Micro Tiles Limited
Introduction
Although the three Micro Tiles Limited cases can be analyzed individually, they are nevertheless
linked to one another; the decisions made in one case can have an impact on others. Figure 1.7
on page 16 in the book Finance for Non-Financial Managers, Fifth Edition shows that
managerial decisions can be grouped under three broad categories: operating decisions, investing
decisions and financing decisions. The three Micro Tiles cases illustrate how to analyze and
make decisions for each of these categories. The students will find that the financial spreadsheets
included on the text’s Web site are indispensable analytical and decision-making tools that can
be used to: (1) improve a company’s financial performance (operating decisions), (2) invest in
viable projects (investing decisions), and (3) secure appropriate and optimal level external funds
from shareholders and lenders (financing decisions).
The first case, Look Before You Leap deals with decisions that managers make on a day-
to-day basis (operating decisions). To be sure, managers have to analyze different types of
situations before deciding on the company’s financial outcome. The numerous operating
decisions can range from improving the level of sales revenue, reducing operating expenses to
improving working capital accounts such as inventories and accounts receivable. This first case
examines the structure and contents of Micro Tiles’ financial statements and the extensive
financial tools that can be used to analyze financial statements and help improve the company’s
bottom line. It also highlights the types of planning assumptions that are normally used to
prepare operating budgets, cash budgets and projected financial statements.
Micro Tiles Limited -2- Introduction
Specifically, this first case draws on financial concepts and decision-making tools from
the following chapters:
Chapter 1: Overview of Financial Management
Chapter 2: Accounting Financial Statements
Chapter 3: Cash Flow Statement
Chapter 4: Financial Statement Analysis
Chapter 5: Budgeting, Forecasting and Financial Planning
Chapter 6: Working Capital Management
Chapter 9: Profit Planning and Decision-Making
The second case, Investing for Growth explores the more sophisticated financial tools
that managers can use to gauge the financial viability of capital projects (investing decisions).
Managers want to invest funds in capital projects that will generate growth and produce a return
that is in line with a project’s risks. This is what this case highlights. The time value of money
capital budgeting yardsticks that will be used to gauge Micro Tiles’ capital project include: the
net present value (NPV), the internal rate of return (IRR), the payback method and the
profitability index (PI).
Specifically, this second case draws on financial concepts and decision-making tools
from the following chapters:
Chapter 10: Time Value of Money
Chapter 11: Capital Investment Decisions
Chapter 12: Business Valuation
The third case, Finding Funding looks at where companies can obtain funds to finance
the ongoing business activities and capital expenditure projects. It illustrates where Micro Tiles’
Micro Tiles Limited -3- Introduction
managers can obtain funds to finance their growth and investment opportunities covered in cases
1 and 2 (financing decisions). Micro Tiles can obtain funds from different sources (lenders and
shareholders) and in diverse forms (i.e., working capital loan, line of credit, mortgage). This case
shows that Micro Tiles is in a growth mode and wants to invest substantial funds in a major
capital project. Company management must therefore look at the most appropriate forms and
sources of financing that will help their business realize their growth potential.
Specifically, this third case draws on financial concepts and decision-making tools from
the following chapters:
Chapter 7: Sources and Forms of Financing
Chapter 8: Cost of Capital and Capital Structure
Case Learning Objectives
The Micro Tiles Limited cases attempt to realize three key learning objectives.
First, how to effectively apply financial management analytical and decision-making
tools within the framework of a business in order to realize a realistic and sustainable growth in
terms of sales revenue and profitability without exposing itself to business-threatening financial
risks. Also, these cases point out that analytical tools such as financial ratios, break-even analysis,
vertical and horizontal analysis and cash flow analysis should not be considered exclusively as
analytical tools, but more importantly, how they can be applied as decision-making tools to
improve a company’s bottom line.
The second objective is to demonstrate how a large number of financial concepts covered
in the book Finance for Non-Financial Managers can be used simultaneously as analytical and
decision-making tools. The end-of-chapter exercises and cases apply to particular sections of a
Micro Tiles Limited -4- Introduction
chapter or the chapter itself and show how they can be used to analyze and solve a specific
problem. However, when managers look at financial statements at a macro level, they make all
types of simultaneous decisions that can affect the financial destiny of their business. These cases
tap on decision-making tools covered throughout the book and assume that the student is in
command of a business and responsible for its growth, viability and profitability.
The third objective is to show how to use the financial spreadsheets that accompany the
book, Finance for Non-Financial Managers, Fifth Edition. Analyzing the Micro Tiles Limited
cases without financial spreadsheets would be almost unworkable, if not impossible. The
spreadsheets do simple calculations from the current ratio to the more sophisticated ones like the
sustainable growth rate and the health score. Calculating Micro Tiles’ financial statement ratios
on a manual basis for only one business scenario would take weeks. To be sure, any changes in
the Micro Tiles financial statements or base case would generate more calculations and make the
work of the student a ceaseless number-crunching marathon. The objective is therefore to show
how to input Micro Tiles financial statement numbers on the financial spreadsheets and allow the
students to spend more time on analyzing results and making decisions. The financial
spreadsheets are contained in two files: one file is used to analyze financial statements (i.e.,
financial ratios, statement of cash flows, vertical and horizontal analysis), and the other is used to
make decisions (i.e., capital budgeting, break-even analysis, cash budget).