Applied Financial Management

May 25, 2017

Various companies are affected by the financial statements they prepare to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following rates are looked at: Gross profit margin, operating profit ratio margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is an imperative ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the company. With proper management, Visa Inc. can realize long-term growth and profitability. The efficient management ensures the employees are motivated to ensure they provide best services to the customers. It also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring resources are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

  Visa Inc  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=7165/10998

      =65.1%

=7209/11543

    =62.5%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =13880,000,000/11300

=1,228,319

12702,000,000/9500

1,337,053

=11778,000,000/9500

=1,239,789

 

=11578,000,000/9500

=1,129,789

 

 

=11378,000,000/9500

=1,039,789

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7788/25750

=29.6%

=7543/25750

=28.4%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =24809,000,000/54800

=452,719

 

=25543,000,000/53,500

=477,439

 

=25750,000,000/62,800

=410,031

 

=25850,000,000/62,800

=412,031

 

 

=25450,000,000/64,650

=408,042

 

 

 

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the company can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking the greater part of its revenue leaving it with little-operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed expenses such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, and employment of new skilled staff who can come up with innovative ways of production. This would help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

The other profitability ratio is the net profit margin. This measure is crucial to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenditure. A company with higher net profit margins has greater ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the company’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they are assured of profits.

 

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

Return on capital employed is also a paramount profitability ratio that has to be evaluated in any particular company. This rate is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the dismal performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term rate which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into an excellent financial performance of the company. Specifically, for every $4 invested, the business was able to generate 26.6% interest. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the $ invested with the $ earning 8.9% which comparatively is still lower to that of Visa Inc. and as a result investors would still prefer investing in Visa Inc. due to its higher ROCE. Looking at Asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar that was spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their capital would generate more funds for the company.

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by corporations to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since an operation that cannot meet this requirement is considered as a highly risky business which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both societies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is Efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the ratios used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of cash that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is, therefore, a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio to compete favorably with its competitor.

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These rates help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. Foremost, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn low amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing debts to the total shareholder equity. In the case of the high rate of debt to capital, the company will be exposed to high insolvency risk, and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in a sound financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire money from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

The beta factor is a criterion used by many investors in the process of making the decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

Dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the company as well as its shareholder’s wealth maximization. Higher dividend payout results into the business not having enough funds to expand its operation.

In the general stock market, many players have different interest. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)
2011 0.26 1.72 2011 1.32 51
2012 0.30 1.85 2012 1.26 57
2013 0.33 1.90 2013 1.16 63
2014 0.40 2.15 2014 0.71 86
2015 0.48 2.58 2015 0.62 124
           

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)

 

 

2011 0.65 4.64 2011 0.76 16%
2012 0.76 4.96 2012 0.88 17%
2013 0.89 5.05 2013 0.98 18%
2014 1.01 5.39 2014 1.09 19%
2015 1.13 5.50 2015 1.62 21%

 

Financial statements used were as follows:

American express statement of comprehensive income

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31
Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Other Revenue, Total
Total Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Cost of Revenue, Total 8,484.00 8,122.00 7,666.00 7,666.00 6,890.00
Gross Profit 24,809.00 26,543.00 25,750.00 25,550.00 25,450.00
Selling/General/Admin. Expenses, Total 13,034.00 14,613.00 14,619.00 14,619.00 14,530.00
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 692.00 -261.00 278.00 278.00 278.00
Other Operating Expenses, Total 3,101.00 3,395.00 2,912.00 2,912.00 2,912.00
Total Operating Expense 25,355.00 25,674.00 25,528.00 25,439.00 25,420.00
Operating Income 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Income After Tax 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Preferred Dividends
Income Available to Common Excl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Income Available to Common Incl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

     
Dilution Adjustment ﷐        0.00                     –                      –                      –                     –
Diluted Weighted Average Shares 1,003.00 1,051.00 1,089.00 1,108.00 1,298.00
Diluted EPS Excluding Extraordinary Items 5.05 5.56 4.88 4.98 5.05
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 1.13 1.01 0.89 0.68 0.54
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 5.50 5.39 5.05 4.98 4.75

 

American Express balance sheet

In Millions of USD (except for per share items) As of 2015-12-31 As of 2014-12-31 As of 2013-12-31 As of 2012-12-31 As of 2011-12-31
Cash & Equivalents                      –                  –                –
Short Term Investments                  –               –
Cash and Short Term Investments 2,935.00 2,628.00 2,212.00 2,089.00 1,845.00
Accounts Receivable – Trade, Net 58,663.00 44,386.00 43,777.00 43,234.00 43,008.00
Receivables – Other
Total Receivables, Net 61,687.00 47,000.00 47,185.00 47,185.00 46,988.00
Total Inventory
Prepaid Expenses 851.00 1,626.00 1,998.00 2,134.00 2,367.00
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total – Gross 10,909.00 10,208.00 9,853.00 9,687.00 9,245.00
Accumulated Depreciation, Total -6,801.00 -6,270.00 -5,978.00 -5,654.00 -5,387.00
Goodwill, Net 2,749.00 3,024.00 3,198.00 3,298.00 3,367.00
Intangibles, Net 796.00 854.00 817.00 797.00 778.00
Long Term Investments 23,586.00 24,091.00 22,290.00 22,386.00 22,109.00
Other Long-Term Assets, Total 2,708.00 2,494.00 2,929.00 2,856.00 2,734.00
Total Assets 161,184.00 159,103.00 153,375.00 150,375.00 147,375.00
Accounts Payable 11,822.00 11,300.00 10,615.00 9,615.00 9,515.00
Accrued Expenses
Notes Payable/Short-Term Debt 60,218.00 48,298.00 47,226.00 46,226.00 45,226.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total
Total Current Liabilities
Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Capital Lease Obligations
Total Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Total Debt 108,279.00 106,253.00 102,556.00 98,556.00 94,556.00
Deferred Income Tax
Minority Interest
Other Liabilities, Total 20,410.00 20,877.00 20,708.00 20,608.00 20,508.00
Total Liabilities 140,511.00 138,430.00 133,879.00 132,879.00 131,879.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total 194.00 205.00 213.00 213.00 215.00
Additional Paid-In Capital 13,348.00 12,874.00 12,202.00 12,102.00 11,702.00
Retained Earnings (Accumulated Deficit) 9,665.00 9,513.00 8,507.00 8,407.00 8,207.00
Treasury Stock – Common
Other Equity, Total -2,592.00 -2,015.00 -1,489.00 -1,356.00 -1,234.00
Total Equity 20,673.00 20,673.00 19,496.00 19,296.00 19,096.00
Total Liabilities & Shareholders’ Equity 161,184.00 159,103.00 153,375.00 151,375.00 147,375.00

 

Shares Outs – Common Stock Primary Issue  

 

 

 

 

Total Common Shares Outstanding        969.00      1023.00    1064.00     1089.00   1123.00

 

American Express Cash flow

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31          
Net Income/Starting Line 5,163.00 5,885.00 5,359.00 5,059.00 4,859.00          
Depreciation/Depletion 1,043.00 1,012.00 1,020.00 1,027.00 1,017.00          
Amortization          
Deferred Taxes 506.00 -941.00 -283.00 -281.00 -273.00          
Non-Cash Items 2,222.00 2,334.00 2,460.00 2,360.00 2,220.00          
Changes in Working Capital 2,038.00 2,700.00 -9.00 -9.00 -8.00          
Cash from Operating Activities 10,972.00 10,990.00 8,547.00 7,547.00 6,547.00          
Capital Expenditures -1,341.00 -1,195.00 -1,006.00 -985.00 -945.00          
Other Investing Cash Flow Items, Total -6,852.00 -6,772.00 -6,263.00 -6,063.00 -5,963.00          
Cash from Investing Activities -8,193.00 -7,967.00 -7,269.00 -7,069.00 -6,969.00          
Financing Cash Flow Items 10,878.00 2,459.00 1,195.00 1,095.00 995.00          
Total Cash Dividends Paid -1,172.00 -1,041.00 -939.00 -919.00 -879.00          
Issuance (Retirement) of Stock, Net -3,446.00 -3,285.00 -3,222.00 -3,122.00 -3,022.00          
Issuance (Retirement) of Debt, Net -8,289.00 1,878.00 -925.00 -905.00 -895.00          
Cash from Financing Activities -2,029.00 11.00 -3,891.00 -3,791.00 -3,691.00          
Foreign Exchange Effects -276.00 -232.00 -151.00 -141.00 -139.00          
Net Change in Cash 474.00 2,802.00 -2,764.00 -2,664.00 -2,564.00          
Cash Interest Paid, Supplemental 1,600.00 1,700.00 2,000.00 2,000.00 1,900.00          
Cash Taxes Paid, Supplemental 3,400.00 2,500.00 2,000.00 1,900.00 1,700.00          

 

Visa Inc. income statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Other Revenue, Total
Total Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total 3,834.00 3,610.00 4,139.00 4,039.00 4,139.00
Research & Development
Depreciation/Amortization 494.00 435.00 397.00 387.00 377.00
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 14.00 453.00 18.00 17.00 15.00
Other Operating Expenses, Total 474.00 507.00
Total Operating Expense 4,816.00 5,005.00 4,554.00 4,654.00 4,354.00
Operating Income 9,064.00 7,697.00 7,224.00 7,024.00 6924.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -69.00 27.00 -4.00 -4.00 -4.00
Income Before Tax 8,995.00 7,724.00 7,257.00 7,157.00 7,157.00
Income After Tax 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Minority Interest 0.00 0.00 0.00 0.00
Equity In Affiliates
Net Income Before Extra. Items 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Preferred Dividends
Income Available to Common Excl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Income Available to Common Incl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

 

 

 

Dilution Adjustment 15.00 17.00 19.00 21.00 23.00
Diluted Weighted Average Shares 2,457.00 2,524.00 2,624.00 2,687.00 2,753.00
Diluted EPS Excluding Extraordinary Items 2.58 2.15 1.90 1.80 1.65
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 0.48 0.40 0.33 0.28 0.21
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 2.58 2.28 1.90 1.80 1.60

 

Balance sheet Visa Inc.

In Millions of USD (except for per share items) As of 2015-09-30 As of 2014-09-30 As of 2013-09-30 As of 2012-09-30 As of 2011-09-30
Cash & Equivalents 3,518.00 1,971.00 2,186.00 2,086.00 2,386.00
Short Term Investments 2,497.00 1,979.00 2,069.00 2,169.00 2,269.00
Cash and Short Term Investments 6,015.00 3,950.00 4,255.00 4,355.00 4,455.00
Accounts Receivable – Trade, Net 847.00 822.00 761.00 751.00 731.00
Receivables – Other
Total Receivables, Net 1,332.00 1,699.00 1,702.00 1,802.00 1,902.00
Total Inventory
Prepaid Expenses 137.00 103.00 111.00 121.00 131.00
Other Current Assets, Total 2,537.00 3,810.00 1,754.00 1,854.00 1,954.00
Total Current Assets 10,021.00 9,562.00 7,822.00 7,622.00 7,422.00
Property/Plant/Equipment, Total – Gross 4,283.00 3,915.00 3,439.00 3,039.00 2,939.00
Accumulated Depreciation, Total -2,395.00 -2,023.00 -1,707.00 -1,607.00 -1,507.00
Goodwill, Net 11,825.00 11,753.00 11,681.00 11,581.00 11,481.00
Intangibles, Net 11,361.00 11,411.00 11,351.00 11,251.00 11,451.00
Long Term Investments 3,429.00 3,050.00 2,790.00 2,690.00 2,490.00
Other Long Term Assets, Total 216.00 304.00 327.00 337.00 347.00
  39,367.00 38,569.00 35,956.00 33,956.00 30,956.00
Accounts Payable 127.00 147.00 184.00 195.00 204.00
Accrued Expenses 2,121.00 2,303.00 936.00 956.00 976.00
Notes Payable/Short-Term Debt 0.00 0.00 0.00 0.00 0.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total 3,107.00 3,556.00 3,215.00 3,315.00 3,015.00
Total Current Liabilities 5,355.00 6,006.00 4,335.00 4,535.00 4,735.00
Long Term Debt 0.00
Capital Lease Obligations
Total Long Term Debt 0.00 0.00 0.00 0.00 0.00
Total Debt 0.00 0.00 0.00 0.00 0.00
Deferred Income Tax 3,273.00 4,145.00 4,149.00 4,049.00 4,078.00
Minority Interest
Other Liabilities, Total 897.00 1,005.00 602.00 672.00 656.00
Total Liabilities 9,525.00 11,156.00 9,086.00 8,986.00 8786.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total
Additional Paid-In Capital 18,073.00 18,299.00 18,875.00 19,875.00 19,975.00
Retained Earnings (Accumulated Deficit) 11,843.00 9,131.00 7,974.00 6,874.00 6,574.00
Treasury Stock – Common

