...9. b. βD is assumed to be 0.1-0.3 based on comparable S&P ratings and ratios of debt to total capital in Exhibit 10. c. Risk free rate given to be 9.5% and market risk premium is 8.6% d. Use historical proportion of operating income by segment in Exhibit 4 to aggregate Congoleum’s unlevered beta e. Calculate RU using the CAPM formula RU= RF + βU x MRP f. Alternatively, unlever Congeluem’s βE given in Exhibit 9 to get βE and Ru 2. Operating FCF Build discounted cash flow model with 5-year explicit forecast period from 1980-1984, as follows: a. Use projected Operating Income from Exhibit 15. b. From Exhibit 13, deduct corporate expenses and depreciation + amortization c. Less corporate taxes at 48% rate to get NOPLAT. d. Add back to NOPLAT the depreciation + amortization figures, less capital expenditure and changes in working capital. This gives the FCF to all capital 3. Calculate RD a. Due to the increased gearing of the Congoleum post LBO to >80%, the overall debt rate should effectively be higher than the bank senior financing of 14%. From Exhibit 10, such a debt rate corresponds to an S&P CCC rating. b. It is likely that the new senior and subordinated notes have lower interest rates because the “strips” issued to the insurance company investor includes preferred stock that pays additional (guaranteed) dividends. c. RD is the average of the CCC debt yields. 4. Calculate Tax Shield Benefit a. From Exhibit 16, find the present value of tax shield...
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...TABLE 1: Intuit Corp Balance Sheet 1988 1989 1,059,000 1,884,000 Accounts Receivable 0 0 Inventory 0 0 Current Asset 741,000 2,228,000 Net Fixed Assets 446,000 1,752,000 0 0 2,246,000 5,864,000 945,000 1,894,000 Long Term Debt 0 0 Pension Benefit Obligations 0 0 Common Stock Equity (Net worth) 1,301,000 3,970,000 Total Liabilities and Equity 2,246,000 5,864,000 1988 1989 Revenue 6,067,000 18,658,000 Cost of Sales (ex D&A) 2,185,000 6,853,000 General Expenses (ex D&A) 2,465,000 7,513,000 EBITDA 1,417,000 4,292,000 0 0 1,417,000 4,292,000 150,000 150,000 0 0 30000 35000 1,537,000 4,407,000 Provision for Income Taxes 580,000 1,693,000 Income after Taxes 957,000 2,714,000 Accounting Changes 0 0 Discontinued Operations 0 0 Extraordinary Items 0 0 957,000 2,714,000 1988 1989 23.36% 23.00% Cash and Equivalents Long Term Investments Total Assets Accounts Payable (Current Liability) TABLE 2: Intuit Corp Income Statement Year Depreciation and Amortization EBIT Interest Income Long Term Investment Income Interest Expense Income before Taxes Net Income TABLE 3: Intuit Historical Financial Ratios %, except Coverage Ratio EBITDA/REVENUE EBIT/Revenue 23.36% 23.00% COS (ex D&A) / Revenue 36.01% 36.73% GE (ex D&A)/ Revenue 40.63% 40.27% AR/ Revenue 0.00% 0.00% Inventory/ Revenue 0.00% 0.00% 20.32% 13.18% Total Debt/ Total Liabilities and Equity 0.00% 0.00% Debt/ EBITDA 0.00% 0.00% CE/Revenue...
