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Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
This map was prepared by an editor at HBS Publishing, not by a teaching professor. Faculty at Harvard
Business School were not involved in analyzing the textbook or selecting the cases and articles.
Every case map provides only a partial list of relevant items from HBS Publishing. To search for
alternatives, or to get more information on the cases listed below, visit our web site at
www.hbsp.harvard.edu.
Chapter 1: Overview of
Financial Management
Abstract
N/A
Chapter 2: Sizing Up a
Business: A Non-Financial
Perspective Abstract
Apple Inc. in 2012 David B. Yoffie, Penelope Rossano Teaching Note Revision Date: Aug 14, 2012 Publication Date: May 15, 2012 Discipline: Strategy Source: HBS Premier Case Collection Product number: 712490-PDF-ENG Length: 30p
On October 5, 2011, Steve Jobs tragically died of cancer. The recently
retired CEO of Apple Inc. was a legend: he had changed Apple from a
company near bankruptcy to one of the largest and most profitable
companies in the world. Moreover, he had revolutionized several
industries in the process, including music, phones, and computer
tablets. This case explores Steve Jobs' successes and the challenges
facing his successor, Tim Cook. Could Cook continue to revitalize the
Macintosh? With iPod sales declining for four straight years, would
Cook be able to continue the iPhone's dominance of smartphones in
the face of growing competition from companies such as Google and
Samsung? Would Apple's newest creation, the iPad, continue to
dominate the tablet market, or would the new competitors, ranging
from Amazon to Samsung, steal, share and drive down profits? And
could Apple thrive with Tim Cook rather than Steve Jobs at the helm?
Learning Objectives: To teach industry analysis, competitive
positioning, and sustaining competitive advantage.
Philips versus Matsushita: The Competitive Battle Continues Christopher A. Bartlett Teaching Note Publication Date: Dec 11, 2009 Discipline: Strategy Source: HBS Premier Case Collection Product number: 910410-PDF-ENG Length: 20p
Describes the development of the global strategies and organizations
of two major competitors in the consumer electronics industry. Over
four decades, both companies adapt their strategic intent and
organizational capability to match and counter the competitive
advantage of the other. The case shows how each is faced to
restructure as its competitive advantage erodes.
Learning Objectives: To illustrate how competitive strategy depends
on a company's organizational capability, which is often deeply
embedded in a company's administrative heritage. Shows the limits of
both the "global" and the "multinational" models.
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
Starbucks: A Story of Growth Craig Garthwaite, Meghan Busse, Jennifer Brown, Greg Merkley
Teaching Note Revision Date: Oct 03, 2012 Publication Date: Jul 13, 2012 Discipline: Strategy Source: Kellogg School of Management Product number: KEL665-PDF-ENG Length: 20p
Founded in 1971 and acquired by CEO Howard Schultz in 1987,
Starbucks was an American success story. In forty years it grew from a
single-location coffee roaster in Seattle, Washington to a multibillion-
dollar global enterprise that operated more than 17,000 retail coffee
shops in fifty countries and sold coffee beans, instant coffee, tea, and
ready-to-drink beverages in tens of thousands of grocery and mass
merchandise stores. However, as Starbucks moved into new market
contexts as part of its aggressive growth strategy, the assets and
activities central to its competitive advantage in its retail coffee shops
were altered or weakened, which made it more vulnerable to
competitive threats from both higher and lower quality entrants. The
company also had to make decisions on vertical integration related to
its expansion into consumer packaged goods.
Learning Objectives: Understand how strategy needs to be adapted
to new contexts. Understand how to manage tradeoffs involved in
growth. Be able to identify possible threats to competitive advantage
as a result of growth.
Chapter 3: Understanding Financial Statements Abstract
North Mountain Nursery, Inc.: Statement of Cash Flow Luann J. Lynch Teaching Note Publication Date: Jun 12, 2007 Discipline: Finance Source: Darden School of Business Product number: UV0806-PDF-ENG Length: 4p
After interviewing for the position of chief financial officer at a small
business, North Mountain Nursery, John Powers decides to look at its
financial statements for 2006. Discovering that there is no statement of
cash flow, he decides to create one himself.
