Niko Tech Case Analysis – Part 2

SCM 801

Individual Assignment

Niko Tech Case Analysis – Part 2 08192021

ACADEMIC INTEGRITY: This deliverable IS an individual assignment. You are on your honor. You cannot discuss any aspect of this case, or anything related to it with any other person. You cannot use any outside resources other than your notes, course articles and class materials. You cannot use any outside sources from the Internet. One of the biggest problems I have encountered with this assignment is plagiarism. Please cite any sources you may use.

Assignment Document:

This document includes the following assignment information:

1. Assignment Goal

2. Assignment Introduction

3. Assignment Directions

4. Assignment Deliverables

5. Assignment Formatting

6. Assignment Questions

7. Cover Page and Academic Integrity Pledge Statement

ASSIGNMENT GOAL:

This case assignment is designed to illustrate the interplay of income statements, balance sheets and ratio analysis to help evaluate the effectiveness of supply chain initiatives. Almost all modern firms (including all companies I have been involved with) utilize these items or some variation of these performance metrics. Additionally, we will assess aspects of working capital--a key metric within the supply chain world.

ASSIGNMENT INTRODUCTION:

This case assignment is designed to help students evaluate the use of various financial and accounting metrics to assist in evaluating the performance of a supply chain You will critically analyze those metrics and “dive deep” into exploring the underlying meaning of the numbers…you will be asked to get behind those numbers! By understanding “the numbers” you will be in a better position to improve the outcomes.

ASSIGNMENT DIRECTIONS:

You are to answer all the following questions. Please make sure that you show all your work. Just giving a numerical answer without showing your calculations is not enough to obtain full credit.

HELPFUL HINTS:

The following statements are provided as some “Helpful Hints and Advice” on the Assignment:

1. Please double-check your work when making calculations using the income statements and balance sheets for NikoTech (Tables 11.1 and 11.2). When reading from left to right on both statements, Y2 data are reported first and Y1 data second in the columns of financial data. It is very easy to reverse the chronological order of the data when making calculations--that is to assume that Y1 data is reported first followed by Y2 data.

2. Remember that for the purposes of calculations for this exercise, we are assuming that the data reported on Niko Tech’s balance sheet for Y1 and Y2 are average values for the year. Thus, the value for inventory in Y2, $660M, should be considered the average value of inventory held by NikoTech during Y2. In actual practice, balance sheet data are values for a given point in time. To obtain average values in practice, it is common to take the average of the previous year and current year values. We are not following that practice on this exercise because we only have two years’ worth of financial data for NikoTech.

3. The words “profit” and “income” are often used interchangeably in the readings.

4. When you are asked to calculate a ratio such as net profit margin, the word “margin” indicates that you should report your results in percentage terms, such as 10.4% or 10.4 percent. If on the other hand, you are asked to calculate net profit or net income, then you should report your results in dollar terms, such as, $104.5M

5. Gross profit is the difference between net sales and COGS, while net income is the difference between gross profit and operating expenses, taxes, depreciation, and interest expense.

6. Note that in Table 11.4 of “Measuring Results: Niko Tech, Inc.,” that Return on Investment is defined as Net Income / Total Assets. However, in other areas covering the Strategic Profit Model, the ratio of Net Income (Profit) / Total Assets is defined as Return on Assets. For our purposes, we will use Return on Assets as the label given to the ratio Net Income (Profit) / Total Assets.

7. Note that both Net Profit Margin and Asset Turnover in some Strategic Profit Models are calculated using net sales, not sales, unless the latter is all that is available.

8. Several questions in the assignment ask you to determine whether the numerator or denominator of a measure, such as DOI, is the primary driver of the measure between Y1 and Y2. To assess this type of question, you should first calculate the percentage change in the measure from Y1 to Y2. Then you should calculate the percentage change in both the numerator and denominator of the measure. For example, suppose you were asked to determine whether COGS or average inventory was primarily driving inventory turnover for Aggon z-Pods Inc. from Y1 to Y2. Using data from below, the following calculations and statements can be made:

9. Inventory turnover is calculated as COGS / Average Inventory. From an inventory management performance perspective, ideally this ratio increases over time, indicating that a firm is generating higher levels of sales for each dollar held in inventory. 

EXAMPLE: Aggon z-Pods Inc.

Inventory turnover increases a moderate 4.5% from Y1-Y2, indicating improved asset utilization. The increase is driven by COGS rising 7% points faster than average inventory. This is a positive trend, particularly in light of the fact that COGS growth nearly mirrors sales growth (65%). Thus, from Y1-Y2, Aggon z-Pods Inc. was generating more sales per dollar of inventory investment.

