Miracle Life Inc.

MID TERM ESSAY Course: CORPORATE FINANCE (FIN 6160) Case study: "MIRACLE LIFE, Inc"

Miracle Life Inc., founded in 1980 by Angela Simpson, is one of the companies possessed the largest global marketing network in the world which sells products to control overweight, nutritional supplement products and personal health care products with the goal: "to improve health and happiness of people around the world. " From the early years since its establishment, the company has gained strong growth. If in 1982, the turnover of Miracle Life reached 2 million, by 1992, sales reached $ 200 million and concurrently, the enterprise has expanded the worldwide scope of business activities. Until 2007, revenue of the company gained
$ 2.1 billion Along with the sustainable growth, the reputation of MLI is rapidly growing.
In 1986, the company began trading on the NASDAQ market and until February 2007, Miracle Life became a second public company which is listed at the New York Stock Exchange under the symbol MLI. At the end of that year, the stock of MLI has appreciated 47% and latched at 58.91 USD/ share. MLI has become famous on Wall Street. Those who desire to be richer have been attracted by the profit growth achievements in a long time of this company, and they believe that the company will also be able to maintain a high growth of revenue in the next time. However, some analysts still wonder about the sustainability of the business model of this enterprise. This essay will analyze the financial of MLI in the previous years in order to have a clear view about this company.
Question 1: Estimate Beta coefficient (β) of the companies: RELV, USANA, NUS, SMG, MLI Beta coefficient (β) is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta as the tendency of a security's returns to respond to swings in the
market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market Based on the figures from 2004 to 2007 (Appendix 1), using Slope (X, Y) with: X: rate of return for the security Y: rate of return for S&P 500 index Beta coefficient (β) of RELV, USANA, NUS, SMG, and MLI is calculated as below:
|Beta coefficient (β) of RELV = 0.054 |
|Beta coefficient (β) of USANA = 0.457 |
|Beta coefficient (β) of NUS = 1.156 |
|Beta coefficient (β) of SMG = 1.511 |
|Beta coefficient (β) of MLI = 0.664 |

Question 2: Analyze revenue, cost and profit of MLI This part will take the business performance of MLI from 2004 to 2007 into consideration
Table 1: Income Statement of Miracle Life Inc. (MLI), (unit: million dollars)

|Indicators |2004 |2005 |2006 |2007 |Average growth in 4 years |
| | |Amount |Compare with |Amount |
| | | |2004 | |
|ASSETS | | | | |
|Cash |202 |88 |154 |187 |
|Account Receivables |97 |102 |155 |171 |
|Inventories |71 |110 |146 |129 |
|Total current assets |370 |300 |456 |487 |
|PP&E (property, plant & equipment) |49 |61 |103 |119 |
|Intangible assets and other assets |530 |477 |458 |462 |
|Total assets |949 |838 |1,017 |1,067 |
|Liabilities | | | | |
|Account payables |24 |39 |40 |35 |
|Expense payables |347 |246 |284 |340 |
|Total current liabilities |371 |285 |323 |376 |
|Long term liabilities |366 |253 |180 |360 |
|Other liabilities |147 |130 |160 |149 |
|Total liabilities |884 |669 |663 |885 |
|Total owner’s equity |64 |169 |354 |182 |
|Total liabilities and owner’s equity |949 |838 |1,017 |1,067 |
|Total issued share (million) | | | |64 |

➢ Liquidity:
|Item |2004 |2005 |2006 |2007 |
|Current ratio |0.99 |1.05 |1.41 |1.29 |
|( Current assets / Current Liabilities) | | | | |
|Quick ratio |0.81 |0.66 |0.96 |0.95 |
|(( Current assets- Inventories) / Current Liabilities) | | | | |
|Times interest earned (TIE) |1.28 |7.29 |13.76 |28.54 |
|(EBIT / Interest charges) | | | | |
|Cash ratio |0.54 |0.31 |0.48 |0.49 |
|(Cash / Current Liabilities) | | | | |

Through the chart, it can be noted that the current ratio and quick ratio exhibited a gradual increase in the period covered. This reveals the fact that the ability of payment current liabilities posts a positive position. Concurrently, the ability of current liability payment is independent with the inventories, that is expressed though the rise in the quick ratio. Regarding the cash ratio, looking at the chart, the cash ratio of the company is low owing to the amount of cash which is detrimental. Nevertheless, throughout the significant surge in times interest earned, the ability of capital utilization is good when the business performance is improved and the interest expense slightly decreased
➢ Asset Management:
|Indicators |2004 |2005 |2006 |2007 |
|Inventory turnover |9.7 |7.6 |7.0 |9.0 |
|(Cost of goods sold / Inventories) | | | | |
|Days in inventory |37.5 |47.8 |51.9 |40.5 |
|(365 / Inventory turnover) | | | | |
|Account receivable turnover |13.5 |15.4 |12.2 |12.6 |
|(Sales / Account receivables) | | | | |
|Day sales outstanding ( DSO) |27.0 |23.7 |29.9 |29.1 |
|(365 / Account receivable turnover) | | | |
|
|Total asset turnover |1.38 |1.87 |1.85 |2.01 |
|(Sales / Total assets) | | | | |
|Fixed asset turnover |26.7 |25.7 |18.3 |18.0 |
|(Sales/ Fixed assets) | | | | |

