omit the questions at the end of the pdf.the questions that need to be answered are in the images uploaded.
the final_gfinance twitter document is an example of how to answer them and I help towards the case study.
Microsoft Word - Twitter case Jack Dorsey set to pocket $978M if Elon Musk’s Twitter acquisition closes Image Credits: Joe Raedle / Getty Images Twitter’s co-founder and former CEO Jack Dorsey is poised to receive a significant payday if Elon Musk’s $44 billion acquisition of the social media giant closes, as his Twitter shares would be converted into cash. Dorsey, who has declined to take a salary from the company and instead chose to take a $1.40 annual paycheck, owns 2.4% of the company, with just over 18 million shares. Under Musk’s offer to buy each Twitter share for $54.20, Dorsey would receive $978 million in cash, according to a report from The Wrap. Currently, he has significant paper gains as a founding shareholder. Twitter shares are currently trading at $49.68 compared to $42 eighteen months ago and are set to go even higher. The company’s current CEO Parag Agrawal would also be set for a significant compensation package if the deal closes. If Musk were to bring in new management, Agrawal would receive $38.7 million due to a clause in his contract, according to the company’s latest proxy filing. Agrawal’s total compensation for 2021 was $30.4 million, largely in stock awards. Rumor has it that he would be offered an annual salary of $15 million per year for five years if he chooses to stay on. Following the news that Twitter had accepted Elon Musk’s takeover offer, Dorsey expressed his approval of the proposed acquisition. In a tweet thread that starts out with a link to Radiohead’s “Everything In Its Right Place,” Dorsey said that “in principle, I don’t believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company. Solving for the problem of it being a company, however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.” Dorsey went on to say that Musk’s goal of creating a platform that is “maximally trusted and broadly inclusive” is the right one and that this goal aligns with Agrawal’s vision for the platform as well. He concluded by saying that “this is the right path” and that he is “happy Twitter will continue to serve the public conversation.” With market interest rates currently hovering around 5%, it may be the best time for the company to issue new bonds to raise cash, but there is significant uncertainty as to whether the company should issue bonds or seek direct bank financing. Also, there is significant debate as to whether the company should issue zero-coupon bonds. Then there is the issue of marketing… will Twitter focus on advertisement sales or will they move to a subscription model like many streaming services? One projection is that the company could sell subscriptions for the relatively low figure of $5 per month with annual inflationary increases of 1.5%. Management is comfortable in believing that worldwide the company could have an average of 100 million paid subscribers each year. Although there is potential for significant revenue flows from paid subscriptions, there is uncertainty as to whether users will pay for a service that has been traditionally free. As with many things surrounding the acquisition, it’s unknown if Agrawal will remain in his position as CEO if the deal goes through. However, Musk had stated in SEC Filings that he had confidence in Twitter’s current management, which indicates that Agrawal and other Twitter executives may remain in their positions once Musk takes control. Twitter says the transaction, which was unanimously approved by the board, will likely close this year following shareholder and regulatory approval and “the satisfaction of other customary closing conditions.” Balance Sheet ($’000) Suggested questions to consider: 1. Is Twitter Liquid? 2. Is purchasing Twitter a good investment? 3. What is the return to shareholders? 4. What is the PV of Mr. Agrawal’s pay offer? 5. What is the NPV of buying Twitter? 6. How could we find the greatest underperforming area for Twitter? UNIVERSITY OF TEXAS – RIO GRANDE VALLEY Finance -6303-90L Discussion Questions Is Twitter a Liquid Company? Twitter is a highly liquid company, as evident by its current and quick ratios shown in the table below, which are well above the value of 1. Its current assets outweigh its current liabilities, which indicates that the social networking giant can confidently cover its short-term commitments through its high liquidity. 2021 2020 Current Ratio 5.89 4.42 Current Assets 7,918.37 8,637.11 Current Liabilities 1,343.87 1,952.83 Quick Ratio 5.66 4.36 Cash 2,186.55 1,988.43 Account Receivables 1,217.40 1,041.74 Marketable Securities 4,207.13 5,483.87 Current Liabilities 1,343.87 1,952.83 Is Purchasing Twitter a Good Investment? From an earnings growth perspective, Twitter's revenues have increased over the past four years, despite the growth being non-uniform. The company recorded losses for the past two years, where income losses were attributed to the increasing costs of revenues and operating expenses. Decreasing these costs would likely lead the company to become profitable, especially since revenues have increased significantly. 