ASSIGNMENT DELIVERABLES:

This individual assignment should be submitted to the “NikoTech Individual Assignment Part – 2 Dropbox,” by the due date provided in the Course Schedule.

The following assignment questions address the financial performance of NikoTech, Inc. presented in “Measuring Results: NikoTech, Inc.,” Chapter 11 in Supply Chain Vector, pp. 157-172, by Daniel L. Gardner. For the purposes of this assignment, assume that the data shown for Niko Tech’s balance sheet in Table 11.2 are AVERAGE values for each year (Y1 {2014} and Y2 {2015}).

ASSIGNMENT FORMATTING:

1. Include the cover page at the end of this assignment including your name, email, assignment name, & date.

2. Please use an 8.5 by 11 portrait type document for this assignment. I WILL NOT ACCEPT ANY OTHER FORMATTING ARRANGEMENT. I would suggest you use the Word Print Preview function to make sure your work fits. Many times, I receive over 25 pages for this assignment…that is not correct---somewhere around 5 or 6 pages is correct. The problem is normally formatting!

3. Excel cannot be used in this assignment.

4. Use a Word Document format (NO PDF or Excel files will be accepted).

5. Submit all your work including the equations used for the calculations.

6. Use citations as necessary--do not plagiarize.

7. All work must be shown.

8. All formulas must be shown for every problem. You cannot reference one from let’s say Q1 for Q 3. This example does not reflect the actual assignment.

9. All answers should be precise.

10. Points will be deducted for not following formatting directions!

ASSIGNMENT QUESTIONS: Please answer the following questions in your presentation: Note: The instructor reserves the right to change the points for this assignment and these questions at his discretion. Points shown below are only approximate and may change.

Question 1. From the data provided, is days payable outstanding (DPO) contributing significantly to the change in value of Niko Tech’s cash-to-cash cycle between Y1 and Y2? (12 points)

Explain why or why not, using data and calculations where appropriate to enhance your explanation.

Question 2. This question has three parts (24 total points):

1. Calculate inventory turnover for Y1 and Y2, again assuming that the values in the balance sheet are average values for each year.

2. Mathematically express inventory turnover in terms of days of inventory, being sure to show how you derived your mathematical expression.  In other words, write an equation such as: Inventory turnover = expression, where “expression” contains the DOI term. Helpful Hint: This question does not require the calculation of an actual number. Utilize algebra and the two formulas for average inventory for inventory turnover.

3. Would you consider the change in inventory turnover from Y1-Y2 a positive or negative indication of inventory management performance for NikoTech?  Please explain.

Remember normally higher inventory turnovers are desired!

Question 3. Calculate the following Strategic Profit (du Pont) Model measures for Y1 and Y2 for NikoTech: (24 points) Helpful Hint: Remember to use net sales where applicable.

1. Net profit (income) margin (%)

2. Asset turnover

3. Return on assets (%)

Please be sure to clearly show your calculations and, as in questions 1 and 2, assume the balance sheet data are averages for each given year.

Question 4.  Niko Tech’s return on assets deteriorates between Y1 and Y2 despite a 23% increase in sales and a nearly 18% increase in net sales from Y1 to Y2.  Identify the financial reasons or drivers of this deteriorating performance by answering the following two questions (24 total points):

1. Is net profit margin or asset turnover primarily driving the Y1-Y2 change in Niko Tech’s return on assets?  Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

2. For the primary driver (net profit margin or asset turnover) identified in part a, what are the 2-3 principal financial factors that account for the deteriorating trend in this measure? Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

Question 5.  Are measures of Niko Tech’s supply chain velocity improving or deteriorating between Y1 and Y2? The two principal measures of velocity are the operating cycle and the cash-to-cash cycle. You calculated both items in Q1 and Q2 of Part 1. (16 total points):

1. Describe the impact of this change in supply chain velocity as represented by the operating cycle on asset utilization and the flow of cash. Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

2. Describe the impact of this change in supply chain velocity as represented by the cash-to-cash cycle on asset utilization and the flow of cash. Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

Please Scroll To The Bottom To Use The Cover Page!

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Cover Page

NikoTech Case Part 2

Score: _______________/100

Date Submitted: ______________

Your Name: __________________

Your Email Address: ___________

PLEASE SIGN THE FOLLOWING PLEDGE! If it is not signed you will not be given a grade!

I, ____________________________________________ <Your Name>, affirm that I have neither given, received, nor witnessed unauthorized aid on this assignment and have completed this work honestly and according to the professor’s guidelines and the Smeal Honor Code!