Learning Objectives: This case is designed for an introductory
financial accounting course. It is intended to give students exposure to
the statement of cash flow, to provide an opportunity to discuss the
intuition behind the creation of the statement, and to provide them with
an opportunity to create a simple statement of cash flow from an
income statement and balance sheet. This case may be used as a
stand-alone case. However, it is particularly effective as the first case
in a two-day discussion of the statement of cash flow. On the first day,
the North Mountain Nursery case might be used to illustrate the
conceptual framework underlying the preparation of the cash flow
statement. If used for this purpose, the instructor could assign "The
Conceptual Framework Underlying the Preparation of the Statement of
Cash Flow" for students to read in conjunction with preparing the case.
Then, on the second day, a more complicated statement of cash flow
assignment in which students prepare a more difficult statement of
cash flow and analyze the statement more fully, in conjunction with the
other financial statements, to draw conclusions about the company's
financial health, would be appropriate.
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
The Case of the Unidentified Industries-2013 Mihir A. Desai, William E. Fruhan, Elizabeth A. Meyer Teaching Note Publication Date: Sep 13, 2013 Discipline: Finance Source: Harvard Business School Product number: 214028-PDF-ENG Length: 3p
Helps students to understand how the characteristics of a business are
reflected in its financial statements. This case consists of an exercise
in which students are given balance sheet data in percentage form and
other selected financial data for companies in 14 industries. The
specific task assigned to the student is to use the balance sheet data
along with their basic knowledge of the operating conditions and
characteristics of these 14 industries to match each industry to the
correct data.
Learning Objectives: 1. Familiarizes students with the components of
balance sheets as well as typical financial ratios. 2. Pairing of industry
names and profiles of financial data helps students draw tentative
inferences of patterns of operations and assets structures in different
industries.
Urban Water Partners (A) Karthik Ramanna, George Serafeim, Aldo Sesia Teaching Note Revision Date: Jan 28, 2013 Publication Date: Aug 13, 2010 Discipline: Accounting Source: Harvard Business School Product number: 111016-PDF-ENG Length: 11p
The case explores a new business venture to bring clean water to
residents of Dar es Salaam, Tanzania, who otherwise cannot afford it.
Management has enough money to get the company through August
2010 but needs more capital thereafter. An HBS alumnus is interested
in investing in the company. Management needs to revisit its financial
assumptions; decide on an incentive structure for its proposed network
of local water vendors; and put together a pro-forma income statement,
cashflow statement, and balance sheet in anticipation of meeting with
the investor.
Learning Objectives: Introduction to performance measurement,
accrual accounting, and the three principal financial statements.
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
Chapter 4: Measuring Financial Performance Abstract
Textron Corporation--Benchmarking Performance Graeme Rankine Teaching Note Publication Date: Sep 09, 2008 Discipline: Finance Source: Thunderbird School of Global Management Product number: TB0043-PDF-ENG Length: 15p
This is a Thunderbird Case Study. Anna Amphlett, a financial analyst at Textron Corporation, has been
asked by the controller to benchmark the company's recent financial
performance against competitors in the aerospace and defense
industry. Top management plans to assess the performance of the
company's supply chain and its future working capital requirements.
Textron experienced impressive stock price growth in the last five
years, but top management is particularly interested in understanding
the company's sizeable investments in net working capital over the
same period. In benchmarking Textron's performance, Amphlett must
also consider what to do about accounting method differences across
companies in the aerospace and defense industry, since they may
have a significant effect on the interpretation of differences in reported
performance.
Learning Objectives: The case provides an opportunity for students
to use financial statement information to assess Textron's financial
performance and benchmark the company's performance against
several other aerospace and defense companies. The case provides
sufficient information for students to make appropriate adjustments to
inventory and cost of sales data in order to make an "apples-to-apples"
comparison between the companies. This case has been used to
illustrate financial ratio analysis and the impact of inventory accounting
methods on reported financial measures.
Cavalier Hospital Michael J. Schill, Kenan Yount Teaching Note Publication Date: Jun 11, 2013 Discipline: Finance Source: Darden School of Business Product number: UV6677-PDF-ENG Length: 14p
"A midsize community hospital must choose a strategy to compete with
an expanding regional rival. The strategy, focused on acquiring patient
volume, includes expanding investment into integrated care, setting the
reimbursement structure for revenue collection, and moving to a
capitation-based payment system. The case presents an evaluation of
revenue models to select that which best supports a given business
strategy. This case is designed to introduce a health care audience to
financial analysis. It provides a straightforward introduction to hospital
financial-statement ratio analysis and hospital operating statistics, so it
can also serve to introduce any audience with a business or medical
background to hospital finance."
