Size of Venture Fund
The venture fund is worth approximately one billion dollars. The company projects to grow this value by 15% annually.
Number of Investments per Year
Typically, the numbers of investments vary annually. However, Oqal makes about 100 investments every year. Free Cash flow declined in 2014 over 2013 by about $400 million, which means that Oqal had less cash available for investment at hand. Free cash flow is because of several factors including receivables and debtor management, inventory management, and investment activities. Companies always aim to have more free cash than the previous year. The drop indicates an urgent need to improve working capital management at Oqal.
Types of Industries Oqal Invests
It is necessary to analyse the attractiveness of the industry where Oqal operates in order to determine how it can take maximum advantage of it. The rich are always very sensitive when making their purchases. A little mistake may result into a major shift, which may affect the sustainability of the firm. The finance and investments market in Saudi Arabia is in the maturity phase. There are few competitors in the industry whose focus is to grow their market share and increase their cash flow. They invest in innovation and advertising to capture part of the competition’s market share. At this stage, it is quite difficult for a new entrant to join this market.
Types and Sizes of Companies Oqal Invests
Oqal as a brand has high equity among consumers, which is evident in the fact that the company was able to secure 25% of the Saudi Arabian market. It indicates that consumers hold the brand in high regard. The company also has an extensive distribution network. The company has invested in over 900 department stores in Saudi Arabia, 200 full price stores and 86 factory shops.
Geographic Regions Where Oqal Invests
The company focuses on middles east investments. It is, however, based in Saudi Arabia thereby it invests in Saudi businesses largely.
Factors Used To Evaluate Investments
The Balance Sheet and Income Statement at a glance clearly indicate the trouble Oqal is facing. The appendix contains financial statements from 2010 to 2014. There has been steady growth in all metrics from 2010 to 2013. However, there is a noticeable decline in company performance in 2014. Revenue dropped by 5% from 5,075,400 to 4,806,200 while cost of goods rose by a significant 9.5% from 1,377,200 to 1,509,300. The result was a 10% drop in Operating Profit from 1,524,500 to 1,120,100. The indication is that Oqal is struggling to maintain its market share in the investments and financing industry. Additionally, this indicates that Oqal could be offering its customers longer credit periods while taking longer to pay its own suppliers. Longer credit periods could lead to accumulated interest on short-term debt, which is quite expensive in the long term. The Gross, Net and Operational profit margins all declined by an average of 5%. Management needs to take drastic action to remedy the situation lest the decline continues. Such performance negatively influences the stock price. The reason is that analysts have access to the financial statements of all publicly traded companies.
Methodologies Used To Values Firms
Determination of the Cost of Debt
Debt capital refers to what a company has borrowed to help finance its investments. In the case of OQAL, for the year 2012, it is the $ 2,253,500 shown on the balance sheet under long-term debt. Debt issuers expect returns in the form of interest, which is the charge to the company for using their funds. Interest is quoted in percentage form.
Determination of the Cost of Equity
The cost of equity refers to the returns expected by the owners of a company. Shareholders are the owners of the company and they expect compensation for providing capital. Compensation is usually in the form of dividends. OQAL shows stockholders’ equity of $ 974,000 on its Statement of Financial Position for the year 2012.
Discounted Cash Flow Assumptions
DCF is one of the methods used to estimate whether or not an investment is worthy. The DCF method takes into account the money that will be available to investors in the future from the specific investment. OQAL Company can be valued using DCF. Dividends are considered as the free cash flow that will be obtained by an investor. The growth rate of these dividends is also useful in DCF valuation. The cash flow obtained is adjusted for the effect of time on money.
Internal Rate of Return
IRR is an interest rate. The cash inflows from a project will exactly equal the cash outflows at this interest rate. It is used in investment decisions to eliminate undesirable projects. Projects with higher IRR are considered more desirable. Investors compare the IRR with the cost of capital. An acceptable project should have an IRR higher than the set cost of capital.
Net Present Value (NPV)
NPV is a method of investment appraisal that considers both cash inflows and outflows of a project. The difference between the inflows and outflows at their present values is the NPV. Projects with positive NPV are desirable as this implies that investors will gain from engaging in them. Projects with negative NPV suggest that investors will lose the amount equal to NPV if they were to engage in the projects.
Structure and Length of Proposals
The business plan should consist of the following aspects:
- Business Description: The description part involves a summary of the company/business in terms of its products/services, the target market, the executive summary, the ownership of the business the start-up costs and the management summary. It serves to provide an overview of the business for introductory purposes.
- Market Analysis: It involves an in-depth analysis of the market in which the business will operate. The analysis identifies the target market, the various factors that influence entry into the market, the benefits of targeting the market, the other competitors in the market, their effect on the business, and the challenges the business is facing. It also establishes the market share of the business and the prospective future market share of the business in the market. Market analysis enables management to come up with feasible strategies of capturing the desired market share.
- Marketing Plan: A market plan involves a detailed plan of action of how the business intends its products and services to get the customers’ attention. It also details efforts of the marketing department in both the present and future.
- Design and Development Plan: Design and development consists of details about the designing and development of the services offered by the business to meet the expectations of the consumers. It should explain the competitive advantages of the product/services, how the product is used, the risks involved and plans to improve and develop new products.
- Manufacturing and Operations Plan: This involves the production aspects of the business in terms of how such factors as the location of the facility enables the business to compete effectively. It should clearly explain the decisions involved in the production process and their effects on the survival and profitability of the business.
- Management Team: It involves a detailed structure of the management team including the ownership of the business.
- Financial Analysis: Financial analysis section gives the economic feasibility of the business. That is, whether the business is economically justified to do what it is doing. It includes break-even analysis and the expected profits in the future.
- Financial Plan: The plan provides projected financial section to justify the economic feasibility of the business over time.
- Proposed Company Financing: It is a detailed account of means through which management has funded the business or expects to fund the business.
- Appendices: It provides all the supporting documents to support the claims made in the business plan for example, supplier agreements, copies of contracts, licenses and references.
Typical Types of Financing Provided
Top management approves investments after careful consideration of different risk analysis, which helps to reduce chances of losing investors’ money. Mostly Oqal provides angel investments.
Percentage of Firms that Get Financing
Oqal receives many proposals for investments. There is a 70% success rate for the proposals received. However, the company aspires to make businesses aware of the proposals that get financing to increase that percentage.