Investment Analysis and Recommendation Paper
Potential and Real Options that may arrive in this firm’s business
The first opportunity that exists for this company is to increase its supply capacity or output. This
is advised by the current and projected increase in demand for natural gas across the world.
Another opportunity that exists for this firm’s business is to improve its overall efficiency. This
is based on the technical and intellectual expertise that its employees have.
The third option is to boost competitiveness through organizational changes such as increased
promotion or reduction in company costs. The Board of directors who govern the decision
making of the company’s management has also proven to be aggressive and keen on ensuring the
firm remains competitive.
Nature of the company’s options
The options that this company has for future action are both industry specific and company
The first option which is a gradually increasing demand for natural gas in international markets
is a completely external factor. This opportunity was identified from an analysis of the
company’s SWOT analysis under the title of Opportunities. Opportunities usually tend to be
manifested in the external business environment of a company. This demand is therefore existent
within the oil and natural gas industry (Chesapeake Corp, 2015).
The second opportunity that exists is for the firm to leverage on the strengths that its personnel
have to increase its performance. This option was also generated from the SWOT analysis under
the title of strengths which are an internal parameter for the business. As such, this particular
option is company specific as it is based on an appraisal of Chesapeake Energy Corporation’s
workers (Mitchel et al, 2013).
The option of having its Board of Directors influence decision making in a manner that will
boost competitiveness is company specific because the influence of this group of individuals is
only within the scope of the company’s actions.
Impact of the Options on the Capital budgeting process
The first option that is based on increasing demand basically means that the company has to
increase its supply to the market and this will lead to an increase in Capital budgeting. To take
advantage of increasing demand, the company has to supply more and this will only happen if
the relevant distribution channels are covered more which will need more organizational
resources through logistics (Chesapeake Corp, 2015).
Leveraging on the firm’s employees as a way forward will increase its budgetary costs. This is
because the company will need the employees to increase their output and this needs better
remuneration as well as motivation through paying them overtime or providing them with
bonuses for targets that have been met (Ayyagari et al, 2012).
The third option either increase budgeting or reduce. Competitiveness can be increased through
more promotion and marketing which needs resources to pay for the necessary activities and
materials needed such as more media coverage and otherwise. Competitiveness also comes from
cost-reduction measures which reduce budgetary allocation through initiatives such as merging
some managerial functions or reducing wastage which will lower company costs. The reason
why this option could go either way for the capital budget is the fact that the decision making of
the company’s board of directors is not predictable but rather depends on the proposed options as
well as the manner in which voting will go (Papadopoulos and Heslop, 2014).
Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2012). Firm innovation in emerging
markets: the role of finance, governance, and competition. Journal of Financial and Quantitative
Analysis, 46(06), 1545-1580.
Chesapeake Corp. (2015). Company Profile: Chesapeake Energy Corporation. MarketLine
Mitchell, T., Mitchell, S., & Cai, C. (2013). Using the DuPont decomposing process to create A
marketing model. Journal of Business & Economics Research (Online), 11(11), 485.
Papadopoulos, N., & Heslop, L. A. (2014). Product-country images: Impact and role in
international marketing. Routledge.
- Table 1
Mainstream on vertical integration
Strong market position based on personnel
High debt resulting from heavy borrowing
Increasing demand for natural gas in the
world and key employees
Legal compliance and changing gas prices
- Table 2:Chesapeake Energy Corporation (CEC) Financials for the past three years
2014 2013 2012
Total Assets $40,751,000 41,782,000 41,611,000
Shareholders’ Equity $16,903,000 15,995,000 15,569,000
Revenue $20,951,000 17,506,000 12,316,000
Net Income $1,917,000 724,000 769,000
- Table 3:Anadarko Petroleum Corporation (APC) Financials for the past three years
2014 2013 2012
Total Assets 61,689,000 55,781,000 52,589,000
Shareholders’ Equity 19,725,000 21,857,000 20,629,000
Revenue 18,470,000 14,581,000 13,411,000
Net Income (1,750,000) 801,000 2,391,000
Board of Directors
The board of directors is very important to the organization since they determine the
direction to be taken by the business. In Chesapeake Energy Corporation, the board of directors
is composed of a ten member team; nine of the ten are independent members. Each of the nine
sits in a charter committee namely; audit committee, compensation committee, nominating
committee and finance committee. The Chair to the Board is a member of nominating committee
and finance committee.
Monitoring Potential of the Firm’s Board of Director
The strategic monitoring potential of the board is derived from the fact that 90% of the
members have complete autonomy and sits on committees (MarketLine, 2014). The charter is
also governed by constituency statutes that permit them to make decisions in favor of the
company rather than the shareholders’ interests (Brian et al, 2013).
Strengths and Weaknesses of Board Structure
Intense market competition and structuring of the board might either erode or increase the
company’s market share.