Student ID - A4018819 UoW, MBA, Intake 3, Group B, Corporate Finance, Augustine Entonu

8/6/2019 Student ID - A4018819 UoW, MBA, Intake 3, Group B, Corporate Finance, Augustine Entonu

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Table of Content

1. Introduction of IROBOT Corp Ltd............................... ...........................................................2

1.1 Type of product it supplies ............................ ...........................................................2

1.2 Country it operates ................................................... ......................... ........................3

1.3 Size of the company related to the Industry ............................... ...............................4

1.4 Performance over the last 3 years .................................................................. ...........5

2. Financing structure or IROBOT and Comparison with ABB Corp Ltd ................................. ..6

2.1 Analysing the financing Structure of IROBOT Corp Ltd ....................... ............................ 6

2.2 Comparing the financing structure of IROBOT with ABB Corp Ltd ............................... ..7

3. Calculate WACC of IROBOT Corp Ltd ...... .................................... ................................................ 9

3.1 Computing WACC using V K VK Model 1............................ .......................................... ..9

3.2 Computing WACC using Model 2 ................................................................................... .10

4. Proposal of ³ICARE´ Care Taking Robot .................................................. .................................... .11

4.1 Executive Summary (Description of the new Project ³ICARE´)............... ...................... .12

4.2 Locating the Evidence for Key elements ................................... ............................... ........12

4.3 Explanation of Techniques to identify and deal with risk and uncertainty ......................12

5. Financial Forecast of new project ³ICARE´ ............................... ..................................................... 13

5.1 NPV Evaluation for the new Project ³ICARE´................................ ............................... ...14

5.2 Application of techniques to deal with risk and uncertainty ............................................ .14

6. Quarterly report format to the board ....................................................... ........................................ .15

7. References ....................................................................................... ................................................. .16

8. Appendix ............................................................................................................................. .............17



2

Introduction

IROBOT Corp Ltd is an innovator and manufacturer of Robots. Founded in 1990 by Rondey

Brooks , Colin Angle and Helen Greiner and Incorporated in 2000. IROBOT Corp is an

Equity driven company which has a market cap of $512Million. Its common shares start

traded in NASDAQ from November 2005 in the name of IRBT.

1.1 Types of Product it supplies

IROBOT Corp Ltd, Supplies two major divisions of products as follows

1.1.1 Consumer / Home Robots

IROBOT offers a series of home robots that make the household work little easier. Its

Award winning vacuum cleaning robot ROOMBA which was launched in 2002 has been

sold over 5Million units till April 2010. It also produce floor washing robots named

SCOOBA, workshop cleaning robot which pick nuts, bolts etc called DIRT DOG, gutter

cleaning robot LOOJ, Swimming pool cleaning robot VERRO and a consumer

programmable robot called CONNECT R etc.

The company gained its 55% of revenue from home robots division in 2008 ± 2009 Fiscal

year. And according to the 2010 first quarter report, there is a 25% increase in growth of

revenue compared to the revenue in the same period of the last year. According to the

CEO and Co-founder of IROBOT, Colin Angle¶s speech on TEDMED 2009, he said

³There will be a huge demand for home robots in assisting elder people in future´. So

IROBOT is developing new designs of caring robots to fulfil its future demand.



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1.1.2 Government and Industrial Robots

IROBOT is the major supplier of marine and ground unmanned military robots. It

generated its 36.9% revenue from U.S Federal contracts in the fiscal year 2010. Its

PACKBOT series of unmanned military vehicle robot , which is used for Bomb detection

& disposal is been sold more than 3,000 Units till April 2010. It helps the military to

avoid soldiers to put them self at risk while disposal of bombs and detection.

Its new series of SUGV (Small unmanned ground vehicle) has been developed in

collaboration with BOEING, Which is a light weight vehicle used to detect and dispose

bombs and it is designed to carry easily. IROBOT WARRIOR is another unmanned

heavy vehicle which is used to carry payloads weighs more than 150 pounds.

NEGOTIATOR is highly used in surveillance and as a first responder.