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...Chapter 8 Menganalisis Kinerja dan Posisi Kompetitif Memahami masa lalu perusahaan adalah penting untuk peramalan masa depan . Untuk itu Alasannya , komponen penting dari penilaian adalah analisis yang kuat dari sejarah prestasi. Selalu mulai dengan pendorong utama nilai : pengembalian investasi modal (ROIC ) dan pertumbuhan pendapatan . Memeriksa tren dalam panjang perusahaan menjalankan kinerja dan kinerja relatif dengan yang sejenis , sehingga Anda dapat mendasarkan perkiraan Anda dari arus kas masa depan pada asumsi yang wajar tentang driver perusahaan kunci nilai. Mulailah dengan menganalisis ROIC , baik dengan dan tanpa niat baik . ROIC dengan goodwill mengukur kemampuan perusahaan untuk menciptakan nilai lebih dan di atas premiums dibayar untuk akuisisi . ROIC tanpa goodwill adalah ukuran yang lebih baik dari kinerja perusahaan dibandingkan dengan perusahaan sejenis . Kemudian menelusuri ke dalam komponen ROIC untuk membangun pandangan yang terintegrasi dari perusahaan operasi kinerja , dan memahami aspek-aspek bisnis yang bertanggung jawab untuk kinerja secara keseluruhan . Berikutnya , memeriksa driver dari suka pertumbuhan pendapatan . Apakah pertumbuhan pendapatan didorong , misalnya , lainnya pertumbuhan organik ( penting untuk penciptaan nilai , seperti dibahas dalam Bab 5 ) atau dengan efek mata uang, yang sebagian besar di luar kendali manajemen dan mungkin tidak berkelanjutan ? Akhirnya , menilai kesehatan keuangan perusahaan untuk menentukan...
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...CONCEITOS CHAVE • Assets – Activo • Debts – Passivo • Equity (Owners Eq.) – Capitais próprios • Return – rendibilidade, rentabilidade ou rendabilidade • Balance sheet - Balanço • Income statement or profit & loss statement (P&L) - Demonstração de Resultados • Accounting statement of cash flows - Demonstração de Fluxos de Caixa • Net Profit or Net Income – Resultados Líquidos 1. A RENDIBILIDADE CAP. III 1.1 Os resultados EBTIDA – Earnings before taxes, interests, depreciations and amortizations EBIT - Earnings before interests and taxes EBT - Earnings before taxes (RAI - resultados antes de impostos) 1.2. ROA (Return on Assets) Rendibilidade do activo, i.e. do negócio em si sem considerar como é que a empresa foi financiada. O Gross Roa permite o estudo de rendibilidade do negócio sem necessitar de saber como a empresa é financiada. Os activos ou assets, são aqueles que deram origem ao resultado. 1.3. ROE (Return on Equity) Quando falamos em Capitais Próprios, são os que foram investidos na empresa e isso não significa que sejam os que estão naquele momento investidos. O valor de uma empresa é diferente do seu valor contabilístico, regra geral as empresas valem mais. Resultados transitados são decididos pelos accionistas e que não foram distribuídos. Conceito de Capital Não Realizado. 1.3.1. Financial Leverage effect Financial Leverage effect – Trata-se do efeito de um maior endividamento...
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...Corporate Finance – MBA 8020 Summer 2016 Palamon Capital Partners/Team System S.p.A Introduction: Palamon Capital Partners is a generalist private equity firm that invests in existing companies that are not mature, and operates in the United Kingdom, and founded in 1999 with initial raised funds of EURO 440 Million. The company aims 35% return on a single portfolio investment, and 20-25% blended portfolio net return. The firm’s plan is to gain control of shares in the companies after thorough screening process, and an investment possibility of approximately six years with a carefully planned exit strategy. The company doesn’t focus only a certain industry or country, and promises to provide both management and consulting services to its companies. TeamSystem S.p.A is an Italian based Software Company that does tax, payroll and accounting services. The company was founded in 1979, and its industry is broken and often under a regulatory change. TeamSystem controls 14% of the market with 28,000 clients and have high customer retention rate. (T-2nd most). Private equity investments are capital invested in public which are not quoted on public exchange and are in private placement basis and are not in public markets. Also, private equity managers use negotiations for holding a large number of shares, joining in monitoring and advising for companies where funds invested in, gain their benefit by premium, bonds earnings. This technique gives them the...
