Czech Republic Financial Analysis Essay

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Financial Analysis

First, we will start with a brief overview of the Czech Republic to get an idea of their financial state. They have a purchasing power parity of $261.3 billion with growth of 2.3% in 2010. The Czech Republic had an unemployment rate of 7.3% in 2011, which has gone down from prior years. The flat income tax rate is 15% and the standard corporate tax rate in 19%. The Czech Republic has an FDI Inflow of $6.7 billion.

When looking at Goode’s “mock” financial statements, they’re cash flow from operations have a negative trend, and we should not be too risky in our entry mode. Franchising gives a moderate risk level which coincides with Goode’s cash flow. Goode’s total revenue clearly has an upward trend over the past 3 years with a projected growth rate of 23.47% from yearend 2011-2012. This is a great sign it shows that Goode has cash to spare for this venture into the Czech Republic. All in all Goode’s balance sheet is growth oriented. As of June 30, 2012, Goode has $47.7 million deferred net tax assets. The total revenue has grown significantly each year as well as the return on assets, which has been positive dating back to 2009. If we compare Goode’s financials to one of their competitors that is currently in Czech Republic, Goode’s numbers are growing at a higher rate than the competitor. The competitor’s ROA for 2011 were only at 0.56% and Goode’s at 3.33%, triple their competitor. The competition has a rocky history and the projections do not look promising especially when compared to Goode’s projections.

When comparing the markets, the Czech Republic has definite room for growth. As you’ll see in exhibit 1, compared to the United States, Czech’s ski and snowboard industry is much smaller, but it is growing. The Czech Republic’s population total is about 30% smaller than the United States. As of yearend 2011, there was a reported 486 ski areas in the United States, compared to approximately 37 in the Czech Republic. That is only 7.6% of the U.S. So even though the numbers for the U.S. look larger than the Czech Republic, we are working with a much smaller population and amount of ski areas. We can concentrate our efforts on the main ski areas and have a greater chance for profit. The Czech Republics estimated snowboard/skis to population are almost identical to the United States which shows the market size is about the same just on a smaller scale.

Financially franchising is our best option; costs, restrictions and taxes are low if any. As mentioned before, there is little to moderate risk associated with franchising and with a negative trend in cash flow from Goode, it makes the most sense. The bulk of franchises are in the retail sector and there is a market potential that amounts to 300 franchises. The Czech law does not regulate the fees connected with a franchise agreement. There are no restrictions on payments by a franchise made in a foreign franchisor’s country.

This expansion into the Czech Republic has an associated estimated 12.8% return on assets, which makes us confident that Goode will do well financially in the Czech market.

Exhibits:

1
Demand for Snowboards/Skis (estimates)

2011
Czech
US population 10,546,000
311,591,917
GDP (current US$ billion)
215.22
15,098.00trillion
Snowboard/ski sales/yr $ estimate
$22,747,695
$708,818,179
Cost/Unit $
$700
$700
Units(snowboards/skis)
32,497
1,012,597

units/population
0.003081425
0.003249755 units/$GDP 0.0000143179
67.0683135893

2
Goode Skis

For the Fiscal Period Ending
12 months
Jun-30-2009A
Press Release
12 months
Dec-31-2009A
12 months
Dec-31-2010A
12 months
Dec-31-2011A
LTM²
12 months
Jun-30-2012A
12 months†
Dec-31-2012E
Total Revenue 84.0 88.1 109.8 145.8 156.7 180.0 Growth Over Prior Year 7.9%
NA
24.6% 32.7% 16.5% 23.47%
Gross Profit 30.6 33.0
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