 

Other Equity, Total -162.00 -86.00 -61.00 -59.00 -52.00
Total Equity 29,842.00 27,413.00 26,870.00 25,870.00 24,870.00
Total Liabilities & Shareholders’ Equity 39,367.00 38,569.00 35,956.00 34,956.00 33,956.00
Shares Outs – Common Stock Primary Issue
Total Common Shares Outstanding 2,433.83 2,471.83 2,543.83 2,643.83 2,743.83

 

Visa Inc. Cash flow statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Net Income/Starting Line 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Depreciation/Depletion 494.00 435.00 397.00 367.00 337.00
Amortization
Deferred Taxes 195.00 -580.00 1,527.00 157.00 143.00
Non-Cash Items 3,112.00 3,164.00 2,479.00 2,379.00 2,179.00
Changes in Working Capital -3,545.00 -1,252.00 -6,361.00 -6,261.00 -6,161.00
Cash from Operating Activities 6,584.00 7,205.00 3,022.00 2,922.00 2722.00
Capital Expenditures -414.00 -553.00 -471.00 -461.00 -441.00
Other Investing Cash Flow Items, Total -1,021.00 -388.00 -693.00 -673.00 -643.00
Cash from Investing Activities -1,435.00 -941.00 -1,164.00 -1,064.00 -964.00
Financing Cash Flow Items 402.00 -1,445.00 4,381.00 4,281.00 4,181.00
Total Cash Dividends Paid -1,177.00 -1,006.00 -864.00 -764.00 -664.00
Issuance (Retirement) of Stock, Net -2,828.00 -4,027.00 -5,257.00 -5,457.00 -5,757.00
Issuance (Retirement) of Debt, Net 0.00 0.00 -6.00 -6.00 -6.00
Cash from Financing Activities -3,603.00 -6,478.00 -1,746.00 -1,846.00 -1,946.00
Foreign Exchange Effects 1.00 -1.00 0.00 0.00 0.00
Net Change in Cash 1,547.00 -215.00 112.00 162.00 182.00
Cash Interest Paid, Supplemental 81.00 62.00 46.00 36.00 26.00
Cash Taxes Paid, Supplemental 2,486.00 2,656.00 595.00 605.00 625.00

 

In the process of carrying out this research, there were difficulties we faced. One of them was that it was cumbersome computing the various financial ratios as they were so many and also time-consuming. Lack of teamwork among the group members was also an issue as we sometimes disagreed on the views we had and who is to be assigned a particular duty.

There are several limitations associated with ratio analysis. First, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average rates instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case where firms are underperforming, it might be concluded that all businesses are doing poor yet particular firms have better performance. This, therefore, makes ratio analysis rather inaccurate in the determination of the performance of firms.

Ratio analysis is also highly affected by inflation particularly balance sheets of various firms. Balance sheets are deemed only to show historical data which majorly is the financial position of the firm at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the firm. Inflation majorly affects the inventory values, depreciation and profit values. When a comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of, but the only problem is that we never seek to find the cause of the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, companies that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

 

 

 

 

 

 

 

 

 

 

References

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Applied Financial Management

May 25, 2017

Various companies are affected by the financial statements they prepare it to order to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following ratios are looked at: Gross profit margin, operating profit rate margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is an important ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Visa Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the enterprise. With effective management, Visa Inc. can realize long-term growth and profitability. The effective management ensures the employees are motivated to ensure they provide best services to the customers. It also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring funds are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the corporation can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking a greater part of its revenue leaving it with meager operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed costs such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, employment of new skilled staff who can come up with innovative ways of production to help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

 

The other profitability ratio is the net profit margin. This measure is crucial to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenses. A company with higher net profit margins has higher ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the business’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they assured their investments would accrue benefits.

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

 

 

Return on capital employed is also a vital profitability ratio that has to be evaluated in any particular company. This ratio is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the poor performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term ratio which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into a good financial performance of the company. Specifically, for every $4 invested in this company, the business was able to generate 26.6% of the amount. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the $ invested with the $ earning 8.9% which comparatively is still lower to that of Visa Inc. and as a result investors would still prefer investing in Visa Inc. due to its higher ROCE. Looking at Asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar that was spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their fixed assets would generate more funds for the company.

 

 

 

 

 

 

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

 

 

 

 

 

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by corporations to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since a company that cannot meet this obligation is considered as a highly risky firm which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both societies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is Efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the ratios used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of cash that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is therefore a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio in order to compete favorably with its competitor.

 

 

 

 

 

 

 

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These ratios help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. First, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn little amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing debts to the total shareholder equity. In the case of the high rate of debt to capital, the company will be exposed to high insolvency risk, and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in an excellent financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire capital from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

The beta factor is a criterion used by many investors in the process of making a decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

 

 

 

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

The dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the company as well as its shareholder’s wealth maximization. Higher dividend payout results into the business not having enough funds to expand its operation.

In the common stock market, many players have different interest. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)
2011 0.26 1.72 2011 1.32 51
2012 0.30 1.85 2012 1.26 57
2013 0.33 1.90 2013 1.16 63
2014 0.40 2.15 2014 0.71 86
2015 0.48 2.58 2015 0.62 124
           

 

 

 

 

 

 

 

 

 

 

 

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)

 

 

2011 0.65 4.64 2011 0.76 16%
2012 0.76 4.96 2012 0.88 17%
2013 0.89 5.05 2013 0.98 18%
2014 1.01 5.39 2014 1.09 19%
2015 1.13 5.50 2015 1.62 21%

 

Financial statements used were as follows:

American express statement of comprehensive income

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31
Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Other Revenue, Total
Total Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Cost of Revenue, Total 8,484.00 8,122.00 7,666.00 7,666.00 6,890.00
Gross Profit 24,809.00 26,543.00 25,750.00 25,550.00 25,450.00
Selling/General/Admin. Expenses, Total 13,034.00 14,613.00 14,619.00 14,619.00 14,530.00
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 692.00 -261.00 278.00 278.00 278.00
Other Operating Expenses, Total 3,101.00 3,395.00 2,912.00 2,912.00 2,912.00
Total Operating Expense 25,355.00 25,674.00 25,528.00 25,439.00 25,420.00
Operating Income 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Income After Tax 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Preferred Dividends
Income Available to Common Excl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Income Available to Common Incl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

     
Dilution Adjustment ﷐        0.00                     –                      –                      –                     –
Diluted Weighted Average Shares 1,003.00 1,051.00 1,089.00 1,108.00 1,298.00
Diluted EPS Excluding Extraordinary Items 5.05 5.56 4.88 4.98 5.05
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 1.13 1.01 0.89 0.68 0.54
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 5.50 5.39 5.05 4.98 4.75

 

American Express balance sheet

In Millions of USD (except for per share items) As of 2015-12-31 As of 2014-12-31 As of 2013-12-31 As of 2012-12-31 As of 2011-12-31
Cash & Equivalents                      –                  –                –
Short Term Investments                  –               –
Cash and Short Term Investments 2,935.00 2,628.00 2,212.00 2,089.00 1,845.00
Accounts Receivable – Trade, Net 58,663.00 44,386.00 43,777.00 43,234.00 43,008.00
Receivables – Other
Total Receivables, Net 61,687.00 47,000.00 47,185.00 47,185.00 46,988.00
Total Inventory
Prepaid Expenses 851.00 1,626.00 1,998.00 2,134.00 2,367.00
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total – Gross 10,909.00 10,208.00 9,853.00 9,687.00 9,245.00
Accumulated Depreciation, Total -6,801.00 -6,270.00 -5,978.00 -5,654.00 -5,387.00
Goodwill, Net 2,749.00 3,024.00 3,198.00 3,298.00 3,367.00
Intangibles, Net 796.00 854.00 817.00 797.00 778.00
Long Term Investments 23,586.00 24,091.00 22,290.00 22,386.00 22,109.00
Other Long-Term Assets, Total 2,708.00 2,494.00 2,929.00 2,856.00 2,734.00
Total Assets 161,184.00 159,103.00 153,375.00 150,375.00 147,375.00
Accounts Payable 11,822.00 11,300.00 10,615.00 9,615.00 9,515.00
Accrued Expenses
Notes Payable/Short-Term Debt 60,218.00 48,298.00 47,226.00 46,226.00 45,226.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total
Total Current Liabilities
Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Capital Lease Obligations
Total Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Total Debt 108,279.00 106,253.00 102,556.00 98,556.00 94,556.00
Deferred Income Tax
Minority Interest
Other Liabilities, Total 20,410.00 20,877.00 20,708.00 20,608.00 20,508.00
Total Liabilities 140,511.00 138,430.00 133,879.00 132,879.00 131,879.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total 194.00 205.00 213.00 213.00 215.00
Additional Paid-In Capital 13,348.00 12,874.00 12,202.00 12,102.00 11,702.00
Retained Earnings (Accumulated Deficit) 9,665.00 9,513.00 8,507.00 8,407.00 8,207.00
Treasury Stock – Common
Other Equity, Total -2,592.00 -2,015.00 -1,489.00 -1,356.00 -1,234.00
Total Equity 20,673.00 20,673.00 19,496.00 19,296.00 19,096.00
Total Liabilities & Shareholders’ Equity 161,184.00 159,103.00 153,375.00 151,375.00 147,375.00

 

Shares Outs – Common Stock Primary Issue  

 

 

 

 

Total Common Shares Outstanding        969.00      1023.00    1064.00     1089.00   1123.00

 

American Express Cash flow

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31          
Net Income/Starting Line 5,163.00 5,885.00 5,359.00 5,059.00 4,859.00          
Depreciation/Depletion 1,043.00 1,012.00 1,020.00 1,027.00 1,017.00          
Amortization          
Deferred Taxes 506.00 -941.00 -283.00 -281.00 -273.00          
Non-Cash Items 2,222.00 2,334.00 2,460.00 2,360.00 2,220.00          
Changes in Working Capital 2,038.00 2,700.00 -9.00 -9.00 -8.00          
Cash from Operating Activities 10,972.00 10,990.00 8,547.00 7,547.00 6,547.00          
Capital Expenditures -1,341.00 -1,195.00 -1,006.00 -985.00 -945.00          
Other Investing Cash Flow Items, Total -6,852.00 -6,772.00 -6,263.00 -6,063.00 -5,963.00          
Cash from Investing Activities -8,193.00 -7,967.00 -7,269.00 -7,069.00 -6,969.00          
Financing Cash Flow Items 10,878.00 2,459.00 1,195.00 1,095.00 995.00          
Total Cash Dividends Paid -1,172.00 -1,041.00 -939.00 -919.00 -879.00          
Issuance (Retirement) of Stock, Net -3,446.00 -3,285.00 -3,222.00 -3,122.00 -3,022.00          
Issuance (Retirement) of Debt, Net -8,289.00 1,878.00 -925.00 -905.00 -895.00          
Cash from Financing Activities -2,029.00 11.00 -3,891.00 -3,791.00 -3,691.00          
Foreign Exchange Effects -276.00 -232.00 -151.00 -141.00 -139.00          
Net Change in Cash 474.00 2,802.00 -2,764.00 -2,664.00 -2,564.00          
Cash Interest Paid, Supplemental 1,600.00 1,700.00 2,000.00 2,000.00 1,900.00          
Cash Taxes Paid, Supplemental 3,400.00 2,500.00 2,000.00 1,900.00 1,700.00          

 

Visa Inc. income statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Other Revenue, Total
Total Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total 3,834.00 3,610.00 4,139.00 4,039.00 4,139.00
Research & Development
Depreciation/Amortization 494.00 435.00 397.00 387.00 377.00
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 14.00 453.00 18.00 17.00 15.00
Other Operating Expenses, Total 474.00 507.00
Total Operating Expense 4,816.00 5,005.00 4,554.00 4,654.00 4,354.00
Operating Income 9,064.00 7,697.00 7,224.00 7,024.00 6924.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -69.00 27.00 -4.00 -4.00 -4.00
Income Before Tax 8,995.00 7,724.00 7,257.00 7,157.00 7,157.00
Income After Tax 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Minority Interest 0.00 0.00 0.00 0.00
Equity In Affiliates
Net Income Before Extra. Items 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Preferred Dividends
Income Available to Common Excl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Income Available to Common Incl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

 

 

 

Dilution Adjustment 15.00 17.00 19.00 21.00 23.00
Diluted Weighted Average Shares 2,457.00 2,524.00 2,624.00 2,687.00 2,753.00
Diluted EPS Excluding Extraordinary Items 2.58 2.15 1.90 1.80 1.65
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 0.48 0.40 0.33 0.28 0.21
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 2.58 2.28 1.90 1.80 1.60

 

Balance sheet Visa Inc.

