Strategic Analysis and Decision-Making Framework: Comprehensive Template for CFE Day 1

To: Board of FVT

From: CPA

Re: FVT Analysis

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Introduction:

This report aims to perform a situational assessment of FVT, analyze major issues and operational challenges, and provide an overall conclusion and advice on FVT’s options.

Situational Analysis (Focus on Important Factors That Have Changed from Capstone 1):

Vision Statement (Pg 5 of the Capstone 1 Case):

• Our vision is to ensure every guest enjoys a premier entertainment experience each and every time they visit our theaters.

Mission Statement (Pg 6 of the Capstone 1 Case):

• ?Our mission is to provide a premier entertainment experience tailored to the local community. This is accomplished by hiring and training employees to be respectful, attentive, and friendly; selecting the best films to appeal to the local community; ensuring clean and safe venues for employees and attendees; and supporting entertainment and arts in the local community.

Key Success Factors (KSF) for Industry:

• Diversification of revenue
• Low-cost film license contract
• Low operating cost
• Larger part-time workforce
• Use of up-to-date technology
• Premier customer experience
• Tailored customer experience to the local community
• Maintenance of family ownership
• High return on capital investment and improvement in average dollar spent per attendee

SWOT Analysis:

• Identify important case facts and explain their implications.

Financial Analysis (Based on FS or Other Reports on Day 1 Case):

• Calculate and interpret what it means for the company.
• Liquidity: Current ratio (current asset/current liability) is XXX, indicating a cash flow problem.
• Solvency: Debt to equity ratio (total liability/total equity) is XXX, indicating the company is leveraged and may have difficulty obtaining future financing.
• Profitability: Net profit margin (net income/total revenue) is XXX, indicating FVT is/is not as profitable compared to the benchmark.
• Cash outflow/constraint: Repayment of loan term debt? Redemption of preferred share.
• Other: Compare revenue/expense current year and prior year.

Bank Covenants (Pg 15 of Capstone 1 Case):

• FVT has one term bank loan secured by PPE, which matures in October 2022 (Less than 6 years).
• Debt Covenant: Long-term Debt (incl. Current portion & excl. retractable Pref. shares) to EBITDA, cannot exceed a ratio of 2.5.
• Recalculate bank covenant and determine whether the bank covenant is breached.

Analyze Major Issue:

• Some issues involve multiple decision assessments and decision-making.

Decision Criteria:

• Alignment with vision and mission, KSF.
• Riskiness of each alternative.
• Profitability of the project.
• Financing requirement and cash availability.
• Other decision criteria.

Assessment of Strategic Option:

Quantitative Discussion:

Examples of quantitative tools for use:

• NPV: For the assessment of purchasing new assets, expansion, higher NPV means a better investment. For assessing the cost of alternatives, a lower NPV means lower cost.
• CM and Break-even: For new product assessment, CM analysis (Price less DM less DL less VOH) and break-even analysis compared to current sales level compared to maximum sales level, comment on whether the break-even level is reasonable.
• Cash flow analysis: Ensure enough financing to fund new initiatives. Do not forget inflation adjustment if provided by the case (1.02%). Identify years of cash shortfall and ways to finance the cash shortfall, identify financing options.

Conclude on results of the quantitative analysis: Which option has lower cost, which option has more profit.

Provide further analysis

• Given quantitative analysis are based on assumptions and estimates such as… if assumptions and estimates turn out to be different, the analysis could be different, given there is a risk of uncertainty, I recommend further analysis should be conducted to refine assumption and estimate as much as possible for appropriate decision making. Perform a market study to obtain reliable estimate, perform sensitivity analysis to determine the potential impact if variables change.

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Qualitative Analysis:

• Provide sufficient numbers of pros vs cons for each strategic option.
• Identify facts, discuss implications on FVT, and recommend ways to mitigate risk.
• Pros/opportunity: Alignment with vision and mission, support from management, increase revenue, reduce cost, improve FVT’s brand, other case facts.
• Cons/risk: Does not align with vision and mission, increase cost, reduce revenue, other case facts (for risk, always think of ways to mitigate the risk).

Recommendation for strategic options:

• Based on my analysis, briefly describe your recommendation based on qualitative and quantitative analysis and decision criteria

Operational Issues (Use WIR):

• General issues (mission and vision, ethical issues).
• Performance management issues (balanced scorecard).
• Governance issues (board composition, independence, meeting, governance WIR).
• Audit issues (control WIR, impact on audit risk).
• Tax issues (compliance, structure).
• Finance (risk management, dividend policy, cash flow).

Conclude and Advise:

Final Recommendation:

• Conclusions are provided on all components of the issue that were included in the analysis and are clear, logical, consistent with the analysis provided, and align with FVT’s mission, vision, and/or key success factors/constraints. The recommendations display good professional judgment.
• The first option I recommend is…………because……………
• The second option I recommend is ………………because……….
• The last option I recommend is ……………… because…………..

We should consider the following factors when making final recommendation

• Alignment with vision and mission, KSF.
• Riskiness of each alternative.
• Profitability of the project.
• Financing requirement and cash availability.

Implementation Plan:?

1. Immediate, short-term, mid-term, individual and high-level steps on what to do.
2. Determine Whether There Is the Need to Update Vision and Mission:

• If FVT decides to follow my advice with regards to the 3 opportunities (if expanding outside of film exhibition).
• FVT should consider revising vision and mission to better represent what the company is trying to achieve.