2021 2020 2019 2018 2021 2020 2019 Total Revenue 5,077.48 3,716.35 3,459.33 3,042.36 37% 7% 14% Cost of Revenue 1,797.51 1,366.39 1,137.04 965.00 32% 20% 18% Operating Expense 3,007.01 2,323.30 1,955.92 1,624.04 29% 19% 20% Net Income (221.41) (1,135.63) 1,465.66 1,205.60 -81% -177% 22% In terms of the company's strength compared to its competitors, Twitter is a relatively solid investment. Twitter ranks the second-largest social medial company after Facebook in terms of market share and is the fourth most visited website globally (6.1 billion visits in 2021). Notably, 1 in every 5 Americans uses Twitter, while 17% of the American population obtain their news from the platform (Odabas, 2022). According to research, 48% of Americans prefer accessing their news from social media, highlighting a large market that Twitter can tap into in the future (Brooks, 2020). The brand has also been feted to be the best for businesses' public relations activities, with 93% of consumers who follow companies being likely to buy from them, while 68.7% are those that have already purchased an item from a given company they follow (Finance Online, 2022). Such statistics make evident the great retail and business position of the company worldwide. Furthermore, Twitter's debt to equity ratio has increased over the years, revealing that the company has been financing most of its operations through debt. Such a stance could be worrisome to lenders and investors alike, where the company could be classified as high risk. However, the company's debt to equity ratio is below the value of 1, as shown in the table below, which indicates its relative safety. In addition, reducing borrowing levels is likely to reduce this ratio further. 2021 2020 2019 2018 Debt 6752.32 5409.01 3999.00 3356.98 Shareholder's Equity 7307.20 7970.08 8704.39 6805.59 Debt to Equity Ratio 0.92 0.68 0.46 0.49 Twitter's twelve-month P/E ratio is X55.18 compared to the industry P/E of X41.00, which indicates that the stock is relatively overvalued. Therefore, unless there are other compelling reasons to purchase shares in the company, it is not recommended to purchase the stock due to this issue. On the other hand, the effectiveness of Twitter's management team is a valid point to consider; where I believe that the company's leadership has done well to steer the company through difficult times, especially in terms of dealing with the political pressure that was experienced during the 2020 presidential elections and recent global crises. When taking into consideration all the factors mentioned above, it may be concluded that purchasing Twitter at the moment is not a feasible investment opportunity from a quantitative analysis perspective. Key considerations taken for this decision are the company's earnings growth and expenses perspective, a relatively high P/E ratio, and high debt to equity ratio. What is the Return to Shareholders? In this case, the return to shareholders refers to how much they will earn following the sale of Twitter to Elon Musk. The return to shareholders can be calculated as follows; Noting that Twitter does not pay dividends, the return to shareholders would be calculated based on the individual pricing at which shareholders bought their stock and the $54.20 offered by Elon Musk. Assuming one bought the stock at its IPO, which was $26 per share, the shareholders' return would be calculated as shown below (Pepitone, 2013). What is the PV of Mr. Agrawal's Pay Offer? Assuming a discount rate of 8%, the present value of Mr. Agrawal's pay offer will be; What is the NPV of Buying Twitter? If we consider an 8 year period up to 2030 and using a discount rate of 8%, Twitter's NPV is $27,648.46 2022 2023 2024 2025 2026 2027 2028 2029 2030 Year 0 1 2 3 4 5 6 7 8 Free Cash Flows ($ Millions) -44000 1080 1730 2230 2610 2930 3200 3430 3620 Discount Rate 8% 8% 8% 8% 8% 8% 8% 8% 8% NPV ($27,648.46) How to Determine the Greatest Underperforming Area for Twitter? An excellent way to determine the greatest underperforming issue for Twitter is by looking at its income statement. The income statement sheds light on a corporation's main revenue drivers, and reveals a historical review of segment incomes, which can help determine which segments are performing well or poorly. Furthermore, a review of the income statement can help an analyst make out whether there are costs that are growing at a higher level compared to corresponding returns or revenues in general. It is possible to decide whether Twitter is carrying out its operations efficiently or not through cost analysis. Calculation of ratios is a good way of noting areas where Twitter is underperforming as well. References Brooks, A. (2020). 15 Twitter Business Statistics & Trends on Twitter Advertising. Retrieved 6 May 2022, from https://www.ventureharbour.com/twitter-business-statistics-trends-on-twitter-advertising/ Finance Online (2022). 85 Twitter Statistics You Must Know: 2021/2022 Market Share Analysis & Data. https://financesonline.com/twitter-statistics/ Odabas, M. (2022). 10 facts about Americans and Twitter. Retrieved 6 May 2022, from https://www.pewresearch.org/fact-tank/2022/05/05/10-facts-about-americans-and-twitter/ Pepitone, J. (2013). Twitter sets IPO price at $26 a share. CNN Business. https://money.cnn.com/2013/11/06/technology/social/twitter-ipo-price/