In Millions of USD (except for per share items) As of 2015-09-30 As of 2014-09-30 As of 2013-09-30 As of 2012-09-30 As of 2011-09-30
Cash & Equivalents 3,518.00 1,971.00 2,186.00 2,086.00 2,386.00
Short Term Investments 2,497.00 1,979.00 2,069.00 2,169.00 2,269.00
Cash and Short Term Investments 6,015.00 3,950.00 4,255.00 4,355.00 4,455.00
Accounts Receivable – Trade, Net 847.00 822.00 761.00 751.00 731.00
Receivables – Other
Total Receivables, Net 1,332.00 1,699.00 1,702.00 1,802.00 1,902.00
Total Inventory
Prepaid Expenses 137.00 103.00 111.00 121.00 131.00
Other Current Assets, Total 2,537.00 3,810.00 1,754.00 1,854.00 1,954.00
Total Current Assets 10,021.00 9,562.00 7,822.00 7,622.00 7,422.00
Property/Plant/Equipment, Total – Gross 4,283.00 3,915.00 3,439.00 3,039.00 2,939.00
Accumulated Depreciation, Total -2,395.00 -2,023.00 -1,707.00 -1,607.00 -1,507.00
Goodwill, Net 11,825.00 11,753.00 11,681.00 11,581.00 11,481.00
Intangibles, Net 11,361.00 11,411.00 11,351.00 11,251.00 11,451.00
Long Term Investments 3,429.00 3,050.00 2,790.00 2,690.00 2,490.00
Other Long Term Assets, Total 216.00 304.00 327.00 337.00 347.00
  39,367.00 38,569.00 35,956.00 33,956.00 30,956.00
Accounts Payable 127.00 147.00 184.00 195.00 204.00
Accrued Expenses 2,121.00 2,303.00 936.00 956.00 976.00
Notes Payable/Short-Term Debt 0.00 0.00 0.00 0.00 0.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total 3,107.00 3,556.00 3,215.00 3,315.00 3,015.00
Total Current Liabilities 5,355.00 6,006.00 4,335.00 4,535.00 4,735.00
Long Term Debt 0.00
Capital Lease Obligations
Total Long Term Debt 0.00 0.00 0.00 0.00 0.00
Total Debt 0.00 0.00 0.00 0.00 0.00
Deferred Income Tax 3,273.00 4,145.00 4,149.00 4,049.00 4,078.00
Minority Interest
Other Liabilities, Total 897.00 1,005.00 602.00 672.00 656.00
Total Liabilities 9,525.00 11,156.00 9,086.00 8,986.00 8786.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total
Additional Paid-In Capital 18,073.00 18,299.00 18,875.00 19,875.00 19,975.00
Retained Earnings (Accumulated Deficit) 11,843.00 9,131.00 7,974.00 6,874.00 6,574.00
Treasury Stock – Common

 

Other Equity, Total -162.00 -86.00 -61.00 -59.00 -52.00
Total Equity 29,842.00 27,413.00 26,870.00 25,870.00 24,870.00
Total Liabilities & Shareholders’ Equity 39,367.00 38,569.00 35,956.00 34,956.00 33,956.00
Shares Outs – Common Stock Primary Issue
Total Common Shares Outstanding 2,433.83 2,471.83 2,543.83 2,643.83 2,743.83

 

Visa Inc. Cash flow statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30            
Net Income/Starting Line 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00            
Depreciation/Depletion 494.00 435.00 397.00 367.00 337.00            
Amortization            
Deferred Taxes 195.00 -580.00 1,527.00 157.00 143.00            
Non-Cash Items 3,112.00 3,164.00 2,479.00 2,379.00 2,179.00            
Changes in Working Capital -3,545.00 -1,252.00 -6,361.00 -6,261.00 -6,161.00            
Cash from Operating Activities 6,584.00 7,205.00 3,022.00 2,922.00 2722.00            
Capital Expenditures -414.00 -553.00 -471.00 -461.00 -441.00            
Other Investing Cash Flow Items, Total -1,021.00 -388.00 -693.00 -673.00 -643.00            
Cash from Investing Activities -1,435.00 -941.00 -1,164.00 -1,064.00 -964.00            
Financing Cash Flow Items 402.00 -1,445.00 4,381.00 4,281.00 4,181.00            
Total Cash Dividends Paid -1,177.00 -1,006.00 -864.00 -764.00 -664.00            
Issuance (Retirement) of Stock, Net -2,828.00 -4,027.00 -5,257.00 -5,457.00 -5,757.00            
Issuance (Retirement) of Debt, Net 0.00 0.00 -6.00 -6.00 -6.00            
Cash from Financing Activities -3,603.00 -6,478.00 -1,746.00 -1,846.00 -1,946.00            
Foreign Exchange Effects 1.00 -1.00 0.00 0.00 0.00            
Net Change in Cash 1,547.00 -215.00 112.00 162.00 182.00            
Cash Interest Paid, Supplemental 81.00 62.00 46.00 36.00 26.00            
Cash Taxes Paid, Supplemental 2,486.00 2,656.00 595.00 605.00 625.00            

 

In the process of carrying out this research, there were difficulties we faced. One of them was that it was cumbersome computing the various financial ratios as they were so many and also time-consuming. Lack of teamwork among the group members was also an issue as we sometimes disagreed with the views we had and who are to be assigned a particular duty.

There are several limitations associated with ratio analysis. First, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average ratios instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case whereby firms are doing poor, it might be concluded that all businesses are doing poor yet particular businesses have a good performance. This, therefore, makes ratio analysis not very accurate in the determination of the performance of firms.

Ratio analysis is also profoundly affected by inflation mainly balance sheets of various companies. Balance sheets are deemed only to show historical data which majorly is the financial position of the firm at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the enterprise. Inflation majorly affects the inventory values, depreciation and profit values. When the comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of but the only problem is that we never seek to find the cause of, the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, businesses that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

 

 

 

 

 

 

 

 

 

 

References

Garrison, R.H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Applied Financial Management

May 25, 2017

Various companies are affected by the financial statements they prepare to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following rates are analyzed: Gross profit margin, operating profit ratio margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is a critical ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Visa Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the company. With effective management, Visa Inc. can realize long-term growth and profitability. The efficient management ensures the employees are motivated to ensure they provide best services to the customers, and it also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring resources are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the firm can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking a greater part of its revenue leaving it with dismal operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed expenses such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, employment of new skilled staff who can come up with innovative ways of production to help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

 

The other profitability ratio is the net profit margin. This measure is vital to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenditure. A company with higher net profit margins has greater ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the business’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they assured their investments would accrue benefits.

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

 

 

Return on capital employed is also a significant profitability ratio that has to be evaluated in any particular company. This ratio is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the poor performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term ratio which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into an excellent financial performance of the company. Specifically, for every $4 invested in this company, the business was able to generate 26.6% of the amount. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the amounts invested due to its 8.9% interest rate which is still comparatively lower than that of Visa Inc. As a result, investors would still prefer investing in Visa Inc. Looking at the asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their capital would generate more funds for the company.

 

 

 

 

 

 

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

 

 

 

 

 

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by businesses to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since a company that cannot meet this requirement is considered as a highly risky firm which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both companies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the rates used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of money that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is, therefore, a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio to compete favorably with its competitor.

 

 

 

 

 

 

 

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These ratios help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. Foremost, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn lower amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing liabilities to the total shareholder equity. In the case of a high rate of debt to capital, the company will be exposed to high insolvency risk and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in a sound financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire capital from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

A beta factor is a criterion used by many investors in the process of making a decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

 

 

 

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

Dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the enterprise as well as its shareholder’s wealth maximization. Higher dividend payout results in the business not having enough funds to expand its operation.

In the general stock market, many players have different interests. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio  
        DPS/MPS DPS/EPS (%)  
2011 0.26 1.72 2011 1.32 51  
2012 0.30 1.85 2012 1.26 57  
2013 0.33 1.90 2013 1.16 63  
2014 0.40 2.15 2014 0.71 86  
2015 0.48 2.58 2015 0.62 124  
             

 

 

 

 

 

 

 

 

 

 

 

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio  
        DPS/MPS DPS/EPS (%)

 

 

 
2011 0.65 4.64 2011 0.76 16%  
2012 0.76 4.96 2012 0.88 17%  
2013 0.89 5.05 2013 0.98 18%  
2014 1.01 5.39 2014 1.09 19%  
2015 1.13 5.50 2015 1.62 21%  

 

There are several limitations associated with ratio analysis. For starters, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average ratios instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case whereby firms are doing poorly, it might be concluded that all businesses are doing badly yet particular businesses perform well. This, therefore, makes ratio analysis not very accurate in the determination of the performance of firms.

Ratio analysis is also profoundly affected by inflation. Balance sheets are deemed only to show historical data which majorly is the financial position of the enterprise at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the enterprise. Inflation majorly affects the inventory values, depreciation and profit values. When a comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of, but the only problem is that we never seek to find the cause of the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, companies that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

References

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Limitation of financial analysis

May 25, 2017

Introduction

Business financial strength is of vital concern to business owners, corporate managers, and lenders. Efficiency and cost control are keys to success to many companies in the current world. It is also very important to understand a company’s financial performance relative to its industry as all companies compete in the market place on a local, regional, national or international stage. When measuring the accomplishment of an organization and the financial performance of a company, the ratio analysis is the most important measurement which reflects their good working strength but again they don’t come without limitations for instance use of financial statements includes accounting, stock market and management related limitations which involves distorting the raw data used to derive financial ratios

The current ratio is the most important liquidity ratio since it measures the relative relationship between the firm’s current assets and current liability. This ratio can ascertain the firm’s ability to meets its short-term obligation by using the most liquid assets of the company. The higher the ratio, the better since this is translated to mean that the company can meet its short-term debt obligations without any difficulty. For instance, the two companies are not badly off in terms of meeting their short-term debt obligation. Visa Inc. is in a position to pay 1.9 times its current obligation hence this is a signal of a going concern business for investors. However, its counterpart American Express is in a position to pay up to 1.7 times of its current liability thereby making it also to be in good financial health. Investors, in this case, will invest more in Visa Inc. whose payment ability is higher than that of American Express but investors do not need to rely on this ratio alone to draw a conclusion.  Calculation of current ratio includes inventory, which may lead to overestimation of the liquidity position in the case of American Express.

At management and investor level, ratio analysis using financial statements can also leave out a number of important aspects of a firm’s success such as key intangibles, like the brand, relationships, skills, and culture. These are primary drivers of success over the longer term even though they are absent from financial statements. For example in the case of that Visa Inc. can effectively generate profit after tax at an increasing rate since it had an increase in net profit after tax of 3.3% since 2013. But the ratios do not tell how the company fared regarding social responsibility or the skills used to achieve the results.

Using ratio analysis to view a company’s financial performance is undermined in that when used alone it can present an overly simplistic view of the company by distilling a great deal of information into a single number or series of numbers. Also, changes in the underlying information ratios can hamper comparisons across time and inconsistencies within, and the industry can also complicate comparisons

Another limitation is that the management of the company to ensure that their operating expenses are lower than their operating profits to avoid sending a bad signal to the market. A higher operating profit shows the healthy financial condition of the company hence manager are said to have ensured that the company makes profits rather than losses. This is achieved using the operating profit margin ratio and while both companies posted impressive figures, for instance, the operating profit of Visa Inc. has been increasing though not at a constant rate since it was 61.3% in 2013, 60.9% in 2014 and 65.3% in 2015. This increase is clear indication that the firm has a sound financial health since its total operating expense is less than 50% while that of American Express has an operating profit margin ratio that has been decreasing from 30.6%, 35.2% and finally to 32%. Using this ratio can be misleading since, such an organization may compromise on growth and long-term investment as it tries to control recurrent expenditures. Investors may not be able to the details of recurrent expenditure foregone to access the management’s expenditure decisions.

