1). Oil and 2). Flavor. 80%Eighty percent of the current XYZ business is for oil, but as the human- nutrition business getting more focus, XYZ is investing in equipment to produce more flavors.  XYZ’s vs. competitors Competitors’ Quick ratio Ratio comparisonComparison I have compared the 5 five years quick ratios of XYZ with its competitors like Bunge Ltd and also reports show that at least 50% percent of the company companies from the same industry are maintaining quick ration less than XYZ. At one point in the last 10 ten years, XYZ’s quick ration went up to 2.99. In my discussion, I brought up this point and as I am working in a business- transformation project currently, I wanted to understand if there is a change required in the supply chain.    I have understood that XYZ needs to maintain the inventory to a certain level to make contracts with the Global global business giants like Coke, PepsiCo, etc. Because XYZ always maintains the stock to a certain level, these companies sign contracts with XYZ as they feel secure about the fulfillment. This became more significant during the current pandemic situation. XYZ NEW NEW also uses a report called short Short long Long ,which shows the raw materials forecast for six months and if the forecast shows we are going to be short-form a certain level, then XYZ sometimes also decides to buy raw material from spot market instead of the big suppliers like IFF. Buying from SPOT spotmarket is not cost-effective and reduce the operating cash flow but still, they do it just to make sure the report does not show inventory level where it needs to be.  XYZ Quick Ratio (Mar 31 2020) (Dec 31 2019) (Sep 30 2019) (Jun 30 2019) (Mar 31 2019) BG Quick Ratio (Mar 31 2020) (Dec 31 2019) (Sep 30 2019) (Jun 30 2019) (Mar 31 2019) I. Quarter IV. Quarter III. Quarter II. Quarter I. Quarter I. Quarter IV. Quarter III. Quarter II. Quarter I. Quarter Current Liabilities Change 29.61% 16.63% 3.19% 7.54% 0.57% Current Liabilities Change -0.29% -11.06% -13.53% -20.09% -4.91% Cash & cash equivalent Change 89.95% -57.46% 0.11% 1.59% -0.56% Y / Y Cash & cash equivalent Change -58.41% -17.74% 8.99% 7.69% 61.67% Quick Ratio MRQ- Quick Ratio MRQ- ROA and ROE analysis of XYZ XYZs ROA, ROI, and ROE have always been positive in all quarters but due to less net income in the 2nd second and 3rd third quarter of 2019, the net income went down a lot and affected all the ratios. There is a specific reason for that drop. Due to the US and China trade, was XYZ was not able to export corn and other commodities directly to China, which is one of our major markets for commodity export. This situation also negatively impacted the XYZ’s stock price at that time. Whereas, XYZ competitors did relatively better at that time of the year as they have major orations in South America and were able to export from there. Globally commodity business also showing a downwards curve that is also a contributor to these low ratios but since then XYZ has taken some measures and focusing on the nutrition business more is just one of them. Return On Assets (Mar 31 2020) (Dec 31 2019) (Sep 30 2019) (Jun 30 2019) (Mar 31 2019) I. Quarter IV. Quarter III. Quarter II. Quarter I. Quarter Total Assets Change 12.15% 7.75% 5.40% 9.96% 4.99% Net Income Change 67.09% 57.41% -23.88% -57.95% -40.91% Net Income (TTM) in Millions 1,536 1,379 1,197 1,325 1,653 Return On Assets (TTM) 3.47% 3.22% 2.84% 3.19% 4.07% Return oOn Equity (Mar 31 2020) (Dec 31 2019) (Sep 30 2019) (Jun 30 2019) (Mar 31 2019) I. Quarter IV. Quarter III. Quarter II. Quarter I. Quarter Equity Change 0.35% 1.21% -0.55% 1.43% - Net Income Change 67.09% 57.41% -23.88% -57.95% -40.91% Net Income (TTM) in Millions 1,536 1,379 1,197 1,325 1,653 Return On Equity (TTM) 8.08% 7.26% 6.32% 6.98% 8.74% Return oOn Investment (Mar 31 2020) (Dec 31 2019) (Sep 30 2019) (Jun 30 2019) (Mar 31 2019) I. Quarter IV. Quarter III. Quarter II. Quarter I. Quarter Investment Change 4.39% 4.17% 6.33% 10.99% - Net Income Change 67.09% 57.41% -23.88% -57.95% -40.91% Investment (TTM) in Millions 31,149 30,321 29,837 30,067 29,839 Return oOn Investment (TTM) 5.06% 4.59% 4.03% 4.53% 5.80% Dividend Payment – XYZ pays dividend quarterly and it has a track record of paying consecutive dividend for last 44 forty-four years. I have also noticed a non-constant but definitely upward growth in dividend payment. In 2019 Annual Dividend: $1.44 Dividend Yield: 3.60% Payout Ratio(s): 44.44% (Trailing 12 Months of Earnings) 49.48% (Based on This Year's Estimates) XYZs dividend payout ratio is very healthy.  It distributes roughly half of its earnings as dividends means that the company is well established and a leader in its industry. Effect of COVID-19 Being a food- processing company, it was a very challenging time for XYZ. XYZ couldn't slow down production when there are a huge demand and crisis of food globally but XYZ also gives priorities to the safety of all the employees. So, except the plant operations majority of the other employees (90%) percent) are currently working remotely. To achieve that XYZ has invested a lot within a short period in infrastructure—, like increasing bandwidth of VPN, buying new cloud solutions, etc. XYZ has bought safety equipment and maintain better hygiene, and asked all plant workers to work in multiple shifts so that they can maintain social distancing. All plant tours and customer visits have been suspended. Salespersons are also not allowed to meet customers, which are also impacting XYZ business as the number of contracts are getting signed has drastically reduced in the last quarter. Conclusion This project has helped me understand the big picture of XYZ. I have learned these concepts in my managerial finance class but while talking to the finance controller I came to know there are so many other aspects of those concepts. This is going to help me in my future analysis. Not only that I also got the attention of the leadership and build a network with also has a positive impact on my career. References – 1. Essentials of Corporate Finance, 8th Edition - by Stephen Ross (Author), Randolph Westerfield (Author), Bradford Jordan (Author) 2. https://finance.yahoo.com/ 3. https://www.sec.gov/edgar.shtml 4. https://www.marketbeat.com/stocks/NYSE/ ** For the sake of confidentiality, all the original names have been changed before uploading with client’s consent.