Within the duration of survey, the inventory turnover continuously dwindled in 2 consecutive years 2005 and 2006. Although, this ratio was improved in 2007, it still not obtained as the year of 2004. This reflects the reality that the inventory management of MLI needs to carry out more measures to enhance the effectiveness. With regards to the account receivable management, the ability to collect the money also needs to be taken into account when the account receivable reduces in association with the growth in day sales outstanding. Even so, in this period, the asset utilization of the company is effective. This is more evident throughout the total asset turnover. Thus, each 1 USD asset generates additional revenue. ➢ Financial leverage: Financial leverage is expressed through the capital structure which the company uses to finance the firm’s assets and business operation. The financial leverage is shown by a number of different indicators.
|Indicators |2004 |2005 |2006 |2007 |
|Leverage ratio |13.81 |3.96 |1.87 |4.86 |
|( Total debt/ Total owner’s equity) | | | | |
|Self-financing ratio |0.07 |0.20 |0.35 |0.17 |
|( Owner equity/ Total liabilities & owner’s equity) | | | | |

These ratios reflect the ability to self- finance of the enterprise for business operation. According to the figures from the table, it is clear that the ability in self- financing of the company is detrimental in 2004 and gradually improved in 2005, 2006 and then continued to reduce in 2007 This is also shown throughout the data of debts and owner’s equity of MLI (Table 2). In 2005-2006, when the company possessed the good ability in self- financing, the debts of the enterprise decrease while the total owner’s equity increase. In contrast, in 2004 and 2007, total owner’s equity was low so the company had to find the other subsidized investment for the business operation. Thus, the total debt was rather high. Therefore, this the problem which MLI needs to pay attention in the next periods ➢ Profitability:
|Indicators |2004 |2005 |2006 |2007 |
|ROS (Net income/ Sales) |0.74% |7.3% |7.5% |9.2% |
|ROA ( Net income/Total assets) |1.0% |13.7% |13.9% |18.5% |
|ROE (Net income/ Owner’s equity) |15.2% |67.7% |39.8% |108.2% |

ROS refers to the general result of business efficiency. Therefore, as can be seen apparent from the table, MIL operated effectively and possessed the positive growth in the duration of 2004-2007 ROA is an indicator of how profitable a company is relative to its total assets. Throughout the business performance of the company there was a rapid increase in ROA from 1% in 2004 to 18.5% in 2007. Along with the improvement in ROS and the total asset turnover, this demonstrates the fact that MLI has used the investment capital more efficiently. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The investors pay much attention into this indicator when they determine to invest in the company. Consequently, how to increase ROE is one of the most crucial objectives in the business management. The escalation in ROE of MLI from 2004-2007 and specifically a substantial rise in 2007 (over 107%) will be an essential factor so as to enhance the reputation of the enterprise in the stock market.

To sum up, throughout the previous analysis, MLI has effectively operated and continuously grown from 2004 to 2007. This was expressed not only through the rapid increase in revenue, profit but also the financial ratios which reflect all aspects of business activities. Hence, the company has gradually developed in this period and attracted further investors in future. However, in order to retain the development in the next years, the company needs to analyze, overcome the shortcomings as well as renovate and improve the business operation to keep up with the trend of the market.

|APPENDIX 1: MONTHLY YIELD FROM 01/2004 ÷ 12/2007 |
| | |
| |(from January, 2004 to December, 2007) |

