My research proposal is going to be about the research of the dissertation of my master degree that we have to start to write in this semester. My dissertation is going to analyze an English company that operates in three sections, in the aviation, in the tourism and in the logistics and distribution industry. The Dart Group Plc is specializing in "the operation of scheduled and charter flights by Jet2.com to leisure destinations throughout Europe; the provision of ATOL protected package holidays by its tour operator Jet2holidays, and the distribution of fresh produce, temperature-controlled, and ambient products to supermarkets and wholesale markets throughout the United Kingdom. (DART GROUP PLC, 2013). So it can be interesting to see in the end my project that how the financial statements relate to the corporate competitive position. I also would like to conclude the effects of the decisions during the operating, investment and financial activities. I am going to find relevance strategic investments and I will analyze and assess them in a critical viewpoint. The company has hedging transactions and transaction exposure activities and I would like to find out the affect of them on the corporate value. The company' revenue comes from the leisure airline in 67%, from the package holiday in 16% and 17% from the logistics, so mainly I am going to write about the aviation industry as the prices of package holidays also includes the air transportation in their offers.
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I chose this topic the financial analysis because I am interested in accounting and finance rather than marketing or management. I like analyzing numbers and evaluating facts, planning for the future. From these I also prefer investigating and researching in banking and financial topic than accounting which is more like a monotone work. I decided to choose a company from the aviation industry because I have already done some marketing research about the company and also did a research in the airlines industry on the E-Business class. In this case I chose the Dart Group Plc. because I spend lot of time in England and most of the time I fly with Jet2.com which has a very friendly service, they are reliable and they always keep time. One of their competitors is Ryanair which I do not really prefer because I do not find them as safe and comfortable as Jet2.com. When I decided on the company I looked into the company's history and found out that it is actually operated by another company, the Dart Group and they have other industry they work in. I knew about Jet2holidays as I also flew with a plane subscribed with the logo but did not know that they actually separated in the operations.
The Group operates in a capital and labor intensive industry, has high fixed cost and very low return on investments. The industry has many business risks, e.g. financial- high debt-equity ratio risk, market risks that cannot be diversified and company specific risks (Dempsey 2008). Company is worth the effort to analyze, as the industry became really competitive and after the financial crisis some of the big airlines went bankrupt for example MALÉV, the Hungarian National Airline. I am curious how the smaller companies, like Jet2.com operated by DART GROUP could survive with actually less routs and smaller passenger number how they can improve their strategy in this intense environment and how the logistic section could also keep its bargaining power with other competitors. The aviation industry is getting bigger and bigger, and more people try to use the low cost airlines as it is safer and faster than other options and cheaper than the bigger national airlines. Small changes in the strategy can leave to a successful operation which can result a competitive advantage for the company.
I am going to evaluate the strategic decision making under uncertainty and its effect on shareholder value, contrast processes which are value creating and those which are destroying value, explain and confront the diversity of capital structure theories, asses simultaneous and subsequent investment actions and simulate capacity and price games in strategic investments, relate hedging to debt capacity. It is important to find the relationship strategy and financial ratios, value drivers and Free Cash Flow to Firm components. For the strategic view I am going to use Porter 5 forces' model that analyzes the micro environment of the firm and gives a detailed understanding and evaluation of the forces that helps to measure the direct strategic competition. According to Porter the five forces are: the buyer and supplier bargaining power, threat of entry, industry competitiveness and threat of substitutes of products and services (Dr. Roóz, 2006). Every company has to identify its key value drivers that are very important in term of the competitive advantage. A value driver can be a sustainable cost or quality that can create competitive advantage through a unique operation. These drivers, revenues, cost, all things that can create value for the company based on the customer needs have to addressed, managed and measured precisely and the company can be successful (Helfert 2001). Free Cash Flow to Firm is a basic cash flow valuation technique that helps to establish the value of the firm. "It is the net amount of the reported profit, adjusted for depreciation, depletion, and other noncash accounting elements, less net new investment in facilities and net acquisitions, and plus or minus changes in working capital" (Helfert 2001, p.115). In case of a company evaluation I also have to find and analyze the relationship between the strategy and the basic EVA (Economic Value Added) and adjusted EVA. The EVA means the difference between the net operating profit after taxes and the cost of capital times the net operating assets employed. The EVA shows if the company is creating or destroying value in a financial year (Nthoesane 2012). Fundamental value of the corporate stock is going to be mentioned that is determined as the present value of the company's dividends in the future based on present information. Analyzing the connection between company's numbers and its fundamental value can be interesting not just for researchers but practitioners as well (Fung et. al. 2010). The previously mentioned researchers and practitioners are also interested in which stock option affect the quality of the equity market and shareholder interest (Naiker et. al. 2013). Different real