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Rita has very less documentation available than what is required. Working with what she has – there seem’s to be a trend of price falling sharply whereas increase in price taking place slowly. Considering that she should look at various ratios that the company has in comparison to the industry. For ex: the price to cashflow ratio. By doing so, she will be able to determine whether or not the company will be able to handle the volatility of the industry.
Drop in crude oil means the raw material will now be available cheaply.
15% of Lily Refineries income is from drilling which involves a major component of reserves being depleted which means future costs of replacement can be high.
30% of Lily Refineries income is secured as its invested in futures and forex trading which is a plus point for a company which is already working in a volatile sector, as it will be able to protect itself.
LAstly, Rita’s Supervisor has already instructed her. So it’s safe to assume that she will have difficulty in getting further data from him. She can’t directly ask the client to forward the data as it will create a bad impression. therefore she should find out a way to communicate to her supervisor that with such little data if she gives favourable rating for IPO and incase it doesn’t works out Finterest Research will be in deep trouble for approving the IPO without any sufficient data.
@parul approach is good and well constructed. The use of statistics is missing.
Overall quite good + 2
Since very little data has been given for our analyst to work with, we need to look at other areas where the company is involved.
Going by the data at hand we can say that the company has carefully diversified into various aspects of the oil and gas business. Their 30% business investment into futures and forex trading provides them with a cushion against fluctuations in oil prices.
From the given graph we observe a continuous decline in revenue largely due to declining oil prices and not due to fall in demand. this can only have an impact on the drilling aspect of the business which is only 15% of their business.
Also, Lily Refineries being a predominantly marketing firm must already have made considerable investments to establish the infrastructure needed for distribution and surface transportation which together makes up about 55% of their business, which means that any expenditure on these will only be in the form of maintenance costs. In the near future, they can also get into agreement with other smaller refineries to use lily refinery’s infrastructure, providing the company with another revenue stream.
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