Inflation too plays a major role in assessing a company’s financial performance as inflation may have badly distorted a company’s balance sheet. In this case, profits will also be affected thus a ratio analysis of one company over time, or a comparative analysis of companies of different ages must be interpreted with judgment. For example, the operating profit of Visa Inc. has been increasing though not at a constant rate since it was 61.3% in 2013, 60.9% in 2014 and 65.3% in 2015. This increase is clear indication that the firm has a sound financial health since its total operating expense is less that 50%  while, American Express has an operating profit margin ratio that has been decreasing from 30.6%, 35.2% and finally to 32%. This shows that the firms operating expenses covers almost 70% of its total revenue, but these figures do not give the value of inflation aspect of the economy thus unreliable for determinatio

Marketing Communication and Brand Strategy

May 24, 2017

Introduction

Bruwer and Johnson (2010) define brand strategy as a long-term blueprint for the creation of an efficacious brand in order to realize explicit goals. When a brand strategy is well-defined and implemented, it often affects all sides of the business and is precisely connected to customer emotions, needs and competitive environments. Marketing communication on the other hand refers to all the coordinated promotional messages and media that a business uses to talk to the market with (Armstrong & Kotler, 2012). It is an important and multifaceted part of the company’s marketing endeavours that include advertising on direct mail, radio and television; branding, direct marketing, public relations activities, sponsorships, printed materials, packaging among others. Brand strategy and marketing communication go hand in hand in their effort at ensuring that the business reaches its goals and objectives. While the brand strategy enables a business to choose how to identify itself through marketing, marketing communication reflects this intended image through the various channels of marketing including promotions, colours, and slogans among others. When the brand strategy and the marketing communications are integrated, they unify the message being sent out about the business and make them memorable (Bruwer & Johnson, 2010).

Strength and Weaknesses

SWOT analysis is an important tool used by businesses to identify factors within and without the enterprise that may affect the business’ future performance. In as much as the SWOT analysis is mostly used in management, it can be a great branding and marketing asset. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities and Threats (Robert, 2013). When developing a brand strategy, it is imperative to note the business’ strengths and weaknesses in order to develop marketing communications that alleviate customer fears with regards to the weaknesses and enhance their believe in the strengths that the business possesses.

Some of the strengths of the business include the provision of customer-centric services that are of good quality. Additionally, the business makes use of technology in the provision of the services thus increasing efficiency in service delivery and accuracy in management practises. These strengths set the business apart from the competitors who are providing similar services. However, the major weakness of the business is lack of personnel to handle the ever-growing number of customers. This has resulted in many customers queuing for quite some considerable time before being served. The inadequacy in personnel is occasioned by limited starting capital.

Competitor’s Strengths and Weaknesses

When developing brand strategy and crafting the marketing communication, it is imperative to study the competition and subject the major competitors to a SWOT analysis. This will help in the development of an impactful strategy that is enhanced with targeted communication (Robert, 2013). Competitors in the line of business enjoy the backing of financial resources which ensure that they have all the personnel they need to serve their customers. Additionally, they have the benefit of experience in the line of business and therefore are believed to be far ahead. However, their major drawback is the lack of Information Technology integration in their business operations. Most of their operations are still manual and therefore very inefficient and tedious.

Creating a Brand Image

Brand image is today regarded as the determinant of a business’s future. Regardless of the industry, a rock solid brand will stand out among the competition and attract the attention of the customers. Ajay ( 2005) argues that a multidisciplinary approach that makes use of owned, earned and paid media is the most effective way of creating a brand image. For this business, the brand image will be built through an outstanding logo, environmentally-friendly packaging, social media and corporate social responsibility.  In order to develop a strong brand image for this business, there is need to identify the target audience to which the marketing communications will be addressed, clearly define the business goals and the brand persona before developing the key messaging (Stuart, 2001). The target audience include the middle class working mothers and the business’ priority objective is provision of satisfactory services that will generate revenue and build brand loyalty among customers. The business’ brand persona development process will be guided by simplicity and relevance.

Maintaining Brand Image

Once a strong foundation for the brand image is created, there is need to maintain this image in the minds of the target customers. To build a loyal customer following that is able to generate leads, there is need to engage in promotional activities. Public Relations which may include CSR activities and press conference, content and social media are three important tactics that will be used to maintain the brand image (Armstrong & Kotler, 2012).

Public Relations will be used to distribute key company messages to all news outlets and online platforms and establishing the business as a thought leader in the line of business thus improving the brand image and creating awareness among target customers. Empty public relations does not, however, hold the customers long enough as they get bored or realize that they are being played and move on. That is why the business will purpose to develop quality content on the area of business that will not only convince the target customer but also educate them. Social media will be a key tool for engaging customers and assessing the customer response to the various services provided by the business.

Advertising Strategy and Objectives

An advertising strategy refers to a plan that the business intends to use in order to reach and convince the target customer to buy the services being offered. There are five advertising strategies that this business intends to use in order to reach the target audience. The major objectives of these strategies will be to raise brand awareness among the target customers and to realise a rise in revenue from sales (Ajay, 2005).

The first strategy is targeting the audience. This therefore calls for the identification of the target market and the key audience within that market that influences buying decisions. These are the people the advertising strategy should target. Secondly, there is need to measure and track the advertising. This can be achieved by look at the leads and sales generated by each advertising (Bruwer & Johnson, 2010). This strategy will prevent the business from spending on advertising that does not have returns for the business. Thirdly, there is need to know when to advertise. The services being offered by the business targets working mothers. It is therefore prudent to run the advertisement on Television during or after the primetime news since that is the time the target audience has access to the television. The fourth strategy is the need to brand well since this will keep the brand image in the minds of the audience. This can be achieved through standard packaging and an outstanding logo. Lastly, there is need to show up in the right places. Since working mums are the target market for the services, it is important that the advertising is displayed in places where they frequent.

Conclusion

Brand strategy and marketing communication are the backbone of any business. An effective brand strategy that is accompanied with explicit marketing communications will ensure that the business gets to and aptly convinces the target market into using the services offered by the business. This business will heavily rely on the band strategy and the integrated marketing communication in order to reach its sales targets every year.

 

 

 

                                                              

 

 

 

 

 

 

 

 

 

 

 

 

 

References List

Ajay, K. (2005). Marketing Led: Sales Driven: How Successful Businesses Use the Power of Marketing Plans and Sales Execution to Win in the Marketplace. Chicago: Trafford Publishing.

Armstrong, G., & Kotler, P. (2012). Marketing new mymarketinglab with pearson etext access card: An introduction. Place of publication not identified: Prentice Hall.

Bruwer, J., & Johnson, R. (2010). Place-based marketing and regional branding strategy perspectives in the California wine industry. Journal of Consumer Marketing, 27(1), 5-16.

Robert, M. (2013). Marketing to Moviegoers: A Handbook of Strategies and Tactics, Third Edition. FL: SIU Press.

Stuart, C. (2001). Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. London: Greenwood Publishing Group.

 

Supply chain

May 24, 2017

Introduction

In recent years there has been a shift in competition among companies such that the focus is not on individual companies but on the supply chain performance. Supply chain performance is defined as the extra supply chain’s activities intended to meet the requirements of the end customer including the availability of products, on-time delivery and the other entire significant inventory and activities in the supply chain to ensure delivery of the performance in a responsive way. The performance management specialists are mandated with these tasks. However, there are several challenges that they face in delivery of the supply chain performance including changes in the socio-environmental changes around business operations, frequencies of emerging technologies, increased complexity in supply chain and relationships with supplier and changing consumer preferences and behavior.

This essay will critically analyze an article by Robert G.  Eccles and George Serrafeim. The title of the article is; ‘The performance frontier: Innovating for a sustainable strategy’. Robert G. Eccles is a professor at Harvard Business School whereas George Serafeim is an associate professor at Harvard Business School. The authors are right in indicating that despite the fact that many companies have initiated sustainability programs, these programs fail because they are not equivalent to sustainability strategy. As indicated in the article, companies may, however, benefit if they focus strategically on the most significant things to the shareholders and develop innovations in the supply chain.

Summary of the Article

Most companies have various sustainability programs which the often launch with the hope that they will receive a financial reward, even when the programs launched are irrelevant to their strategies and operations. The problem with such sustainability programs is that it fails to understand the interconnectedness of financial performance and issues of environment Social and governance (ESG) of the organization. Improvement of one results in increased cost of the other. However, organizations don’t have to face this dilemma since it is possible to boost both the financial performance and ECG performance simultaneously. To achieve these organizations should strategically focus on the issues that are most relevant to shareholder value as they develop significant innovations in process, products, and business models that address those issues.

To develop an innovation program that also forms a sustainability strategy four basic initiatives should be considered. First, the organization should be able to identify the material ESG issue. The second, step is to quantify how the financial performance and the ESG relate. Third, the organizations should get involved in the innovation of products, processes and business models and lastly the company’s innovation should be communicated to the stakeholders. The Sustainability Accounting Standards Board has developed maps that provide ranks of 43 materiality issues for 88 industries. These maps can give valuable guidance to organizations. In addition, companies can also benefit from the broad initiatives that are currently undertaken by three companies including CLP Group, Dow Chemical, and Natura. These companies have demonstrated the kind of innovations that have the capacity to push performances into new realms.

Literature Review

Supply chain refers to the vertical sequence of transactions of sequences which add value to the end consumer (Silvestre, 2016).  Given the fact that satisfaction of the end final consumers is relevant to most organizational efforts have been made to enhance the supply chain performance and management which helps to achieve sustainability (Masoumik et al, 2014). According to Silvestre (2016), sustainability is the Triple Bottom Line (TBL) concerns of the business including the need for simultaneous assessment on matters to do with finance, environment, and social aspects.

Throughout the 1980s, the term supply chain management (SCM) was used to describe material flow between organizations. Consequently, it was initially understood as an extension of logistic, a synonym of logistics or activities and processes which are related to business integration which indicate something that was beyond logistic (Pereira de Carvalho, & Barbieri, 2012). Since the 1980’s many types of research have been done and the term SCM has been defined in different ways. Despite the many definitions, the primary goal of supply chain management is to allow organizations to realize more profit throughout the supply chain (Rota, Reynold & Zanasi, 2012). Achieving this goal has however been difficult since the self-interest of individual stakeholders in the supply chain has to be adjacent to those of the supply chain as a whole. Also, there are other external factors comprising of the social, environmental and governances aspect that impend the goal of (SCM).

Silvius & Schipper (2014) indicate that many companies are integrating sustainability programs in various stages of the supply chain including marketing, annual reports, corporate communication and in various activities. Sustainability can be linked to projects in that projects acts as the instruments of change within an organization. As such, sustainability can only be achieved through a thorough strategic planning by the project managers before it is integrated into the projects (Silvius, & Schipper, 2014). Otherwise, the changes made may be detrimental to the organization even after making huge monetary investments in the project.

There are various strategic management theories that can be applied by organization to enhance sustainable development with the organization. This theory include resources based theories, survival theories, contingency theories, human resource based theories and agency theories (Parker, Parsons, & Isharyanto, 2015). All of these theories focus on a specific element of the supply chain and indicates how it can be used to achieve competitive advantage. Also, gaining a competitive advantage is not enough for organizations since they have to also work towards sustaining the competitive advantage so that they can have a sustained performance.

Sustainability strategies should also be able to assess and forecast some of the risks that the organization is likely to face in the event of launching a given sustainability program. The relevance of risk assessment is to allow organizations to be able to strategize on ways in which they will cope with the uncertainties resulting from the sustainability projects. According to Silvius & Schipper (2014), organizations can achieve more if they accept that uncertainties brought about by changes in sustainable projects are inescapable and therefore ways of coping should be identified. Other factors that are likely to enhance the success of sustainability programs include normative competencies, systemic thinking competencies, interpersonal competencies, strategic competencies and anticipatory competencies.

Systemic thinking competencies are the ability to recognize the relationship between key elements in the supply chain and the basic causes of complex sustainability. It also encompasses both the internal and external factors that may influence sustainability such as governance, economic, sociological, technological and geographic factors that affect the sustainability program either directly or indirectly. Anticipatory competence enables the management of an organization to project the outcomes of an invented sustainability program. Normative competencies are the understanding of the different concept of justice, equity, integrity, ethics and socio-ecological factors affecting the sustainability project. Interpersonal competencies are the capacity for the management to motivate employees and encourage research and problem-solving techniques. All of these competencies are relevant in the sustainability of an organizational project.

One of the companies that have been able to use a sustainability strategy to in enhancing innovation is Natura. Natura has been able to maintain a high innovation power while at the same time remaining committed to sustainability. To attain this, the company had to do a strategic analysis of key elements of the supply chain and then use the knowledge to identify gaps that needed improvement through innovation. Just as Natura, the administrations of companies that have been able to attain sustainable developments are likely to be directly involved in project management. Also, most companies with high sustainability have well established long-term processes for engagement with key stakeholders (Eccles, Ioannou & Serafeim, 2014). In addition, high sustainability companies outperform their rivals by far in the long-term both in terms of accounting performance and the stock market.

Critical Analysis

Many companies are integrating sustainability programs in their supply chain through getting involved in such things as waste reduction, reduced carbon emission and use of technology to enhance operational efficiency within the organization. In as much as such programs are beneficial, it can result in companies spending a significant amount of money on sustainability programs while lowering their profit. This is due to the fact that adopting sustainability programs is not the same as having a sustainability strategy. Sustainability strategy requires long-term planning since involves assessment and analysis of each component in the supply chain.