Maritime robots such as SEAGLIDER, RANGER & TRANSPHIBIAN are used in naval

activities and Industrial purpose as well. At present SEAGLIDESR are deployed in BP¶s

Oil spill cleaning mission. It carries a sensor which collects lot of valuable information¶s

from the deep sea in the Gulf of Mexico and deliver to the users. This activity creates a

brand image to IROBOT in this situation.

1.2 Country it operates

IROBOT Corp Ltd is an U.S Based Company and its headquarters located in Bedford,

Massachusetts. It also has offices in Virginia, North Carolina, Michigan, California, United

Kingdom, France, India, China and Hong Kong.



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IROBOT sells its consumer products over 40 countries through the network of in-country

distributors who resells to the retailers in their respective countries. It also sells its product

worldwide through the on-line store available on its website.

It sells its Industrial and Government robots directly to the end users and also indirectly

through prime contractors and distributors. Majority of its Military products are sold to U.S

federal government. It also sells its military products overseas in compliance with ITAR

(International Tariff in Arms and Regulation) to other countries such as United Kingdom,

France, India, Sweden, Germany, Norway, Israel, Australia, Republic of Korea, Singapore

and Others.

1.3 Size of IROBOT Corp Ltd, relative to the Industry

Standard method to identify the size of a company is by calculating the market cap and

comparing against standard average. The Market cap of IROBOT Corp is $512M which

comes under Small cap category. Comparatively for e.g:- ABB Corp has a market cap of

$46B which comes under large cap category.

1.4 Performance of IROBOT Corp Ltd over last 3 years

From the below Table 1.4.1 it shows the performance of IROBOT Corp ltd in 2007 was

significant as the figure shows the maximum gross margin of 33% and minimum operating

expenses of $85M. And got a good EPS of 0.37 which is 3 times larger than 2009. In year

2008 the revenue increased by 23% from the previous year but the Operating cost went 9%

higher than previous year and the EPS touched the lowest which is 12 times lower than the

2007 which shows the downward performance of the company in that particular period.



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There is a significant improvement in performance of the company in 2009 and it manage to

bring back the operating cost to $86M. And increased the EPS to 0.13, which is better than

previous year and it shows the profitability of the company is increasing gradually.

Table 1.4.1 - Performance of IROBOT Corp Ltd over the last 3 fiscal years

Area 2009 2008 2007

Revenue ($M) 299 308 249

Gross Margin % 31% 30% 33%

Operating Expense ($M) 86 93 85

EPS 0.13 0.03 0.37

And according to the first quarter report of year 2010 in Table 1.4.2, Performance of the

company is growing rapidly when compared to the first quarter report of previous year.

Revenue increased by 66% when compared to the same period of 2009. EPS has a

significant increase of 0.32 pt from the previous year. So the overall performance shows the

company is growing in the current market.

Table 1.4.2 - Comparison of First Quarter reports (2009 with 2010)

Area April 2010 (Q1) March 2009 (Q1)

Growth in

2010

Revenue ($M) 95 57 66%

Gross Margin % 35% 28% 7%

Operating Expense 23 20 -3

EPS 0.25 -0.07 0.32



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2.1 Analysing the financing Structure of IROBOT Corp Ltd

The Financing structure of IROBOT Corp and ABB Corp Ltd are stated in the below table

2.A. ABB Corp Ltd is one of leading company in Power and automation technology. Their

key strategy is to manufacture high-tech product which give minimum environment impact. It

operated over 100 countries with 117,000 employees.

Table 2.1.A. Financing structure of IROBOT Corp Ltd and ABB Corp LTD

Financing Structure of the company in Fiscal year 2009 in thousands

Structure of finance IRobot ABB Ltd

Cash and Equivalents 71,856 $7,119,000

Short term Investments $4,959 $2,433,000

Inventories $32,406 $4,550,000

Other Current Assets $49,790 $11,127,000

Total Current Assets $159,011 $25,229,000

Total Fixed Assets $40,573 $9,499,000

Current Liablities $62,376 $14,579,000

Long term Liabilities $4,014 $3,504,000

Long term Debt $0 $2,172,000

Total Liabilities $66,390 $20,255,000

Total Assets $199,584 $34,728,000

Total Liabilities $66,390 $20,255,000

Total Shareholders¶ Equity $133,194 $14,473,000

Liabilities, Redeemable convertible preferred stock and shareholders¶ Equity $199,584 $34,728,000



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Robots are one of its prime products. It manufactures Industrial robots and modular

manufacturing systems etc. It has a market cap of $46Billion. It generated a net income of

$2.9Billion in fiscal year 2009.