Learning Objectives: "Motivate the concept of the financial health of
an organization, including the various systems associated with it (e.g.,
revenue generation, receivables collection, operations) Build an ability
to interpret financial ratios, including comparisons over time, across
comparable organizations, and with capital market rates Introduce
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
students to the DuPont decomposition approach to organizing financial
analysis Develop ability to use financial analysis to identify
organization concerns and develop strategies for improvement."
Strong Tie Ltd. Dan Thompson Teaching Note Publication Date: Feb 03, 2012 Discipline: Finance Source: Ivey Publishing Product number: W11712-PDF-ENG Length: 5p
The CEO received the draft 2008 financial statements for Strong Tie, a
manufacturer of structural connectors used in the building industry. He
began to question the company's performance when he compared
them to previous years. How were profits holding up given the intense
price competition in the industry? Were attempts to lower costs through
more automation paying off? Where the current problems in the U.S.
housing market going to continue to reduce demand for connectors?
How would lenders react to this poor performance? Was the
company's financing in danger? After discussing the matter extensively
with Strong Tie's CFO, it was decided that an outside consultant
should be hired to provide an independent analysis of the company's
recent performance and to provide suggestions for future action.
Learning Objectives: This case provides students who are taking
their first course in corporate finance with the opportunity to apply their
skills in financial statement analysis. Students not only calculate and
analyze an array of financial ratios, they also learn to use this
knowledge in plotting a strategic direction for a manufacturer of a low-
tech product facing increasingly intense international competition.
Loblaw Companies Limited: Analyzing an Annual Report 2012 Murray J. Bryant Teaching Note Revision Date: Apr 02, 2013 Publication Date: Apr 02, 2013 Discipline: Accounting Source: Ivey Publishing Product number: W13089-PDF-ENG Length: 4p
The systematic analysis of an annual report of a large Canadian public
company provides a framework and a set of skills and concepts to
determine whether it is worth investing in the company. The detailed
examination of the annual report includes an analysis of profitability -
including return on capital employed, return on equity, return on sales,
gross profit margin and asset turnover - and liquidity measures.
Learning Objectives: To help participants understand an annual
report of a large Canadian public company. To understand financial
analysis and reporting.
The Financial Cockpit: Three Levers and One Flight Plan Mark E. Haskins Teaching Note Publication Date: Jul 29, 2010 Discipline: Accounting Source: Darden School of Business Product number: UV5225-PDF-ENG Length: 5p
This case focuses on the use and interpretation of the DuPont model
financial ratios, in particular the following four: return on sales, asset
turnover, financial leverage, and return on equity. Students consider
how these ratios are used to assess a company's financial
performance for a single year, over time, and in comparison with other
companies within and outside the focal company's industry. They also
learn how these ratios provide insight into a company's business model
via the margins it is able to earn, the productivity with which it uses its
assets, and the company's aggressiveness (or lack thereof) in using
borrowed money to finance its operations. The case is rooted in the
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
basic premise that "ROE is the ratio most commonly used to analyze
profitability of a business" and it is "important to both current and
prospective shareholders." Furthermore, in the context of the DuPont
model, the case positions ROE as the product of the other three ratios
noted above. Thus, the protagonist in the case, Jill Keyes, has
gravitated to the DuPont model. The case ends with a set of questions
that Jill Keyes has left for her subsequent follow-up-these provide the
basic assignment for students.
Learning Objectives: Students benefit from this case by -obtaining
valuable insights from financial statements when various parts of those
statements are juxtaposed against each other to create financial ratios
-defining, calculating, interpreting, and evaluating the four classic
DuPont financial ratios -gaining the ability, in an explanatory mode, to
compare and contrast the values for these ratios across companies -
identifying the potential weaknesses latent in these four ratios -
acknowledging the array of other financial ratios potentially useful in
the financial analysis arena -becoming aware of the annual Fortune
500 listing of companies, which reports key parts of the DuPont model,
providing easy access for a reader to derive all four of the key DuPont
ratios emphasized in this case.