Forming sustainability strategy demands that organizations not only develop various sustainability programs but also increase the value of the shareholders. The sustainability strategy should also be quantifiable so that the company can know if they are making progress. The measurement of performance in sustainability strategy can be done through order book analysis, profitability, and time and managerial analysis (Sillanpää, 2015). Before fully adopting a program in an organization project managers should test if the programs will have a quantifiable benefit to the organization. The measurement indicators can be used during the trial stage and only after quantification can the organization fully adopt the program.

It is also significant for the management to identify all the stakeholders involved in the supply chain activity and their relations to achieve a sustainable strategy. The degree of complexity in the supply chain should also be assessed and the potentials for future changes.  The general supply chain model shows that the supply chain usually changes over time (Janvier-James, 2012). Also, the general systems theory of supply chain management holds that the more complex the supply chain for an organization is the lesser its capacity to be compatible with the changing environments becomes. Basing on this principle it is advisable for organizations to have a well-defined supply change. Organizations can achieve this through establishing a long-term relationship with the suppliers, employees, and customers.

The other principle of the general supply chain theory is that larger systems require more resources to support the system (Janvier-James, 2012). This principle is relevant in adopting a sustainability strategy that will enhance innovation and at the same time improve the firms’ performance of ESGs. Organizations can weigh the sustainability program that they wish to adopt and analyze how large the system is. For instance, they can assess the number of employees that will be required to maintain the program, the cost of maintenance and the implications that the innovation has on other systems.  Only those programs that are small and can be accommodated within the organization without straining other systems should be adopted. This will enable the organization not to be strained financially and at the same time adopt a sustainable strategy.

As indicated by Eccles & Serafeim (2013) identification of the material key issues is significant for organizations that wish to achieve a sustainable strategy that will improve on the ESG issues and at the same time enhance organizational profit. The materiality of various sustainability issues often varies systematically across industries and firms (Khan, Serafeim & Yoon, 2016). Consequently, many organizations are currently focusing on discriminating between the immaterial ESG issues and the material ESG issues. If significant discrimination is achieved then it can help in exploiting differences in materiality across issues of sustainability it can be used in testing the potential performance of the sustainability strategy that an organization wishes to invest in. Organizations can use the Sustainability Accounting Standards Board (SASB) to classify sustainability programs as either immaterial or material prior to implementing their plans in the organization. As stated by Khan, Serafeim & Yoon (2016) organizations that have strong ratings of material sustainability are likely to perform well in future.

Quantifying the material ESG issues financially is significant in enhancing a sustainable program. The financials quantification of the ESG issues can help and organization to decide the ESG issue to improve on (Calik & Bardudeen, 2016). The issues that demand relatively less finance will be less strenuous to the organization hence it can be adopted. Quantification will also help with ranking the ESG issues that the organization can prioritize based on the significance of that ESG issue and the capital that they are willing to spend on the sustainability strategy. Identification of the ESG issues will enable organizations to know their competitive advantage in comparison to rival companies. This can help the organization to better position itself so as to gain better competitive advantage.

In order to realize improvement, the company should have innovation on process, business models and products. The benchmarking done to compare the firm’s position to that of competing companies is significant as it indicates the ESG issues that the company should prioritize on. An innovation that complements the ESG issue can then be adopted so as to realize a profit and also have a sustainable program. Innovation and creativity in the company can come from employees if they are given a good platform to present their ideas. The organization should offer an enabling environment for the employees to feel that their input is appreciated (Eccles Perkins & Serafeim, 2012). Information system technology can also be used to create a platform for various employees to contribute their ideas and sharpen each other’s creativity. Although ideas from all employees should be considered much focus should be given to employees with knowledge, skills and experience in the mention ESG issue, those that are intrinsically motivated and those with creative personality.

Effective communication to all stakeholders involved in the supply chain is an effective ingredient for sustainability of the ESG and the innovation. At no point should the management of an organization assume that their innovation will be clear to everyone without being communicated. Proper communication will enable different stakeholders to support the sustainability strategy that has been adopted by the company.  Proper communication also ensures that other suppliers understand the values of the organization. The partners, customers and the suppliers of the company can then align their values to that of the organization or at least respect those values. For example, Natura Company has innovated sustainable programs and has ensured that all stakeholders in the supply chain are aware.  The collaboration of the company and other stakeholders in the supply chain is characterized by factors such as reputation, trust, cooperative information system and joint program (Pereira de Carvalho & Barbieri, 2012). They also have established a long-term relationship with the supplier which has enabled the company to have a competitive advantage over its rivals.

Conclusion

This essay has provided a critical review of Eccles et al article on sustainable development. Many organizations find innovation of a sustainable strategy to be difficult even after launching sustainability programs. Adopting a sustainability program for most organizations leads to excessive financial expenditure without any profit. This can be avoided when organizations adopt a sustainable strategy. The strategy should first consider distinguishing between the material ESGs and the immaterial     ESGs. The material ESGs should be selected and then quantified financially. This should be followed by the innovation of business models, products, and process which can then be communicated to the stakeholders. The general supply chain theory and literature has been used to support this procedure in achieving a sustainable strategy.

 

 

 

 

 

 

 

 

 

 

References

Calik, E., & Bardudeen, F. (2016). A Measurement Scale to Evaluate Sustainable Innovation       Performance in Manufacturing Organizations. Procedia CIRP40, 449-454.

DyReyes, J. (2008). Project Manager ADP, Inc (Doctoral dissertation, University of Oregon).

Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard business review91(5), 50-60.

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on          organizational processes and performance. Management Science60(11), 2835-2857.

Eccles, R. G., Perkins, K. M., & Serafeim, G. (2012). How to become a sustainable             company. MIT Sloan Management Review53(4), 43.

Janvier-James, A. M. (2012). A new introduction to supply chains and supply chain   management: Definitions and theories perspective. International Business Research5(1),           194.

Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on     materiality. The Accounting Review91(6), 1697-1724.

Masoumik, S. M., Abdul-Rashid, S. H., Olugu, E. U., & Raja Ghazilla, R. A. (2014). Sustainable     supply chain design: a configurational approach. The Scientific World Journal2014.

Parker, D. W., Parsons, N., & Isharyanto, F. (2015). Inclusion of strategic management theories           to project management. International Journal of Managing Projects in Business8(3),             552-573.

Pereira de Carvalho, A., & Barbieri, J. C. (2012). Innovation and sustainability in the supply chain of a cosmetics company: a case study. Journal of technology management &           innovation7(2), 144-156.

Rota, C., Reynolds, N., & Zanasi, C. (2012). Collaboration and sustainable relationships: Their     contribution to the life cycle analysis in agri-food supply chains. Proceedings in Food System Dynamics, 574-583.

Sillanpää, I. (2015). Empirical study of measuring supply chain performance. Benchmarking: An             International Journal22(2), 290-308.

Silvestre, B. (2016). Sustainable supply chain management: current debate and future directions. Gestão & Produção23(2), 235-249.

Silvius, A. G., & Schipper, R. P. (2014). Sustainability in project management competencies: analyzing the competence gap of project managers. Journal of Human Resource and              Sustainability Studies2014.

Barbara Fritchie

May 24, 2017

           

The poem is set during the Civil War in Frederick, Maryland and it features an elderly woman called Frietchie, who defied Confederate orders by flaunting a flag in the presence of Stonewall Jackson. It is very tempting to categorize Barbara Frietchie as a historical poem because of its arduous rhythm and persistent rhyming that can be distracting to most people. It is a poem that carries a lot of sentimentality and shameless defense of the Unionists to the contemporary audience. Without a doubt, the piece does not call for any sophisticated examination. It only presumes a communal role of the writer that in the modern era poets hardly ever perform. Barbara Frietchie is actually more than a piece of recitable propaganda. To the contemporary audience of the poem, it is a passionate declaration of the traditionalist virtue of order which dominated the British neoclassical ideas in the mid-eighteenth century.

Whittier uses language and symbolism to create a happier view of the civil war. He uses playful rhymes and several heroic couplets to lighten the mood of the poem and uses the courageous story of an old lady who stood up to confederate troops which bears similarities to many nursery rhymes. In addition, the poem employees the theme of nationalism and freedom as well as American pride where one person can stand up to people who are considered rebels even though they put their life at risk while doing it. In the first few lines, he uses words that describe nature and these include meadow, fruit trees as well as  fruit, gardens, hills, and the natural calm temperatures of that day. When Whittier was choosing Frederick as the name of the town, he ensures that it has a realistic ring to it and this suggests that his view of the civil war is not based on personal experiences in any battle, but it is rather based on glorified narratives of heroics and war.

To get its point across, the poem uses three unique emblems. Unlike other symbols used by most poems, most of which invite creative and often interpretive analysis, the use of emblems produces vivid pictographic images that straightforwardly correspond to a unique abstract principle and one that is particularly useful in teaching. Here, the poet deploys the natural environment itself which is actually the emblem of a universal virtual of social order (Stewart, 2015, 34). For instance, the flag is not only an emblem of the political and social forces referred to as the Union but it is also an emblem of the general universal virtue of order as foreseen by human efforts. In addition, the guns that the rebel forces carry are an emblem of societal disorder. They are seen by the poet as a dangerous declaration of anarchy which in neoclassical perspective, has represented rebellion which is in it a huge threat to peace and order. According to the poet’s perspective, the Civil War was not just an economic, political, cultural or military act; it was also a moral act, particularly a violation of the universal virtue of order.

In terms of the setting, the narrator describes a stunning cool morning in September where meadows were rich and filled with corn that surrounded the spires of Frederick, Maryland. town was besieged by several troops of General Robert E. Lee’s rebel army that was being commanded by Stonewall Jackson. About forty troops entered the town at a time when pears and apples were hanging in plenty on various fruit trees. The troops were very hungry, and they had come to gather food for their counterparts who were starving (Loewy, 2016, 165). The confederate forces invaded the town with their flags arrogantly displayed, and by noon that day, they had managed to pull down other flags.

The poet emphasizes the advanced age of Barbara Frietchie in order to make the reader sympathize with her condition. Her advanced age is impressed on the audience by straightforwardly referring to Barbara as old and also commenting on her gray hair. By letting the reader know that she is old makes her appear fragile and this makes her stance against the rebels even more dramatic. The poem is meant to align the loyalty people have for their country and their flag with the vision of the old generation, while at the same time classifying the rebels as the young generation. He associates Barbara’s action of raising the flag to keeping a memory alive and likens it to the bravery of people like Barbara Frietcher. Whittier’s overall portrayal of patriotism and national pride for the modern American is romanticized using a subtle and soft approach to a situation that in reality would have been much more horrifying.

According to the narrator, Barbara Frietchie took her flag, went to her window, and started yelling at the rebel troops telling them to shoot her if they wanted to, but warned them that they were not to in any way harm the union banner, which she referred to as the country’s flag. In doing this Barbara Frietchie was actually professing her unwavering loyalty to the country as well as insisting that that the country still belonged to the misguided people in the rebel army.

General Stonewall Jackson reacted in a way that showed that deep down in his heart he knew that the old lady was right. According to the poet, Stonewall’s face was reduced to a blush that represented his shame and sadness. His usual nobility was eliminated and for a moment, Stonewall was at the mercy of the old woman’s word or deed. This is evident when the general issued the command that anyone who touched a hair on the old woman’s head would die like a dog (Fine, 2016, 777). He then goes on to tell his troops to march on. Even as the troops marched on through the town’s streets, Barbara’s flag remained visible to everyone and it flew over the heads of the passing troops. They were obeying Stonewall’s order not to hurt the old lady and her banner, which remained raised even at night. The last part of the poem is actually a glowing tribute to Barbara Frietchie’s patriotism as well as General Stonewall’s brave capacity to appreciate and recognize old patriot’s loyalty toward the country she called home. The narrator now describes Frederick as a peaceful town as the war is over. The flag that Barbara honored and loved now erected on her grave, and the town’s patriots have all become stars for their courageous patriotism.

 

 

Work Cited

Fine, David R. “Symbolic Expression and the Rehnquist Court: The Lessons of the Peculiar Passions of Flag Burning.” U. Tol. L. Rev. 22 (2016): 777.

Loewy, Arnold H. “The Flag-Burning Case: Freedom of Speech When We Need It Most.” NCL Rev. 68 (2016): 165.

Stewart, Ralph. ““Barbara Frietchie” and the Civil War.” ANQ: A Quarterly Journal of Short Articles, Notes and Reviews 16.2 (2015): 32-36.

