Financial analysis - Case Study Example

Financial Analysis to help in acquiring Exterran Holdings Inc The existing business estimates that vertical access into business operations that are downstream or upstream from its current operations will raise the margins in target business and current business from 8% to 12%. Generally, the forecast is margins in transaction earnings of 15% can increase by 1.12 to 17%, and the current revenue stands at $25 billion. From the forecast on income statement made after the acquisition of Exterran Holdings Inc, the venture can be considered profitable.
The estimate of growth in sales in financial year 2014 is 9%. This value is less by 4% of what was reported in the last financial year (2013). However, the fall in sales is attributed to operation expenses such as administration, general and sales expenditures. The scale of operations needed to execute the services and product manufacturing of the new venture is larger than when the company had not acquired Exterran Holdings (Haunschild, 570).
The Gross Profit in 2013 was $963,006. However, the forecasts in 2014 indicate that there is a fall in gross profit. Despite the fact that this value is lower than 2013 reports, the figure gradually increases in 2015 and 2016 financial years. By 2016, the gross profit, after the acquisition of the new business, will be $195,865; a reflection of 19.6% increase from 2014. Forecasts in the growth of gross profit in 2015 record an increase by 9.4% from the values reported in 2014. From the percentage growth in gross profits, it is evident that in every financial year, the business’s gross profits, after acquiring Exterran Holdings Inc., doubles.
Total operating expenses before the company acquired the new business decreased from 2010 ($888,015), 2012 ($864,909), and 2013($714,315). The decrease in the values of total operating expenses means that the company had acclimatized to the business conditions after establishing its niche in the new market. Consequently, the significant rise in operating expenses from the forecasts in 2014 ($121,434), through 2015 ($132,825) to 2016 ($145,284) indicate the business has not adapted to the new market conditions and challenges because of its wide operational needs.
Acquiring the new business will also realize a significant growth in earnings before taxes and interests. The year 2011 and 2011 reported losses of $193,818 and $80,133 respectively. Because the business had just began, the challenges in the market and operating environments contributed to the loses in earnings. The forecasts in 2014 financial year records a fall in earnings before taxes and interest compared to the values reported in 2013. However, after the acquisition, the company’s earnings in income before tax will be $57,468, an increase of 19.6% from 2014 forecasts.
The net income of the business before it acquired Exterran Holdings was $91,728 in 2013. The forecasts in 2014 (after the acquisition) show the value of net income as $31,222. This is a decrease by 96% in the values between the two financial years. However, the vertical acquisition is profitable because the projected net income of the new company illustrates a steady rise in throughout the three years.
In conclusion, it is evident from the forecasts that the company’s operations will be profitable after the acquisition of Exterran Holdings Inc. The initial revenue of $25 billion will increase considering that the operations will involve businesses from two main branches of the new company-the old and the new branch (Exterran Holdings Inc). The operating expenses will rise significantly, but the net income will exceed the previous values before the acquisition.
Work Cited
Haunschild, Pamela R. "Interorganizational imitation: The impact of interlocks on corporate acquisition activity." Administrative science quarterly (1993): 564-592. Read More