HW 1 MAN 5501 Parker Beladino

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Abstract: How do supply chain operations impact financials? How do financials impact stock market valuation? How to estimate the impact?

Part I

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Brazil Industrial Breakdown - plot their revenue breakdown and tell us by what percentage their net margin can improve with 1% of COGS savings

Brazil revenue breakdown. 
Healthcare: COGS = 77.86%, Net Margin = 1.69%.
1% COGS reduction = 77.86% × 1% = +0.78 pts -> Net Margin = 2.47%.
Improvement: (2.47 − 1.69) ÷ 1.69 = ~ 46.7%.

Industrials: COGS = 72.43%, Net Margin = 2.32%.
1% COGS reduction = 72.43% × 1% = +0.72 pts -> Net Margin = 3.04%.
Improvement: (3.04 − 2.32) ÷ 2.32 = ~ 31%.


Utilities:
COGS = 69.01%, Net Margin = 15.07%.
1% COGS reduction = 69.01% × 1% = +0.69 pts -> Net Margin = 15.76%.
Improvement: (15.76 − 15.07) ÷ 15.07 = ~ 4.6%.

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Industrial Trend - Choose Your Own KPIs (Industry Total)

Market cap and net income generally move together over time, showing a positive correlation across industries. Industrials and utilities track more closely than healthcare. Healthcare shows weaker correlation, as its market cap fluctuates more than its earnings, and some data for net income is unavailable.

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Trend line for Brazil industries

Not a strong correlation for any industry. Lots of data points, lots of small market cap companies that may skew the data.

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Part II

Use regression models and correlation

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Home Depot

Home Depot with an R square of .88 shows a strong correlation between net income and market cap.

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Lowes

Lowes showing a similar R square to Home depot, demonstrating how two companies in the same industry follow similar valuation trends. Slightly less variability with Lowes compared to Home Depot.

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Lennar Corporation

Lennar, a home builder, showing much weaker correlation compared to Home Depot and Lowes. While in similar industries, Lennar is a pure home builder and is much more prone to changes in market conditions, interest rates and economic factors compared to lowes and Home depot, which have much larger and more diversified businesses.

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Summary, observations and insights

Part I

A one percent reduction in cost of goods sold meaningfully improves net margins in most Brazilian sectors.
Industries with very thin margins, such as Healthcare and Industrials, benefit the most because even small shifts in COGS translate into large percentage increases in profitability.

Part II. Financial Drivers of Market Valuation in US Companies

The regression results show a strong positive relationship between net income and market capitalization for diversified retailers such as Home Depot and Lowe’s.
Firms with stable revenue, diversified product mixes, and consistent supply chain operations exhibit tighter income to valuation linkages.
Cyclical firms, such as Lennar, display weaker correlations because earnings are more sensitive to macroeconomic factors, interest rates, and housing cycles.
The results demonstrate the idea that supply chain performance influences profitability, while profitability influences valuation, although the strength of this relationship varies by industry.

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HW 1 MAN 5501 Parker Beladino

Part I

Part II. Financial Drivers of Market Valuation in US Companies

Primary Modal