 

 

 

 

Justification of the selected company

May 24, 2017

Nokia was selected for this study because it is a large company which failed in an industry whereby it once performed better than its competitors. Previous studies indicate that Nokia commanded half of the global shares in the majority of its segments before it lost in the technology industry.  Notably, the company operated in a business environment that is characterized by constant dynamics, technological strategies and transitions for a considerably long time. Therefore, the process of failure can be easily identified from the progress of the company’ performance over a duration of time, specifically from 2006 to 2011. Nokia’s downfall came after the changing conditions whereby management’s decisions to adapt to the changes were met with utter failure in business performance. Consequentially, it was considered as a source of valuable information to provide knowledge and an understanding of business failure because of the nature of its business environment

Outline of the case study

  1. The aim of this case study

It aims to analyse the root cause of failure of the Nokia company. It involves conducting a systematic multi-level root cause analysis to identify the reasons for Nokia’s downfall in the technology industry.

  1. A brief overview of Nokia’s performance before and after the failure occurred.

The core competence, financial strength, and commanded market share in different markets prior to and after failure (Neelu, 2014, p. 55).

  1. Causes of failure.
  2. a) External factors that are linked to the poor performance of the company in the market.

Macroenvironmental factors. They range from economic factors, political, legal and social demographics and conditions, to technological changes which made its core assets and core activities obsolete.

Micro environmental factors – These comprise of both internal and external stakeholders who include; shareholders, customers, competitors, employees, and suppliers (Jia & Yin, 2015, p. 447).

  1. An illustration of how the failure developed over time

This section explains the market changes and ineffective management strategies over time that caused failure (Yuan-Chen, 2013, p. 2559).

  1. Turnaround strategy

Develop innovative products

Better strategic planning, execution and reporting

  1. Conclusion

 

 

 

 

 

 

 

 

 

 

 

 

 

Bibliography

Jia, J. & Yin, Y., 2015. Analysis of Nokia’s Decline from Marketing Perspective. Open Journal of Business and Management, Volume 3, pp. 446-452.

Neelu, 2014. A study on Nokia. International Research Journal of Commerce Arts and Science, 5(6), pp. 47-57.

Yuan-Chen, C., 2013. Nokia and strategic agility. African Journal of Business Management, 7(26), pp. 2597-2602.

 

 

 

 

 

 

 

Topology optimisation of Meta Material with Negative poisson’s ratio

May 24, 2017

Table of contents

Abstract 2

1.Background. 4

1.1.Motivation. 6

2.Introduction. 6

2.1.Applications of auxetic materials. 8

2.2.Negative Poisson’s ratio. 9

2.3.Types of materials with negative Poisson’s ratio based on their geometry. 11

2.3.1.Foams. 12

2.3.2.Honeycombs. 13

2.4.Topology optimisation. 13

2.5.Methods of topology optimisation. 15

2.5.1.Homogenisation method. 15

2.5.2.Solid isotropic material with penalisation method (SIMP) 16

2.5.2.1.Mathematical formulation by SIMP method. 16

2.5.3.Evolutionary structural optimisation (ESO) method. 17

2.5.4.Level set method (LSM) 17

2.6.Auxetic polymeric foams. 18

2.7.Additive manufacturing (3D printing) 19

2.8.Mechanical properties of auxetic foams. 20

2.8.1.Toughness and dissipation of energy. 20

2.8.2.Indentation of auxetic foams. 21

2.9.Design of auxetic microstructures by topology optimisation. 22

2.9.1.Two dimensional structures with negative Poisson’s ratio. 23

2.9.2.Three dimensional structures with negative Poisson’s ratio. 25

2.10.Major characteristics of materials with negative Poisson’s ratio during design. 28

2.11.Design of rotating unit auxetic materials. 29

3.Methodology. 30

3.2.1.Heat study by heat model 31

3.2.2.Heat study  by thermocouples. 32

3.3. 3D printing. 33

3.4.Compression test 35

3.5.Characterisation techniques. 37

3.5.1.Ratio of volumetric compression. 37

3.5.2.Digital volume correlation. 37

  1. Conclusion. 38
  2. References. 38

 

 

List of figures

Figure 1: A graph representing elastic modulus against elastic strain. 6

Figure 2: Schematic representation of compliant mechanism.. 7

Figure 3: Schematic representation of a. regular behaviour when the structure shrinks due to the applied force, b. auxetic behaviour when the structure enlarges due to the applied force. 9

Figure 4:Re-entrant bow tie structure with q as the re-entrant angle. 13

Figure 5: Re-entrant honeycomb structures. A. arrowhead, B. Loznge and square grid, C. star shaped structure  15

Figure 6: A unit cell with square. 16

Figure 7: SIMP method solutions. 17

Figure 8:The discretisation of design domain into finite elements. 17

Figure 9: Microstructure of conventional and auxetic foam.. 19

Figure 10: Design variable of 2D negative Poisson’s ratio material 24

Figure 11: Design variable negative Poisson’s ratio material with non linear geometry. 25

Figure 12: Design by altering the material properties with respect to q1 and q2. 26

Figure 13: Design variable of 3D negative Poisson’s ratio material 27

Figure 14: Effective Young’s modulus with two design variables. 28

Figure 15:Effective Poisson’s ratio with two design variables. 28

Figure 16: Characteristics of the materials with negative Poisson’s ratio. 29

Figure 17: The process of fabrication of auxetic foams. 31

Figure 18: Schematic representation of sample removed from oven. 32

Figure 19: Model for calculation of transfer of heat 33

Figure 20: The 3D printed cell dimensions of auxetic and conventional cells. 34

Figure 21: Solid works design for 3D printed samples for auxetic tensile and auxetic high mass. 36

Figure 22: Schematic representation of  drop tower rig. 37

Figure 23:Schematic representation of digital volume correlation. 39

 

Abstract

 

The engineering materials are designed to increase their resistance and stiffness while decreasing the mass of the material. The requirement to minimise or maximise certain quantities is termed as optimisation. The most important approach towards the conceptual stage of structural design is the topology optimisation method where certain parameters can be either maximised or minimised without any constraints. This field of engineering science has undergone stupendous progress during the last decade and has been successfully applied in different engineering problems.  The additive manufacturing is another branch of structural design which is also termed as 3D- printing. The thesis comprises a literature review on auxetic materials, topology optimisation and 3D printing methods. The metamaterials are artificially fabricated materials which possess extra-ordinary characteristics as compared to their natural forms.  The optimisation of the topology of multi material is generally carried out with level set methods.

The basis of the topology optimisation method is the distribution of the materials in the optimal manner within the design space. The field of materials and the study of cellular materials fall under this category. The group of cells which agglomerate homogeneously are termed as cellular materials which are real materials. The polymeric foam is a type of cellular materials. The topology optimisation of foam is not very suitable as compared to lattice materials which are periodic and regular and can be easily modelled mathematically.

The theoretical optimisation is carried out initially which is later applied physically. The optimised materials are manufactured by 3D printing which is still in an early stage. Thus three steps involved in the complete procedure are theoretical study, design which is followed by manufacturing.

 

Topology optimisation of meta material with negative Poisson’s ratio

1.Background

 

A variety of materials possessing specific properties are desirable in the arena of engineering applications. Some engineering materials require properties having combination of high thermal diffusivity along with high thermal conductivity, high strength as well as high strain and also materials with low density but high strength.[1] The properties of the materials obtained from nature are limited which are not appropriate for many cases.  Thus different materials like foams, alloys, sandwich structures and composites have been designed for manufacturing the products with desired properties.

The materials used in load carrying and structural applications should possess high strength. The flexural strength of a material is compared with the help of a parameter called elastic modulus. The flexural stiffness of structures made of ceramics and alloys are very high but they have low elastic strain. However certain materials like foams and elastomers exhibit high elastic strain but low flexural stiffness. The adaptive structures require both the properties and hence should have the capacity to bear loads as well as alter their size and shape.  Therefore the two main properties of adaptive materials are high strain capability and high strength.  A graph plotted against maximum elastic strain and elastic modulus demonstrates that the materials can either have high elastic strain or high strength but fails to have both the properties at the same time. Figure 1 However the adaptive materials can be manipulated to exhibit both the properties simultaneously.

Two types of materials used in adaptive structures are active and passive materials. The materials whose mechanical properties like stiffening and softening can changed due to external energy are termed as active materials. The polymers and shape memory alloys fall into this category. [2]

 

Figure 1: A graph representing elastic modulus against elastic strain[3]

 

The materials whose mechanical properties can be altered by compliant mechanism are termed as passive materials. The foams and cellular materials fall into the class of passive materials where the microstructure and the macrostructure are made of compliant joints and links. The compliant members bend alone during deformation thereby allowing a high maximum elastic strain as compared to that of the bulk material. The ratio of the strength to weight of the passive materials is high.[4]  Cellular structures and contact aided compliant mechanisms are two passive compliant mechanisms having high strain as well as strength.  The compliant mechanism which undergoes self contact during deformation is termed as contact aided compliant mechanism where the concentration of the stress is reduced due to contact. The load carrying applications uses cellular structures which are used in the cases of high elastic strain.[5] Figure 2

Figure 2: Schematic representation of compliant mechanism[6]

1.1.Motivation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.Introduction

 

The materials possessing modified functionalities and extraordinary mechanical properties like negative Poisson’s ratio, negative compressibility and negative elasticity are termed as mechanical metamaterials.[7]  Any materials which can be engineered to exhibit unique characteristics are referred to as metamaterials. These materials are also referred to as designer materials as their macro scale properties can be manipulated to design structures with particular physical or mechanical properties. [8] A variety of structures have been designed having complex micro structure by the process of additive manufacturing.[9]

The materials which have a negative Poisson’s ratio are called auxetic materials.  These materials are microstructures which become thick in the direction perpendicular to the direction of the applied load when subjected to tensile loading. This generates flexing in the material because of the appearance of artificial hinges. An auxetic structure has repeated patterns of microstructure which is identical.  A monolithic body with a particular geometry constitutes each of the microstructure which undergoes a specific motion under a particular loading.  Thus the complete body behaves in an auxetic manner as it acts due to compliant mechanism. Figure 3

The mechanical properties like fracture toughness, hardness, sound absorption, indent resistance and shear strength can be enhanced considerably for auxetic materials.[10] Additionally the shape and size of the pores within the molecular sieves can be maintained as well as the double curvature with a honey comb panel is permitted in this type of materials.[11]

The interest in materials with negative Poisson’s ratio was initiated after the synthesis of auxetic re-entrant foam.[12]  Other instances of auxetic materials are SiO2 polymorph a-cristobalite, complex zeolites and silicates.[13]

 

Figure 3: Schematic representation of a. regular behaviour when the structure shrinks due to the applied force, b. auxetic behaviour when the structure enlarges due to the applied force[14]

2.1.Applications of auxetic materials

 

Materials with high value of negative Poisson’s ratio  where (ν < −0.5), exhibit high values of indent resistance.[15] The foam mattresses possess this property where the support can be enhanced without compromising the comfort.  The auxetic foams are used as damping materials during audio recording due to their enhanced acoustic absorptions.[16] The auxetic fabrics prevent the passing of glass and other debris due to their hardness. [17] The auxetic piezoelectric composites are used for generating small scale strains required for the production of electric current.[18]  The application of these materials as molecular sieves is significant as the shape of the pores can be altered according to the requirement. [19] These materials have been used for manufacturing bioprostheses, shape memory foams and running shoes.[20]

2.2.Negative Poisson’s ratio

 

The Poisson’s ratio is defined as the ratio of the lateral strain to that of the axial strain.[21] The Poisson’s ratio has interesting properties when it is not within the normal range. This parameter can have a negative value and such materials are termed as auxetic materials.[22] The two parameters –strain and applied stress are responsible for describing the elastic properties of a material.  Mathematically the strain and applied stress are represented by the following equations:

Where                                     e = Strain

s = applied stress

DL = extension of length

Lo = original length

F = applied force

A = cross sectional area

A material experiences large number of stresses and strains at various cross sectional area. A material subjected to stress will have transverse strain in the perpendicular direction of the force and longitudinal force along the direction of the applied force. For isotropic materials the relation between the stress and strain is termed as elastic moduli. The bulk modulus, Young’s modulus, Poisson’s ratio and shear modulus are all terms of different elastic modulus which are mathematically represented as follows:

Where                                     E = Young’s modulus

n = Poisson’s ratio

K = bulk modulus

G = shear modulus

The elastic properties of anisotropic material cannot be completely described with the above four scalar constants. Thus the strain is expressed in terms of stress which is termed as compliance while the stress is expressed in terms of strain termed as stiffness by using a fourth order tensor.[23] The tensor is presented as 6×6 matrices using Voigt notation which helps in visualisation.[24] The elastic properties are completely defined by a maximum of 21 numbers of coefficients. However there is a decrease in this number as the symmetry of the crystal increases.