IROBOT Corp Ltd is an equity driven company. It doesn¶t have any Debt. So the companies

financing structure is risk free. The company has its advantage in reduced cost of Capital and

there is not committed cost for the capital that is been invested.

2.2 Comparing the financing structure of IROBOT with ABB Corp Ltd

through ratio analysis method

2.2.1 Liquidity ratio analysis

2.2.2 Gearing ratio analysis

2.2.3 Profitability analysis

2.2.1 Liquidity ratio analysis

Liquidity ratio will be analysed through 3 breakup Current ratio, Quick ratio and Net working

capital ratio. Following table shows the computed ratios

Table 2.2.1 Liquidity Ratio Analysis

Ratios IROBOT Corp ABB Corp

Current Ratio = Current Assets / Current liabilities 2.55 1.73

Quick Ratio = Quick Assets / Current liabilities 2.03 1.42

Net working capital ratio = Net working capital / Total assets 0.48 0.31

Current Ratio



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When comparing both current ratios, IROBOT have 47% more current assets than ABB Corp

to cover the needs of current liabilities. So IROBOT has more advantage in competitiveness

with suppliers in purchasing raw materials and other current liabilities.

Quick Ratio

Quick ratio of IROBOT Corp is also much higher than ABB Corp. It may help the company

to create a competitive advantage in terms of smooth cash flows.

Networking capital Ratio

It shows IROBOT Corp have 48% more assets for the working capital where as ABB Corp

only has 31%.

The Overall liquidity ratio shows the financing position of IROBOT Corp in terms of

covering the liabilities and maintaining the working capital is very good and this will support

the company¶s other operations and create a advantage in the market in terms of payment and

purchase etc.

2.2.2 Gearing ratio Analysis


Gearing ratio = Long term liability / Equity shareholders fund 0.03 0.24

When comparing the gearing ratio of both companies it shows the ABB Corp has more Risky

than IROBOT. The Debt to equity ratio is 0 as there is no debt for this company. So IROBOT

Corp is in risk free financial position.



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2.2.3 Profitability Analysis


ROE = Net Income / Average Stock holders¶ Equity 0.03 0.23

ROA = Net Income / Average total Assets 0.02 0.09

Profit Margin = Net Income / Sales 0.02 0.13

EPS = Net Income/Number of common shares outstanding $ 0.13 1.27

According to the above ratio given in the Table 2.2.3, the profitability of IROBOT Corp is

quite lesser than the ABB Corp. The Return on share holders¶ equity of IROBOT Corp is 3%

where as the ABB has 23%. And the return on Assets of ABB is 4.5 times higher than the

IROBOT Corp. Profit margin of ABB Corp is 6.5 times higher than IROBOT. However

when compare to the profitability of IROBOT previous it¶s much better and it indicated the

growth of the company in future

Overall IROBOT Corp Ltd has a good competitive financing structure when compared to

ABB Corp. However it has to increase its profitability to expand its market share.

3.1. Computing WACC using (V K VK Model)

Formula, WACC = VK / V

Need to find,

Ke = Rf+ X (Rm ± Rf)

= 2.5%+0.89 X (11%-2.5%)

Ke = 10.07%



10

Ve = $133.19M

Kd= 0

Vd= 0

= 0.89

Rf =2.5% (Assumption from US Treasury rates)

Rm= 11% (Historical market return)

Desc V K VK

Equity ($M) 133.19 10.07% 13.41

Debt 0 0 0.00

Total 133.19 13.41

WACC 10.07%

Weighted average cost of capital of IROBOT Corp Ltd is 10.70%

3.2 Computing WACC though (Model 2)

Formula, WACC = Kd(1-Tc) X (D/V)+Ke X (E/V)