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...Dell´s Working Capital – Richard Ruback 1- Briefly explain DELL´s strategy. Do you consider this strategy reasonable? 2- What is your assessment of DELL´s performance? Please refer to the financial statements and calculate the financial ratios used in class to strengthen your analysis. 3- Calculate DELL´s Free Cash Flows. What is your assessment of the quality of these cash flows? ------------------------------------------------- 1- Dell, one of the best worldwide computer producer and one of the most successful organizations in the world, attribut the success to quality products and strategic management. Dell manufactures, sells, and delivers personal computers directly to the customers by a build-to-order model, which enables Dell to have much smaller investments in working capital than its competitors and also enables Dell to enjoy more fully the benefits of reductions in component prices and to introduce new products more rapidly. Dell has grown quickly and has been able to finance that growth internally by its efficient use of working capital and its profitability. Dell’s management principles as well as its supply chain (including inventory) is founded in “Build-to-Order” philosophy, and this philosophy is lies of exchanging inventory for information, because information is easier to store, to move, to discard and less expensive than inventory. Graphic 1 shows Dell´s working capital advantage over competitors by the DSI (days sales of inventory). In 1994...
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...Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage Opening Case Wal-Mart Wal-Mart is one of the most extraordinary success stories in business history. Started in 1962 by Sam Walton, Wal-Mart has grown to become the world’s largest corporation. In the financial year ending January 31, 2004, the discount retailer whose mantra is “every day low prices” had sales of nearly $256 billion, five thousand stores in ten countries (almost three thousand are in the United States), and 1.3 million employees. Some 8 percent of all retail sales in the United States are made at a Wal-Mart store. Wal-Mart is not only large but also very profitable. In 2003, the company earned a return on invested capital of 14.7 percent, significantly better than rivals Costco and Target, which earned 9.4 percent and 10 percent, respectively (another major rival, Kmart, emerged from bankruptcy protection in 2004). As shown in the accompanying figure, Wal-Mart has been consistently more profitable than its rivals for years. Wal-Mart’s superior profitability reflects a competitive advantage that is based on the successful implementation of a number of strategies. In 1962 Wal-Mart was one of the first companies to apply the self-service supermarket business model developed by grocery chains to general merchandise (two of its rivals, Kmart and Target, were established in the same year). Unlike its rivals, who focused on urban and suburban locations, Sam Walton’s Wal-Mart...
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...Bachelor Thesis Department of Business Studies Århus, the 3rd of May 2010 Valuation of BMW - Financial & Strategic Analysis Authors Rasmus Ramshøj Pløen Exam no. 282821 BSc (B/IM) Mikkel Kronborg Olesen Exam no. 283755 BSc (B) Academic Advisor Nicolai Borcher Hansen ASB Aarhus School of Business TABLE OF CONTENTS 1 PREFACE ................................................................................................................................................................ 4 1.1 1.2 1.3 1.4 1.5 1.6 2 EXECUTIVE SUMMARY ................................................................................................................................................ 5 BRIEF INTRODUCTION ................................................................................................................................................. 6 PROBLEM STATEMENT ................................................................................................................................................ 8 STRUCTURE .............................................................................................................................................................. 9 DELIMITATIONS AND ASSUMPTIONS ............................................................................................................................ 10 METHODS ..........................................................................................................................................
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...ARB Corporation Limited is an Australian public company which designs, manufactures and distributes automotive accessories. ARB's leading products include the ARB Air Locker differentials, ARB Bullbars, and the Old Man Emu shocks and suspension products. ARB is listed on the Australian Securities Exchange under the code ARP. The company employs approximately 860 people, and is headquartered in Kilsyth, Victoria. Major Customers & Competitors ARP has steadily built on its traditional 4WD-enthusiast customer base. ARP also supplies products to original equipment manufacturers in Australia, including Nissan and Toyota. Other important customer segments are mining companies, government departments, commercial fleet owners, 4WD tour operators and the Australian defence forces. ARP's competitors include other 4WD accessory manufacturers. Industry analysis The profits in an industry are a function of the maximum price that customers are willing to pay for the industry’s product or service. The average profitability of an industry is influenced by the ‘five forces’. (Palepu, Healy & Bernard et al, 2008) ARB Corporation limited is segmented into Motor Vehicle Accessories industry which is advancing rapidly on a worldwide basis. The growth of motor vehicle industry is directly related to the growth of vehicle accessories industry and automotive parts industry. It has shown that in the recent past, the growth rate of automobile accessories industry has been four times higher...