The three parameters which describe the Poisson’s ratio of anisotropic materials are a perpendicular lateral vector and two angles describing the axial vector. The complex interdependence of these tensor elements is responsible for the auxetic properties of the material.  The elastic properties of the isotropic materials are averaged by four  different methods namely a direct averaging method, Reuss,[25] Voigt and Hill[26] method. The values for bulk modulus and shear modulus were analysed by averaging schemes by Voigt and Reuss.  The Voigt averages were derived from the stiffness matrix having coefficients Cij as shown below by the following equations:

 

 

Where                                     Kv = Voigt average of bulk modulus

Gv = Voigt average of shear modulus

 

The Reuss averages were derived from the compliance matrix having coefficients Sij as shown below by the following equations:

 

 

 

 

Where                                     KR = Reuss average of bulk modulus

GR = Reuss average of shear modulus

The numerical average values of arithmetic mean values of and Reuss and Voigt and the direct method are used in the scheme proposed by Hill. The equations are shown below which aids to find the average values of Poissons ratio and young’s modulus :

 

2.3.Types of materials with negative Poisson’s ratio based on their geometry

 

The structures having a negative angle which means that the structure is directed inward are termed as re-entrant structures.[27] Figure 4 The re-alignment, axial deformation as well as deflection of  the cell ribs are responsible for the deformations of re-entrant structures.[28]

 

Figure 4:Re-entrant bow tie structure with q as the re-entrant angle[29]

2.3.1.Foams

 

The designing of re-entrant foams from open cell thermoplastic foams by Lakes was the first example of manufactured auxetic materials.[30] The re-entrant metallic foams are obtained by compressing the foam triaxially followed by heating it just above the softening temperature followed by cooling it to room temperature. Thus the polyhedral unit cells are transformed to their re-entrant unit cells where the cells protrude in an inward direction.  Auxetic epoxy foams was fabricated by Quadrini et al where the unit cell structure remains same. [31] However the foams were anisotropic and thus relating  the elastic constants poses a difficulty. Other reports revealed the auxetic foams having buckled ribs which initiates the deformation procedure.[32] The Poisson’s ratio was not linearly dependent on the axial strain of the foams due to the presence of a variety of deformation mechanisms during the alignment of the cell ribs at large strains.[33] The Poisson’s ratio as well as Young’s modulus  is decreased with an increase in the toughness and shear modulus on increasing the compression ratio. Additionally the energy absorption and strengths of the re-entrant foams are high. [34]

2.3.2.Honeycombs

 

An array of similar re-entrant hexagonal cells in a three dimensional space with negative Poisson’s ratio and high anisotropy are termed as re-entrant hexagonal honeycombs. They exhibit high value of transverse shear modulus and transverse Young’s modulus. [35] The Poisson’s ratio increases and the stiffness decreases with a decrease in the thickness of the vertical rib. However the Young’s modulus reduces due to the decrease in the thickness of the diagonal rib with an increase of the in plane Poisson’s ratio.  The ratio of the cell rib length and the re-entrant angle is responsible for the degree of auxeticity. Introduction of a narrow rib and an enhancement of the base angle of the re-entrant honeycombs increased the negative Poisson’s ratio.  Other re-entrant modified honeycomb geometries are auxetic arrowhead structure, Lozenge grid, square grid and star shaped structures. Figure 5

2.4.Topology optimisation

 

The parameters like location, number and shape of holes as well as the distribution of materials over a certain range can be optimised with a tool called topology optimisation. [36] It is an effective tool used in computer where the problem of design is placed as a standard distribution of material which satisfies the functional requirement with the help of a standard layout of material. The strain energy or compliance of a structure for a given volume fraction dictates the distribution of material in a body. The objective function in the optimisation of topology is analysed with the aid of finite element analysis. The elastic light weight structures used for carrying weight  has been intensively subjected to the process of topology optimisation in the previous years.[37]

Figure 5: Re-entrant honeycomb structures. A. arrowhead, B. Loznge and square grid, C. star shaped structure[38]

 

The topology estimation has recently been carried out in the field of  systematical design of metamaterials. The metamaterials are characterised by multi physics coupling and non linear behaviour. The inverse homogenisation theory was employed by Sigmund for fabricating microstructures having constitutive parameters.[39] The truss frame microstructures having negative Poisson’s ratio was obtained in 2D and 3D with the help of inverse homogenisation method. The elastic properties were calculated and a dual optimisation algorithm was applied to fabricate microstructure with desirable elastic properties based on strain energy method by Zhang et al.[40] Another report stated the design of 3D microstructures with elastic properties by modified SIMP method.[41]

2.5.Methods of topology optimisation

2.5.1.Homogenisation method

 

The relation between the properties at the macro and micro level is analysed by the homogenisation theory.  This theory was used for the determination of topology by combining it with finite element method.  Materials are added or removed to create microstructures within a design domain in the process of topology design. The micro-structures can possess voids with different shapes. Figure 6 The parameters which define the voids are width, height and the angle of rotation. The micro structure of each unit cell within the domain lies between a pure void and a pure solid. The finite element analysis is responsible for modification of the design variables.  The homogenisation theory  updates the analysed microstructures from the former iteration and the process continues until the satisfaction of the convergence criteria.

Figure 6: A unit cell with square[42]

2.5.2.Solid isotropic material with penalisation method (SIMP)

 

The solid isotropic material with penalisation method is an adaptation of the homogenisation method where variant removes the topologies which cannot be manufactured. The density of the design variables lying between 0 and 1 are removed by this method. The density of the element is increased to an exponential factor in the objective function  which filters out the variants. The penalisation factor in the original homogenisation method is set up as 1 and as it increases the intermediate variant densities gets removed. Figure 7

Figure 7: SIMP method solutions[43]

2.5.2.1.Mathematical formulation by SIMP method

 

The problem of topology optimisation is a 0-1 integer optimisation problem. The design domain is broken into finite elements initially. Figure 8

Figure 8:The discretisation of design domain into finite elements[44]

 

A design variable xe is assigned in each finite element e. The material present in that area is indicated by a cell which painted in black. The material is present in the cell only when the density is equal to one. The cell is void if there is no material in the cell. The integer values can be replaced by continuous values which can be powered in a penalty value p>3. Thus the design variables are approximately close to the ideally discrete values of 0 and 1. The overall flexibility of the structure is minimised which is the objective of the function by optimisation and is described by the following equation:

Where                                     K = global stiffness matrix

Ko= stiffness matrix of the element that is full of material

2.5.3.Evolutionary structural optimisation (ESO) method

 

The theory  of evolutionary structural optimisation method  is based on the fact that the inefficient materials will be removed with the evolution of the optimal structure.  A structure when subjected to excessive strain or stress fails while a material fails if it is under low stress or strain.  The level of stress should be equal throughout the structure and thus the materials with low stress will be removed gradually. Other design constraint parameters like frequency, buckling load and stiffness are imposed and finally removed.

2.5.4.Level set method (LSM)

 

The boundary is represented by a  scalar function of high dimension in the level set topology method. The structural boundary is set at the zero level set of a function with higher dimensional level set. The topology like smooth boundary and proper interface  can be optimised by this method.

2.6.Auxetic polymeric foams

 

The polyurethane foams are used in coatings, medical devices and interiors of automobiles.  The smart polymeric and metallic foams were manufactured from low density open cell polymeric foams by altering the microstructure of the conventional foams. Figure 9

 

 

Figure 9: Microstructure of conventional and auxetic foam[45]

 

 

There are many reports on the improved mechanical properties like fracture toughness, indentation resistance, sound absorption and  viscoelastic loss.[46]  The mechanism of rotation of rigid units was applied for introducing the auxetic behaviour in cellular materials of foam. The ribs of the cells exhibited the auxetic nature which was thick at the joints than at the centre.[47] The gradient properties and homogeneity  of the auxetic foams were reported which revealed that the concavity of the cells are responsible for imparting auxetic nature. Additionally they reported that the dissipation of energy by the auxetic foams was more as compared to that of the conventional foam.[48] The complex microstructure aids in the heterogeneous strain distribution of foam polymers.[49]  It was reported that the microstructure of the auxetic polyurethane foams remains unaltered in presence of solvent or high temperature in a contained state as expansion is not allowed under this condition.[50]  Computer simulation studies showed that foams with hard joints exhibit more strong auxetic character as compared to that of soft and normal joints.[51]

2.7.Additive manufacturing (3D printing)

 

The unconventional process for manufacturing auxetic foams is termed as additive manufacturing or 3D printing. It generates physical models from digital CAD data by adding layers of thin cross sectional material in order to produce a similar design. The thinner the layers used for creating the model, more approximate is the model to the original design. The thickness of the film for the systems is around 0.1 mm normally. The main asset of additive manufacturing technique is that there is no limitation to design.  Thus the technique has been successfully applied in duplicating the auxetic foam polymers and also has been used for creating new polymeric foams. [52] The mechanical properties, accuracy of the final model, cost are dictated by factors like thickness of the layers, bonding of the layers and  process of the creation of layers.[53] The additive manufacturing technologies are encapsulated in table 1

 

Serial no Technology of additive manufacturing Materials
1 Fused deposition modelling Polycarbonate, acrylonitrile, butadiene, styrene, polyphenylsulfone
2 Direct metal laser sintering Metal alloys
3 Electron beam melting Metal alloys
4 Selective laser melting Polymers, metals, ceramics
5 Selective heat sintering Thermoplastics
6 Selective laser sintering Plastics, polymers, metals, composites, ceramics
7 Laminated object manufacturing Paper, composites, polymers, metals
8 Stereolithography Photopolymers
9 Digital light processing Photopolymers
10 3DP Elastomers, composites, ceramics, composites
11 Prometal Ceramics, metal
12 Polyjet Photoploymers
13 LENS Metals

 

Table 1: The different additive technologies[54]

2.8.Mechanical properties of auxetic foams

 

The  cellular structure of the material is altered as the density of the material gets enhanced due to the applied volumetric compression ratio which improves the mechanical properties of the auxetic foams.[55]

2.8.1.Toughness and dissipation of energy

 

A most significant mechanical property of auxetic polymeric foams is toughness. The porous polymers are responsible for absorbing the amount of energy applied per unit volume.  The mathematical expression for the stress strain curve is given by the following equation:[56]

Where                                     e = strain

ef = strain upon failure

s = stress

The Poisson’s  ratio indicates the toughness of the auxetic polymeric foams. As the value of becomes  -1 the toughness of the material increases.  The critical tensile stress is given by the following equation:[57]

 

Where                                     T = surface tension

r = radius of the circular crack

The other two parameters affecting the toughness and Young’s modulus of the material are structural aspects and non linear properties[58]. The initial stiffness of the re-entrant foam is less but the density of energy is high as the deformation is high.

A fatigue teat was conducted by Bezazi et al[59] for studying the toughness of the material under quasi-static cyclic loading which revealed that the auxetic polymeric foams exhibited low loss of rigidity, high degradation of stiffness as well as high absorption of energy as compared to normal foams after a large number of cycles. The energy dissipated per unit volume  for N number of cycles is given by the following equations:

 

Where                                     emax = maximum strain

emin = minimum strain

Ed = energy dissipated per unit volume

Another study[60] revealed that the energy dissipation of the auxetic foams was reduced as the negative Poisson’s ratio reached zero during the cyclic and quasi static loading under tension. During a four phase fabrication process of polymeric foam the energy dissipation during tension and compression is highly affected.  The dissipation of energy is less in the first phase as compared to the second phase. A lower mean value of energy dissipation was observed for the specimen with returned phase specimen both in tension loading and compression.

2.8.2.Indentation of auxetic foams

 

The indentation of a material with a value of Poisson’s ratio near to -1 is a very difficult task. However the material can be easily compressed at this stage as the value of bulk modulus is lower than that of the shear modulus. This behaviour is obtained due to the following mathematical relation:

 

 

However a material where the Poisson’s ratio is nearing 0.5 cannot be compressed since the shear modulus is less than that of the bulk modulus. Lakes described the indentation rigidity by the following equation:[61]

Where                                     a = radius of the circular localised pressure

P = localised pressure

w = indentation depth

The circular pressure distribution for small impacts is given by the following equation:

Where                                     F = indentation force

u = maximum displacement

The circular pressure distribution for large impacts is given by the following equation:

Where                                     H = thickness of the mat

2.9.Design of auxetic microstructures by topology optimisation

 

The distribution of optimum material within a fixed design domain with reference to a set of constraints and a specific objective function is termed as topology optimisation. The goal is predefined with a given set of boundary conditions which creates the resulting structure. The finite element method is used for the iterative design process based on various optimisation techniques.

2.9.1.Two dimensional structures with negative Poisson’s ratio

 

A two dimensional material with negative Poisson’s ratio having a generalised configuration of a unit cell having three design variables is shown in figure 10.