Need to find,

Kd = 0

D = 0

Ke = 11%



11

V = E + D

= 133.19 + 0

V= $133.19M

TC = Income tax Expense / Income before tax

= 2026 / 5356

TC = 38%

E = $133.19M

WACC = 0(1-38%) X (0/133.19)+11%(133.19/133.19)

WACC = 11%

4. Proposal to the board as a Project manager for the project of ³ICARE´

4. A. Executive Summary

CEO and Co-Founder of IROBOT Corp revealed the future strategy and vision of IROBOT

at TEDMED 2009. He said ³In future the American society will need much assistance in

caring ageing population. So IROBOT is going to develop a solution for the elderly and

highly dependent population by developing a robot which could assist such population´

4.B. Evidence for the following key elements

4.B.1 Initial investment cost

It¶s been assumed that $1Billion will be required to setup a new production plant and to

source raw materials for the initial stage. And the investment required for research and

development are also included in this.



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4.B.2 Annual Revenue

Its been calculate according to the assumption made upon the selling price

considering the market expectation.

4.B.3 Annual Operating cost

It is calculated from the average annual operating cost spent in the previous years

from the Annual report and balance sheet.

4.B.4 Rate of Inflation

It is sourced from the historical Inflation data¶s found on the website.

4.B.5 Rate of Taxation

It is retrieved from the historical tax rate applied for fiscal year 2009.

5. Financial forecast of the new project ³ICARE´

Table 5.1. NPV Evaluation of care taking robot ³ICARE´

Values are in thousands in USD

YEAR 2,010 2,011 2,012 2,013 2,014 2,015 2,016

NO OF UNITS 5,000 5,300 6,466 9,893 17,906

UNIT SELLING PRICE 200 200 200 200 200

TOTAL REVENUE 1,000,000 1,060,000 1,293,200 1,978,596 3,581,259

DMC ( DIRECT MATERIAL COST) 50 50 50 50 50

TDMC( TOTAL DMC) 250,000 265,000 323,300 494,649 895,315

DVC ( DIRECT VARIABLE COST) 20 20 20 20 20

TDVC 100,000 106,000 129,320 197,860 358,126

TOC ( TOTAL COST SALES) 350,000 371,000 452,620 692,509 1,253,441

MARKETING COST 200,000 150,000 100,000 70,000 50,000



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FC ( FIXED COST) 50,000 50,000 50,000 50,000 50,000

OC 250,000 200,000 150,000 120,000 100,000

TOC + OC 600,000 571,000 602,620 812,509 1,353,441

CF B4 TAX 400,000 489,000 690,580 1,166,087 2,227,818

TAX DUE 38% 0 -152,000 -185,820 -262,420 -443,113-

846,571

CF AFTER TAX 400,000 337,000 504,760 903,667 1,784,705 -

846,571

DEPRECIATION 200,000 200,000 200,000 200,000 200,000

ADD BACK RELIEF 60,000 60,000 60,000 60,000 60,000

CF AFTER ADDED CP

ALLOWANCE 400,000 397,000 564,760 963,667 1,844,705

-786,571

INFLATION RATE OF 2.07% -8,280 -8,218 -11,691 -19,948 -38,185 16,282

INCREMENTAL CASHFLOW 391,720 388,782 553,069 943,719 1,806,520 -

770,289

CAPEX -1,000,000

DCF 1.0000 1 0.8160 0.7372 0.6659 0.6015 0.5434

PV -1,000,000 353,857 317,257 407,696 628,423 1,086,687 -

418,570

NPV 1,375,351

5.2 Application of techniques to deal with Risk and Uncertainties

Risk causes due to uncertainties. Risk can be identified by continuous monitoring and

following the project. There are lot of risks which may appear in the course of project

execution such as Inflation rate may increase, Government policies may change so that the

taxation rate may go high. These are the external risk factors. However there are some

internal risk factors like cause of Fire accident, Chocking in goods supply due to

transportation issues etc.



