What is the scope of and the role of consultants in financial management consulting?

 

For the next questions, assume that your financial analytics and management consulting firm, FAMCF Inc. ("FAMCF") was invited to deliver a sales pitch to Morgan Industries' CFO on November 14, 2019 and to discuss your consulting firm's services and capabilities.

2) How would you prepare for your meeting considering that you were told that two other consulting firms were being considered? On the entry phase and the C-C relationship" when preparing your answers.

3) Based on the mandatory readings, what did you learn about consulting proposals, contracting and negotiating engagement in the entry phase of the consulting process?

For the next questions, assume that your consulting firm (FAMCF) ended up being hired by Morgan Industries on November 29, 2019. After an initial meeting with Morgan Industries' CFO on December 2, 2019, it was decided that you would focus on analyzing the recent financial performance at Morgan Industries (using common size/vertical analysis and select financial ratios) and develop a financial forecast for the year 2020.

4) Perform the following calculations at Morgan Industries in 2017, 2018, and 2019): a) annual revenue growth, common size/vertical analysis of income statement (yearly revenues as base amount), b) common size/vertical analysis of balance sheet (total assets or liabilities as base amount), and c) gross profit ratio, quick ratio (acid test ratio), and assets/equity ratio. Based on your calculations, analyze the recent financial performance at Morgan Industries (2017-2019) and prepare summary of your analysis which you would be presenting to Morgan Industries' CFO. What could be done to increase Morgan Industries' financial performance in 2020?

5) Following the presentation of your financial analysis, Morgan Industries' CFO asked you to help prepare financial forecast (income statement and balance sheet) for the year 2020. You and the CFO agreed to make the following assumptions regarding the income statement and balance sheet forecast for the purpose of the 2020 financial forecast:

Base-case growth rate in revenues of 5% (year 2020 vs 2019)

COGS of 67% (vs revenues)

SG&A of 31% (vs revenues)

Interest expense of 5.2% of debt outstanding (bonds and bank loans) at the end of the year (2020)

A target cash balance is 2.9% of revenues

13 days receivables (i.e., accounts receivables / revenues * 365)

Inventory turnover of 12 times (inventory to COGS ratio)

$0M / no planned additional CAPEX and $50M in depreciation

35 days payables assumed (i.e., accounts payables / COGS * 365)

Other accrued expenses of 2.1% of revenues

No plans in changing the amount of bonds outstanding

10 million shares outstanding and no changes planned for 2020 as far as share issue or share repurchase

No plans to change the level of dividends (i.e., same level as 2019)

The financial forecast is to be balanced by plugging the bank loan amount (if required)

QUESTION 1