Figure 10: Design variable of 2D negative Poisson’s ratio material[62]

 

Where q1 = design variable representing V angle formed by two adjacent stuffer members

q2 = design variable representing V angle formed by two adjacent tensor members

h = distance between the two vertex C and D

The geometry of the unit cell is defined by the three design variables which finally gives the basic configuration of the negative Poisson’s ratio material. The variation of the material along its length, shape of the cross section,  material properties of the tensor members and the stuffer members dictates the material properties of the design. The materials of the stuffers and tensors can be varied while designing which helps to design a function oriented design for different applications.

The materials designed by assuming linear constitutive material response with effects of non linear geometry are shown in figure 11

Figure 11: Design variable negative Poisson’s ratio material with non linear geometry[63]

 

The figure shows the effective material properties as well as effective deformation shape of two designs having effective Young’s modulus and effective Poisson’s ratio. The deformed shape is indicated by solid lies while the solid lines represent the undeformed shape. It can be observed that the pattern of deformation is different in both the cases when subjected under the same loading condition. The load is applied on top of the sample. Both the materials have different values of two parameters –Young’s modulus and Poisson’s ratio thus indicating that the materials can be fabricated according to the desired requirements.

Another report reveals the alteration of the effective material properties like Poisson’s ratio and Young’s modulus within the design domain with respect to the design variables q1 and q2.  Figure 12

Figure 12: Design by altering the material properties with respect to q1 and q2[64]

 

The alteration of the two design variables can change the effective Young’s modulus from 60.3 MPa (at θ1 = 160° and θ2 = 170° ) to 6.1 GPa (at θ1 = 10° and θ2 = 170° ). Additionally any desired value within the range can be obtained by manipulating the design variables. The minimum value of the effective Poisson’s ratio can be -59.5 (when θ1 = 10° and θ2 = 20°). Other higher values can be obtained manipulation of the two design variables.

2.9.2.Three dimensional structures with negative Poisson’s ratio

 

A 3D design of material with negative Poisson’s ratio is shown in figure 13 which has five design variables. The variation of the material along its length, shape of the cross section,  material properties of the tensor members and the stuffer members dictates the material properties of the design.

Where             q1x, q1y  = angular design variables  related to  stuffer members

q2x, q2y   = angular design variables  related to  tensor members

h = distance between the two vertex E and F

Figure 13: Design variable of 3D negative Poisson’s ratio material64

 

The variation of the effective Young’s modulus with respect to the design variables  q1 = q1x= q1y and q2 = q2x= q2y are shown in figure 14  The parameters for material properties of the tensor members and stuffer members are set with a particular design.  The effective Young’s modulus alters from 23.2 MPa (at θ1 = 150° and θ2 = 160° ) to 6.1 GPa (at θ1 = 50° and θ2 = 60° ). Additionally it can have any value within the range.

Similarly the variation of effective  Poisson’s ratio with respect to the design variables  q1 = q1x= q1y and q2 = q2x= q2y are shown in figure 15 The minimum value of the effective Poisson’s ratio can be -77 (when θ1 = 40° and θ2 = 50°). Other higher values can be obtained manipulation of the two design variables.

 

Figure 14: Effective Young’s modulus with two design variables

 

 

Figure 15:Effective Poisson’s ratio with two design variables64

 

2.10.Major characteristics of materials with negative Poisson’s ratio during design

 

The three major characteristics of materials with negative Poisson’s ratio are concentration of the material, bulging effect and improvement of the impact force. Figure 16

Figure 16: Characteristics of the materials with negative Poisson’s ratio64

 

The figure exhibits the effect on the material concentration after the application of pressure where the solid lines indicate the deformed material after simulation while the dotted line indicates the original configuration of the material.  The effect of the negative Poisson’s ratio helps in the concentration of the material into the local area where the force is applied thereby converting the area into strong and stiff material. Thus the external load can be resisted by accumulation of more material and thus harder material can be designed.

The bulging effect aids in creating a reactively adaptive deflector. During the attack by a blast wave the original flat structure gets deformed into the shape of a bulging arc which aids in the deflection of the blast force and thereby decreases the blast load on the structure. The property of blast wave deflection can be enhanced by stuffing the structure with negative  Poisson’s ratio  with materials which can absorb energy. The materials like foam, polymer  and jelly are used  as stuffing materials which undergo permanent deformations on absorbing the energy.

2.11.Design of rotating unit auxetic materials

 

The connection of units of equilateral triangle and square by hinges at the vertices form the rotating unit auxetics. [65] The total motion of the rotating units initiated by pulling of the material in a certain direction forces the material to increase in the transverse direction. This mechanism makes the material to have a negative value of Poisson’s ratio. The planar sheet can be converted into rotating unit auxetics by various methods. The sheets maybe perforated randomly,[66] symmetrically[67] or with fractal patterns with long incisions.[68]  The most significant advantage of these structures for stretchable and flexible materials is that they can be isotropically tuned at the target where expansion takes place. The joining of squares and rectangles of different sizes generate anisotropic rotating unit auxetic structures. [69] The auxetic metamaterials can also be designed by kirigami[70] and origami as in Ron Resch’s pattern.[71]  The small modes of deformation which are responsible for the elastic instabilities are  utilised for imparting the transformation of shape in these materials. It is a difficult task for obtaining stable modification of shape as the system remains in a pre-stressed state.

 

 

 

 

 

 

3.Methodology

 

3.1.Manufacture of auxetic foams

The foam samples having dimension of  (height = , width = , length = ) were cut from a polyurethane sheets. The foam was allowed to undergo tri axial compression of heating and cooling. The aluminium moulds with length  ……. and cross sectional area …….were used for bi-axial compression of the foam samples. The sample was subjected to tri-axial compression by compressing it  along the third axis with the help of  two aluminium compression blocks which are placed at either ends of the mould. Two plates made of steel are used to held the blocks in place. The length of the sample affects the volumetric compression ratio due to the applied tri axial compression.Figure 17

Figure 17: The process of fabrication of auxetic foams[72]

The aluminium moulds were cooled  to room temperature after being removed from the oven. The auxetic microstructure gets  fixed and   on cooling which is removed from the mould and stretched by hand longitudinally. Figure 18

Figure 18: Schematic representation of sample removed from oven[73]

3.2.1.Heat study by heat model

 

A two dimensional heat transfer model helps to study the variation of temperature during the designing of the auxetic structures. The model was generated with the help of COMSOL Multiphysics Version 4.4 software. The three separate regions of the model had their own specific properties which was coupled with a source for heating. The model had a hot region at 200oC and cold region where convection took place between the cold mould and hot oven. Figure  19

 

Figure 19: Model for calculation of transfer of heat[74]

 

The heat equation used by the model for calculation of temperature with respect to time is given by the following equations:

Where                       = rate of change of temperature with time

= temperature as a function of space and time

                                    a = thermal diffusivity

k = thermal conductivity

cp = specific heat capacity

The influence of the heating time on the volumetric compression ratio of the polymeric foam was predicted from the model.

3.2.2.Heat study  by thermocouples

 

A thermocouple was inserted directly into the triaxially compressed foam sample in the middle and the samples were placed in the centre of a……………… oven at 200oC for two hours. The rate of temperature change was recorded by a DAQ card. The saples were allowed to cool to room temperature.

 3.3. 3D printing

The cellular structures of the polymeric foam were designed with the aid of coputer software Solidworks.  The cells were modelled as 2D structures which were combined to form symmetrical 3D cells. The initial  base measurement of the cell size was ……… which after trial and error method was used for obtaining the desired size. Figure 20

 

Figure 20: The 3D printed cell dimensions of auxetic and conventional cells[75]

The modelled 3D cells are perpendicularly fused with other similar unit cell to form3D cells having certain symmetry. The symmetrical 3D cells are arranged into different layers for generating samples ready for impact testing and tensile testing. A flat interface is provided by introducing endplates of thickness …… at each end of the unit cell.  These endplates bind the polymer foam samples for impact and tensile testing.  A printer uses the the foam structures by converting them to a single part and the samples are designed from the polymeric composites.  Figure 21

Figure 21: Solid works design for 3D printed samples for auxetic tensile and auxetic high mass[76]

The support material gets  deposited on the sample during the process of printing which is a major drawback of this procedure. The support material was removed chemically by placing the materials in aqueous KOH solution at room temperature.  The samples are stirred with the help of electronic rollers followed by rinsing with tap water. The samples are finally allowed to dry.

3.4.Compression test

 

The Instron test machine was used for conducting the uniaxial compression tests and analysing the compressive properties of auxetic foam polymer. The 3D printed samples were tested by taking the compression along the z axis.

Impact testing

The auxetic polymeric foam was tested by a free fall drop tower where the sample was impacted only for a single time. Figure 22 A steel cylinder datum bar equipped with a semi sphere end was used to deliver the compressive load which is dropped from a particular height on the sample placed on Roma Plastilina Clay. The clay was covered by an aluminium box. Kinetic energy is transferred to the clay body due to the interaction of the datum and the sample along with the clay. Craters are formed in the clay body due to the transfer of the kinetic energy. The realtion between the volume of the crater and impact energy is given by the following equation:

 

Where                          E unit = absorption of energy per unit volume of clay

E impact = impact energy

V crater= volume of a crater

 

Figure 22: Schematic representation of  drop tower rig[77]

 

The energy absorbed by the sample is calculated by the direct  impact of the sample with the clay body. Accorging to assumptions there is no loss in energy due to frictionwith the environment. The energy absorbed can be calculated since the volume of the crater and potential energy of the datum are known. The condition under which the complete energy is absorbed by the clay or the sample is described by the following equation:

Thus the total energy of absorption by the sample is given as:

3.5.Characterisation techniques

3.5.1.Ratio of volumetric compression

 

The actual  volume compressed ratio as well as the imposed volume compressed ratio are given by the following equations:

Where                         VCR imposed = imposed volume compressed ratio

VCR actual = actual volume compressed ratio

V mould= internal volume of the mould

                                   V actual= volume of the sample after conversion

 

3.5.2.Digital volume correlation

 

The mapping and analysing of full field deformations of the 3D volumes are done by digital volume correlation method through pattern correlation algorithm. Local correlation and global correlation are two different approaches for analysing continuum level strain measurement. The reference volume and the deformed volume are broken into sub volumes followed by independent correlation between them through a fast Fourier transform in the local correlation process. Figure 23

 

 

Figure 23:Schematic representation of digital volume correlation[78]

 

 

 

 

4. Conclusion

 

 

 

 

 

 

5. References

 

 

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Finance

May 24, 2017
 MP-450 Analysis
 Initial Outlay
 purchase price    1,600,000.00
 warranty cost        100,000.00
 Import duty and transportation        120,000.00
 installation costs          80,000.00
 feasibility study          50,000.00
 total cost    1,950,000.00
 year 1  year 2  year 3  year 4  year 5  year 6  totals
 additional sales    8,000,000.00    8,000,000.00    8,000,000.00    8,000,000.00    8,000,000.00    8,000,000.00    48,000,000.00
 cost of goods produced    7,100,000.00    6,400,000.00    6,400,000.00    6,400,000.00    6,400,000.00    6,400,000.00    39,100,000.00
 investment in inventory
 sales and administration expenses        240,000.00        240,000.00        240,000.00        240,000.00        240,000.00        240,000.00      1,440,000.00
 net income        660,000.00    1,360,000.00    1,360,000.00    1,360,000.00    1,360,000.00    1,360,000.00      7,460,000.00
 present value at 18% WACC        559,322.03        976,730.82        827,737.99        701,472.87        594,468.53        503,786.89      4,163,519.14
                    1.18                     1.39                     1.64                     1.94                     2.29                     2.70                     11.14
 Net Present Value    2,213,519.14
Table of cash flows
 Accounts  receivable        500,000.00        500,000.00        500,000.00        500,000.00        500,000.00        500,000.00      3,000,000.00
 Accounts payable        443,750.00        400,000.00        400,000.00        400,000.00        400,000.00        400,000.00      2,443,750.00
 Cash Inflows    7,500,000.00    7,500,000.00    7,500,000.00    7,500,000.00    7,500,000.00    7,500,000.00    45,000,000.00
 Salvage value        300,000.00          300,000.00
 Cash outflows    6,656,250.00    6,000,000.00    6,000,000.00    6,000,000.00    6,000,000.00    6,000,000.00    36,656,250.00
 sales and administration        240,000.00        240,000.00        240,000.00        240,000.00        240,000.00        240,000.00      1,440,000.00
 Net Cashflow        843,750.00    1,500,000.00    1,500,000.00    1,500,000.00    1,500,000.00    1,500,000.00      8,343,750.00