option types are going to be identified at the company as corporate project as well. The option means a contractual opportunity to buy or sell an asset at a predetermined price without the obligation of doing it, while the real option is an investment of non-financial assets, an investment into physical assets, human resources and skills that gives opportunity but not obligation in the future. The main reason for using real option is to help the management to create a strategic vision. The most common types of options are the growth and the deferment option. In my dissertation I am also going make a difference between real options and discounted cash flow and game theoretic techniques to value both the company and its projects. Even the DCF techniques e.g. net present value calculations have limitations, the real option methods are able to give a more accurate valuation of the investment (Baker 2011). Most of the researchers suggest using the real options for capital budgeting decisions, to help the managers' decisions at the company (Trigerorgis 1993, Borison 2005). I will also summarize the price and capacity games in the industry to support their effect on share price. It is important to evaluate capital structure decisions using operating profit approach, WACC (Weighed Average Cost of Capital) model, return differential methods, and industrial approach to test their impact on corporate value. WACC is the average cost of the company's equity and debt finance source, it is included the required rate of return on the investment and the interest rates of the external sources and also the corporate taxes. The WACC is used for calculating the feasibility of projects and expansions investments (Pierru et. al. 2010). I would like to also mention the foreign currency transactions as the Dart Group Plc also buys and sells and operate in other currencies and hedging can mitigate risks and currency fluctuation (Helfert 2001). The company uses different hedge policies that are going to be evaluated as well.
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So the title of the paper will be Financial and Competitive Analysis of the Dart Group Plc. As the dissertation has to contain research questions and hypothesis I would like to address them in this part. As I already looked at the numbers and the annual report of the company I found some interesting things. Of Course every annual report has to show the company is in the best shape to have a good bargaining power and so on, but the numbers sometimes showed me a different picture.
H1: The Company had serious financial problems in the financial crisis and they were close to go bankrupt.
Q1: How the company can survive the crisis and pay back all of its debt and still make profit?
Q2: How is the liquidity situation now? Are still threatened by the affect of the crisis?
Q3: What strategy they used to solve the problems?
Q4: How Dart Group Plc. manage to perform in the two different industries?
Q5: What is the relationship between the strategy and the financial ratios at Dart Group Plc?
Q6: What is the relationship between the strategy and the basic EVA at Dart Group Plc?
Q7: What is the relationship between the DCF and the real options at Dart Group Plc?
The dissertation is going to include two sections, theoretical and also empirical so I have to do theoretical and empirical research as well. To investigate both parts I will use exploratory research. The theoretical research is going to be based on collecting and analyzing secondary data, books and case studies from the library of university. This part will include all my theoretical background, definitions based on documentary and secondary data research that the reader needs to know about the topic to clearly understand it. My research will contain qualitative and also quantitative collection of the statistics and studies of this field. The other part is going to contain all my analysis in an excel table based on all the data I can collect from the annual reports. I will not be able to make any interviews as my company is a British firm, but I would like to find statistics of success of the firms and the satisfaction of the customers so my questionnaires will be secondary as well.
Content and structure
The structure of the dissertation is quiet similar to every other assignments. It starts with two covers, one can be the hard binding of the dissertation and one for inside and this will be followed by the table of contents. The next part is the introduction that will describe the topic selection, state the hypotheses and it is actually a summary, description of the whole work. The literature review is going to show the most essential materials that are used for the data collection, all theoretical and empirical backgrounds. The chapters are going to include a theoretical and an empirical part. First I am going to discuss the backgrounds of each topic and analyze the company in that aspect. The second chapter will show the relationship between the strategy and the financial ratios. The third chapter will be about the relationship between strategy and basic EVA, adjusted EVA and fundamental value of the corporate stock. The forth chapter will identify the corporate projects as different real option types at the same company and summarize price and capacity games in the industry to support their effect on share price. The fifth chapter will evaluate and explain the hedge policy of the Dart Group Plc. and finally the last chapter will be the conclusion and the discussion of my findings and consequences.
The timescale of the dissertation will be nine month as I am going to start it basically now, writing the research proposal which helps to write the introduction and the methods I am going to use. So the start will be March and as far as I know we will have to finish until the end of November or beginning of December. I am going to collect data and analyze from secondary sources until June and I would like to start to write the theoretical part in the summer. As my time will allow I would like to write the empirical research part, the analysis of the company also in the summer but finish it in September, middle of October, as I will have classes that I have to focus on as well. I will also consult with my teacher in this semester and from September again and we can discuss the further obligations. I will conclude, finalize and do the formal editing in the last month, in November.
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