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...Boston Beer Company- Case Analysis You are the investment banker assigned with the task of setting the IPO price for Boston Beer Company (BBC). Prepare a research report to support your recommendation. As you prepare this report, you may find that you would like to have more field information than what the case offers you. However, the case contains critical information that gives you a reasonable basis to compute its valuation. In addition use the following information for 1995.1 Sales ($ millions) Redhook Pete’s BBC 25.89 59.17 151.31 EPS .75 .25 .40 Book value/share 7.70 4.33 3.00 Price 27.00 24.75 ? Also, use the following information for BBC for 1996. Make additional assumptions as necessary (and state any additional assumptions) to compute free cash flows for subsequent years: 1. The ratio of Net profit before taxes to sales is 12%. 2. Tax rate is 35% 3. For every dollar of increased sales BBC will increase working capital by 15% (or working capital will increase by $0.15 for every dollar of increased sales) 4. Capex is 2% of sales 5. Depreciation is 2% of sales 6. BBC’s beta is 1.2. Use BBC’s cost of equity as its WACC since its debt is a trivial part of its capital structure. 7. Analysts’ growth forecast for BBC and for the craft brewing segment in general is 30% per year over the next five years. Present the following: 1. Overview of the industry – competitive landscape, expected short-term and longterm industry growth, key players in the industry. Summarize the key...
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...requirements to continue business operations. 5. Sound asset base that can be used to raise debt as collateral . Overall Valuation Approach Since the leverage ratio for Congoleum will decrease over time as debt used to finance the purchase is repaid, we will use the APV approach rather than the WACC. APV Approach : Value of levered firm = Value of unlevered firm + PV of Int. Tax Shield 1. Assumptions & Approach A. Value of Unlevered Firm – i.e. value the company as if the company is all-equity financed. 1. Calculate cost of unlevered equity by de-leveraging the equity beta at 7% debt-to-capitalization ratio. Risk-free rate and market risk premium are given. (source: Exhibit 9) 2. Calculate the FCF to firm by using NOPLAT + Depreciation – Capex – net changes in WC (source: Exhibit 13) 3. Find sum of PV (FCF) for 1980-1984 4. Assume growth rate in FCF of 8%. This is a conservative estimate of the growth rate. (source: Inflation rate in 1987 was approximately 8%). 5. Find Terminal Value of FCF and then PV(Terminal Value of FCF) B. PV(ITS) 1. Calculate cost of debt using average of comparables with similar debt structure. Since Congoleum will have over 90% debt post-merger, gradually decreasing to xx% in 1984, we took the average yield for CCC bonds (source: in Exhibit 10) 2. Calculate ITS for 1980-1984 as interest expense x tax rate (source: Exhibit 13) 3. Find sum of PV(ITS) for 1980-1984....
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...2010 by Harvard Business School Mr. Wathen, the exclusive owner of California Plant Protection (CPP) has the opportunity, and most of all desire, to acquire one of the most recognizable brand names in the security guard industry, Pinkerton, for $100 million. Throughout the bidding process, he has faced skepticism from his board of directors as they consider the purchase to result in a overload for CPP’s corporate management. Can Mr. Wathen convince his board of directors that Pinkerton is worth the $100 million? If yes, how should Mr. Wathen finance the acquisition? Is he in any danger of being outbid by other players? We value Pinkerton under American Brands to $73.25 million, using a P/E multiple (Wackenhut) of 12.2 times Pinkerton’s NOPLAT in 1988 of $5.98 million. For Wathen however, including the possibility of any synergies created by a potential takeover, we reach a final value of $187.06 million, where synergy effects value is estimated to $19.4 million. However, in a pessimistic scenario the value of Pinkerton would be $141.51 million without any synergy effects. Taking the assumption of a 50/50 probability of either of the two scenarios might occur (in lack of better information); we reach an estimated value of $166.28 million. We recommend that Wathen bid the $100 million, by raising $75 million debt and $25 million equity. Wathen (CPP) should bid on Pinkerton, as our estimated value of a merger exceeds the cost. However, Wathen has insufficient solvency to finance...
