# Integrative Case

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• Published : March 4, 2012

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a(1).
It seems that Track Software LTD. is focusing on mainly in profit maximization rahter than the overall shareholder value maximiaztion. In every year except first two years firm’s pofit has been increased but per share value of the firm dit not increase that much. This is not a right goal for the company. A firms main purpose is to maximize the shareholder wealth not to increase profit. a(2).

There is some potential problem exist in the firm. The firm is now mostly managed by the original founder of the firm rather than an independent agent. Though, Stanley believes that if he hires a software developer, firm’s longterm situation will be much better. In the fear of firm’s probable decrease in EPS, financial constraint and Stanley’s one way view,he did not hire a software developer. He is working as an agent for the firm but he is not doing what he is supposed to do. Answer to Question No-b

EPS= Net Profit after Tax/ Number of common shares outstanding

Year| Net Profit After Tax| # of common shares outstanding| EPS| 2000| Rs. -50000| 50,000 | (1.00)|
2001| -20000| 50,000 | (0.40)|
2002| 15000| 50,000 | 0.30 |
2003| 35000| 50,000 | 0.70 |
2004| 40000| 50,000 | 0.80 |
2005| 43000| 50,000 | 0.86 |
2006| 48000| 50,000 | 0.96 |

Except first two year firm’s EPS has been increased, but share price did not increase with that rate .The firm’s EPS has been increasing in every year, still it has been struggling for cash to repay its debt. It indicates how a profitable firm can be in difficult position. Answer to Question No-C

Operating Cash Flow(OCF) in 2006= Net Profit After Tax + Depriciation and Amortization
=Rs. 48000+11000
=Rs. 59000
OCF measure of how well a company’s current liabilites can be covered by the cash flow generated from that firm’s operation. In case of Track Software, Ltd. the amount is not that much. Free Cash Flow(FCF) in 2006 = OCF-NFAI-NCAI

=Rs. 59000-15000-47000
=Rs. -3000
OCF=59000
Net Fixed Asset Investment(NFAI) in 2006 = Rs. 15000
Net Current Asset Investment(NCAI) in 2006= Rs. 47000
Even though Track Software Limited had a positive Ner Profit After Tax, its investment in operating capital resulted in a negative free cash flow. Since free cash flow represents what is available for distribution to investores, but incase of Track Software Ltd. there was nothing. Inspite of that firm provided dividend to its shareholders over the last three consecutive years.