YY/MM/DD |RELV |USANA |NUS |SMG |MLI |S&P 500 |MPSS | |38016 |17.20% |11.70% |13.50% |6.70% | |1.80% |9.10% | |20040227 |6.70% |-11.31% |-1.30% |-0.10% | |1.40% |-0.30% | |20()40331 |50.00% |-23.10% |5.60% |1.70% | |-1.50% |9.80% | |20040430 |-1.00% |15.30% |17.50% |2.80% | |-1.60% |5.40% | |2004052H |11.60% |3.50% |-5.40% |-1.70% | |1.40% |2.70% | |2004lJ630 |-11.00% |11.60% |13.40% |-1.50% | |1.90% |7.80% | |20040730 |-12.50% |-4.30% |7.90% |-4.50% | |-3.30% |-1.20% | |20040831 |8.10% |-2.20% |-5.50% |1.30% | |0.40% |0.50% | |20040930 |-16.30% |19.60% |-8.60% |3.80% | |1.10% |2.70% | |20041029 |1.60% |-14.30% |-17.70% |0.10% | |1.50% |-3.50% | |20041130 |8.00% |-0.40% |16.20% |6.70% | |4.00% |8.80% | |20041231 |9.80% |15.10% |13.30% |7.30% | |3.40% |7.90% | |20050131 |-0.50% |6.40% |-7.90% |-7.60% | |-2.40% |-3.70% | |2005022H |6.90% |22.40% |-4.50% |3.10% | |2.10% |5.30% | |20050331 |-5.30% |6.20% |1.20% |0.20% | |-1.80% |4.20% | |20050429 |11.90% |-12.60% |-2.30% |3.10% | |-1.90% |-0.20% | |200S0531 |4.60% |6.20% |2.70% |-2.00% | |3.20% |4.90% | |20050630 |1.10% |-3.60% |3.50% |0.30% | |0.10% |0.20% | |20050729 |-5.10% |14.70% |1.40% |10.10% | |3.70% |10.00% | |200S0831 |8.00% |7.20% |-9.30% |4.90% | |-0.90% |-2.00% | |20050930 |-1.20% |-8.30% |-10.70% |7.30% | |0.80% |-2.20% | |20051031 |-2.00% |-7.79% |-11.60% |-0.20% | |-1.70% |-5.70% | |200SIIJ0 |9.40% |-10.30% |3.70% |7.20% | |3.80% |3.20% | |YY/MM/DD |RELV |USANA |NUS |SMG |MLI |S&P 500 |MPSS | |20051230 |34.80% |-2.80% |1.20% |-3.60% | |0.00% |3.90% | |20060131 |21.10% |4.60% |10.70% |9.40% | |2.60% |8.70% | |2006022H |-17.40% |7.60% |-7.10% |-3.00% | |0.30% |-1.30% | |20060331 |-6.00% |-3.30% |-2.50% |-4.40% | |1.20% |-1.70% | |2006042H |-9.70% |-12.30% |-5.80% |-3.30% | |1.30% |-3.30% | |20060531 |-0.40% |2.80% |4.50% |-1.10% | |-2.90% |1.10% | |20060630 |-11.00% |0.80% |-13.50% |-3.10% | |0.10% |-3.70% | |2006073 [ |-1.80% |17.00% |-3.70% |-7.30% | |0.60% |-0.70% | |20060H31 |-12.70% |0.90% |21.80% |9.70% | |2.40% |2.30% | |20060929 |6.20% |-0.40% |1.20% |3.70% | |2.60% |3.50% | |20061031 |11.20% |0.70% |9.10% |11.20% | |3.30% |5.90% | |20061130 |-9.80% |7.70% |0.80% |0.30% | |1.90% |-1.00% | |2IJ061229 |-3.20% |6.80% |-5.00% |4.40% | |1.40% |-0.60% | |2007oI31 |13.70% |2.70% |1.20% |3.70% | |1.50% |4.90% | |20070228 |6.80% |9.40% |-7.50% |-2.50% |14.80% |-2.00% |0.00% | |20070330 |3.80% |-19.30% |-2.70% |-0.20% |22.80% |1.10% |-3.90% | |20070430 |-2.70% |-15.00% |4.90% |2.10% |5.10% |4.40% |2.70% | |2007053] |-1.60% |-2.40% |1.80% |2.70% |0.40% |3.50% |1.30% | |20070629 |0.70% |15.10% |-5.90% |-6.70% |-1.50% |-1.70% |-0.70% | |20070731 |6.00% |-9.80% |-5.90% |-4.50% |3.40% |-3.10% |-5.00% | |2007oH3] |-9.80% |-5.60% |0.90% |10.70% |-2.10% |1.50% |-1.40% | |2007092H |0.00% |14.90% |3.90% |-5.50% |17.10% |3.70% |2.60% | |2007103] |-13.40% |-6.70% |6.90% |7.30% |-18.00% |1.60% |-0.20% | |2007 I 130 |-9.00% |2.10% |3.00% |-19.30% |-9.60% |-4.20% |-7.60% | |20071231 |4.20% |-11.00% |-7.10% |1.40% |13.80% |-0.70% |-4.40% | |(Source: Retrieved from the Center for Research on the stock price data, accessed in May 10, 2009)