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...Abstract This study addresses the differences between firms and the impact on valuations based on multiples. It broadly describes the need for relative valuation which is increasingly used in assessing individual business or corporations. On a theoretical level, it captures the advantages and shortcomings of multiples. It also describes why the multiples differ from one institution in one sector to another whilst addressing the factors that cause the anomalies. In addition it highlights what the value drivers are behind the multiples and the significant role they play in arriving at multiples. Alongside the paper also details how these value drivers are systematically aligned in producing results. It emphasizes largely on enterprise valuation, and the different methods used in Enterprise valuation, formulas and application. The basic conclusion is that multiples nearly always have broad dispersion, which is why valuations performed using multiples may be highly debatable. 1. Introduction Valuation is the process of determining the current worth of an asset or a company in the financial aspect. There are many techniques that can be used to determine value, some of which might be subjective and the others objective. Judging the contributions of a company's management would be more of a subjective valuation technique, while calculating intrinsic value based on future earnings would be an objective technique. However, this paper will exclusively focus on valuation with multiples...
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...Chapter 11 Efficient Capital Markets: Evidence 1. Roll’s critique (1977) is based on the assumption that capital markets are in equilibrium. What happens when the market is not in equilibrium? Suppose new information is revealed such that the market must adjust toward a new equilibrium which incorporates the news. Or suppose that a new security is introduced into the marketplace, as was the case of new issues studied in the Ibbotson (1975) paper. Given such a situation, the abnormal performance of an asset can be measured by the arbitrage profits available as its price is adjusted to a new market equilibrium. Before the disequilibrium situation as well as afterward, Roll’s critique applies and we cannot expect to observe any abnormal performance relative to an efficient index. However, the adjustment process itself can be used to detect abnormal performance relative to the market index prior to equilibrium. In this way, Ibbotson’s results can be interpreted either as 1) selection of an inefficient index, or 2) detection of abnormal performance during disequilibrium. 2. (a) The securities market can be efficient even though the market for information is not. All that is required for efficient securities markets is that prices fully reflect all available information. Should an individual—for example, a corporate insider—have monopoly access to valuable information, then the market cannot reflect the information because it is not publicly available. This is not a deficiency in...
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...Finance VII THE BATTLE FOR VALUE, 2004: FedEx Corp. vs. United Parcel Service, Inc. Executive Team Summary 1. Introduction a. Main facts of the case In the context of the U.S. & China agreement of liberalization of commercial cargo flights, determine which of the two companies has created more value and is in a better position to take the advantages of the new agreement. b. Most important Characteristics of the company studied in the case i. Industry: Air Delivery & Freight Services ii. Position in its industry & Main competitors 2. Answer the Questions presented at the end of the 1st session and reviewed and answered in the second session. * How have FedEx and UPS performed financially? How do we measure its financial performance? Financial performance measures that can be obtained from a firm’s financial statements consist of absolute data and financial ratios. Absolute measures such as income, net assets and equity, reveal trends and allow a company to be compared to its performance over time, while financial ratios, including return-on-assets and current ratio, adjust for scale and allow for comparisons of different-sized companies. Financial ratios are ideal to compare FedEx and UPS, since UPS has $13.5 billion more in assets and $11 billion more in revenues than FedEx. Please see Table 2 for a comparison of the most common and widely used financial ratios. UPS is outperforming FedEx in liquidity, solvency...
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