14

Financial risk can be identified by monitoring Quarterly reports. The performance and

uncertainties reflects in Quarterly report. This is will be evaluated using sensitivity analysis

and the problem will be deal according to the company strategy.

6. Format for Quarterly report with some example values

Format 6.A , Income statment of "ICARE"( New Product) for the first Quater

Desc Forcaste Actual DifferenceReasons for theDifference

No of Unit sales 1250 1300 50

Total revenue 250,000 260,000 10,000

Total cost of revenue 87,500 91,000 3,500

Gross margin 162,500 169,000 6,500

Marketing Cost 50,000 50,100 100

Marketing cost is been increasedslightly due to additional promotion

Fixed Cost 12,500 12,500 0

Total operating expenses 62,500 62,600 100

Income before income taxes 100,000 106,400 6,400

Income tax expense 0 0 0

Inflation (-Loss) 2,060 2,660 600

Inflation rate increased from2.06 to 2.5% so there isadditional loss in this period

Net income 102,060 109,060 7,000

However the net income of the product is hig due to increasedrevenue.



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References

(2009) Annual Report 2009 published by IROBOT [Online]. Available from:

http://investor.irobot.com/phoenix.zhtml?c= 193096&p=irol-reportsannual (Accessed: 12/07/2010) U.S Department of Treasury (2010) Treasury Risk free interest rate [Online]. Available from:

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_ltcompositeindex_historical.shtml (Accessed: 28/07/2010)

Inflation rate U.S (2010) Inflation rate data [Online]. Available from:

http://inflationdata.com/inflation/inflation_rate/CurrentInflation.asp (Accessed: 28/07/2010)

The Newyork times (2009) Marketing robots from the home or battle [Online]. Available from:

http://www.nytimes.com/2006/08/12/technology/12interview.html?ref=irobot-corporation (Accessed:15/07/2010)

IRobot Corp Ltd (2010) about IRobot [Online]. Available from:

http://www.irobot.com/sp.cfm?pageid=74 (Accessed: 12/072010

IRobot Corp Ltd (2010) cool stuff about the Irobot products[Online]. Available from:

http://spark.irobot.com/index.php/cool_stuff/timeline/discover/2000_2009 (Accessed :22/07/2010)

IRobot Corp Ltd (2010) First quarter report [Online]. Available from:

http://investor.irobot.com/phoenix.zhtml?c=193096&p=irol-newsArticle&id=1419388( Accessed:21/07/2010)

Bloomberg business week (2010) IRobot sales profit up[Online]. Available from:

http://investing.businessweek.com/research/sectorandindustry/news/article.asp?docKey=600-

201004281920APDIGITLFINANCE__US_Earns_iRobot-

1&params=timestamp||04/28/2010%207:20%20PM%20ET||headline||IRobot%20sales,%20profit%20up%20in%

201Q||docSource||AP%20Digital||provider||ACQUIREMEDIA (Accessed:25/07/2010)

Wall street webcasting (2010) IRobot corp, Jefferies global consumer conference[Online]. Available from:

http://www.wsw.com/webcast/jeff45/irbt/ (Accessed:25/07/2010)

Cnet (2010) Road trim IRobot corp[Online]. Available from http://news.cnet.com/2300-11386_3-

10004113.html (Accessed:26/07/2010)



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Appendix

Ratio Analysis

Appendix IROBOT Corp ABB Corp

Average total Assets = (Begining total Assets + Ending total Assets )/2 162,259.50 $32,864,500

Average Stock holder equity= (Begining S.H Equity + Ending S.HEquity)/2 110,375.00 $12,373,500

Net working capital = Current Assets - Current liabilities $126,605 $126,6

Appendix IROBOT Corp ABB Corp

Quick Assets = Current Assets ± Inventories $126,605 $126,605

Net workinh capital = Current Assets - Current liablities $96,635 $10,650,000

Consolidated balance for 5 years



17

Balance sheet of IROBOT



18

Consolidated balance sheet of ABB Corp

Documents

Student ID - A4018819 UoW, MBA, Intake 3, Group B, Corporate Finance, Augustine Entonu