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Corporate Finance Nautilus - Research Paper Example

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Corporate Finance Nautilus

The appropriate discount rate is 6.04%, which is the weighted average cost of capital. The present value of the firm with this discount factor and the predicted cash flows is $12,885,000. Introduction Nautilus Inc. is a Consumer Fitness Products Company founded in 1986 and headquartered in Vancouver, Washington. The company was incorporated in 1993 in the state of Washington. The company targets individuals and enthusiasts who wish to enjoy the benefits of regular exercise and thereby improve their health. The company sells its products through two channels – direct and retail. The main objective of corporate finance is to maximize the value of shareholders by making proper investment and financing decisions. This paper examines the extent to which Nautilus has been successful in meeting this objective, and whether the stocks of the company represent a safe and worthwhile investment. Observations In order to evaluate the performance and financial status of the company, some of the important financial ratios, trends and market information were collected and analyzed. Some of the important financial figures for a period of five years between 2007 and 2011 are shown in Appendix-1. Relevant ratios have been calculated and are shown in Appendix-2. Sales The growth in sales for the year ended December 31, 2011 was 7.1% over the figures of 2010. However, for the three preceding years the growth has been negative. The trend has been good, and in each year the negative growth has been reduced, and the growth rate has become positive in 2011. The company operates in two segments, namely direct sales and retail sales. The segment wise sales figures for the years 2010 and 2011 are shown in Table-1. It can be seen that direct sales constituted almost 60% of the total sales, while retail sales made up the remaining 40%. A small portion of the total income has come from royalty. A look at the distribution of the sales shows that cardio products accounted for the major portion of the sales accounting for 42% of the direct sales in 2011 and 32% in 2010. Overall, cardio products accounted for 66.35% in 2011. Cardio products have also shown a healthy growth in direct sales but a small decline in retail sales. Strength products accounted for 31.02% in 2011. Percentage of Total Year Ended December 31, 2011 2010 Change % Change 2011 2010 Direct net sales: Cardio products (1) $75,982 $54,409 $21,573 39.60% 42.12% 32.30% Strength products (2) 31,079 42,259 -11,180 -26.50% 17.23% 25.09% Total Direct net sales 107,061 96,668 10,393 10.80% 59.34% 57.39% Retail net sales: Cardio products (1) 43,718 43,628 90 0.20% 24.23% 25.90% Strength products (2) 24,873 24,161 712 2.90% 13.79% 14.34% Total Retail net sales 68,591 67,789 802 1.20% 38.02% 40.24% Royalty income 4,760 3,993 767 19.20% 2.64% 2.37% Total net sales $180,412 $168,450 $11,962 7.10% 100.00% 100.00% Table-1 Distribution and Growth of Sales1 Equity Growth and Profitability Equity investors are concerned primarily with the return on their investment and the growth of their wealth. Various profitability ratios and equity growth are showninTable-2 Profitability 2011 2010 2009 2008 2007 Return on ...Show more
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Corporate Finance Nautilus Executive Summary Sales growth is very poor, and the products are not sufficiently balanced or diversified Equity investors cannot be pleased with the company’s performance, which offers very low or negative returns The company is not profitable, as it has been making heavy losses during most of the period under study Assets are not working hard enough, and have been showing steady decline in value Financial leverage has been increasing and is inappropriate, as it is not only high, but is also not accompanied by corresponding growth in assets…
Corporate Finance Nautilus
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