Assignment 3: Forecasting
In the first two assignments, you looked at: (1) how NVIDIA (NASDAQ: NVDA) and Intel (NASDAQ:
INTC) are positioned to take advantage of opportunities and manage risks, and (2) how well each is currently managing their performance. As part of this analysis, you identified potential areas for improvement and considered whether a merger or acquisition could strengthen their financial performance.
Based on your insights and recommendations, Buffett is now asking for an assessment of what the future holds for these businesses. In order to deliver this, you must be able to accurately forecast cash flows (the money that comes in and the money that goes out). Like any predictions about the future, these forecasts require the collection and analysis of reliable data, including leading indicators in the broader economy as well as the market forces that impact competitive dynamics. This analysis will enable you to make smarter decisions about how to plan for the future in order to maximize returns, minimize risks, and beat the competition.
Instructions
For this assignment, you will continue to use the published data from the most recent annual reports you have been studying, as well as analyst reports and other resources available on the Internet.
A. Complete the Assignment 3 Worksheet to assemble and assess your forecasts of working capital. The guidance for this is found on pages 137–169 of The CFO Guidebook.
B. Summarize your Analysis and Recommendations by addressing the following questions:
i. Which metrics/trends are most critical for forecasting future performance and for budgeting?
To answer this, you must include an analysis of both past trend performance and the
applicability and reliability of key forecast indicators. In your response, consider:
a. Which company has the stronger income statement? Explain.
b. Which company has the stronger cash flows? Explain.
c. Which company has the stronger operating performance? Explain.
ii. Why are the metrics/trends in the data sets above so critical? How reliable are they as predictors of future performance?
iii. Based on the data you have analyzed, which metrics would you focus on to improve the performance of the weaker company against the stronger one? Why?
a. How would you do this? What specific financial tools would you apply? Why?
b. What would “realistic” improvement look like?
c. How would you measure success?
iv. If you were given the opportunity to join either of these two companies as the new CFO, which one would you pick, and why? In considering your answer to this question, the majority of your compensation plan will be tied to the improvements you can help to drive.
Therefore, you should not base your decision on which company is currently performing better, but on which company’s performance – and valuation – has the greatest potential for growth.