Chapter 5: Managing Day-To-Day Cash Flow Abstract
Ceres Gardening Company: Funding Growth in Organic Products John H. McArthur, Sunru Yong Teaching Note Publication Date: May 15, 2009 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4017-PDF-ENG Length: 10p
Ceres is a leading player in the growing organic gardening industry,
selling seeds, small plants, and related items. Their distribution
depends heavily on retail sales through independent nurseries and
garden centers. Because these small dealers are unable to finance
much inventory, Ceres has crafted its GetCeres program, which offers
steep discounts and vendor financing. Ceres hopes both to accelerate
its penetration into new retail accounts and to encourage dealers to
accept more inventory in anticipation of seasonal sales. A key focus of
the case is the relationship between marketing strategy and credit
policy. The case invites students to analyze a range of financial
information and to make financial projections; a student spreadsheet
(product 4019) is available free of charge.
Learning Objectives: Learning Objectives: 1. To guide students in
analyzing and interpreting financial statements. 2. To develop students'
skills in making financial projections. 3. To enable students to explore
the relationship between marketing policy and credit policy.
Jackson Automotive Systems William E. Fruhan, Wei Wang Teaching Note
Jackson Automotive Systems produces automotive parts for advanced
heating and air conditioning systems, engine cooling systems, fuel
injection and transfer systems, and various other engine parts and it
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
Publication Date: Aug 05, 2013 Discipline: Finance Source: HBS Brief Cases Product number: 914505-PDF-ENG Length: 6p
supplies them to the automotive industry primarily in Michigan. Like
many OEM suppliers for the automotive industry, Jackson cut back
production following the financial crisis in 2008. By 2013, the firm is
back to operating at capacity. The company experiences a bottleneck
in production of some key electronic components and, as a result, is
unable to repay its outstanding debt to the bank. In addition, the firm
delayed replacing equipment during the downturn and now must
replace aging equipment to avoid future production delays. The
president approaches the bank for an extension to repay a loan and for
an additional loan to cover the new equipment purchase. Before
meeting with the loan committee, the president must prepare a
presentation on the firm's financial position.
Learning Objectives: Prepare cash budgets and pro forma financial
statement to consolidate understanding of the fundamentals of
financial forecasting and the relationship between the 2 basic
forecasting techniques: cash budgeting and pro forma financial
statement analysis. Assess whether the lender should issue the loan to
a profitable firm that experiences a bottleneck problem in its
production. Practice critical evaluation of assumptions underlying
financial forecasts. Provide a preliminary analysis on corporate finance
topics such as the merits of stock repurchases and dividend payouts.
Guna Fibres, Ltd. Michael J. Schill, Robert F. Bruner, Thien T. Pham Teaching Note Publication Date: Feb 04, 2013 Discipline: Finance Source: Darden School of Business Product number: UV6600-PDF-ENG Length: 11p
"The chief executive of a small yarn-production company in India must
resolve an unexpected cash shortage. The task for the student is to
evaluate the causes of this shortage (using a completed "base-case"
forecast given in the case) and assess the usefulness of various
possible remedies suggested by managers. The company is unable to
liquidate a seasonal working-capital loan for the requisite 30 days each
year, a difficulty arising from two classic causes: secular growth of the
company and declining profitability. Possible remedies include
reducing inventory through more efficient transportation and
warehousing, reducing credit terms to customers, switching from
seasonal to level production, improving profitability, decreasing
dividends, and reducing sales growth."
Learning Objectives: • To explore a range of issues in working-capital
management, with a primary focus on accounts receivable and
inventory. The case illustrates how management choices about trade
credit, inventory policy, production policy (i.e., producing to order
versus producing to stock), and expense management influence the
financing needs of the firm. The case's financial forecast gives
students the opportunity to discuss the cash cycle of the firm. • To
extend students' skills in financial-statement modeling and analysis.
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
This case demonstrates the technique of forecasting with T-accounts,
which may be contrasted with percentage-of-sales forecasting
illustrated in other cases. • To illustrate some of the challenges in the
financial (and general) management of firms in developing countries.
These challenges include transportation and logistical problems, the
availability of credit to merchants and consumers, high real rates of
growth, tax practices of governments, and dramatic swings in demand
induced by local customs and holidays."
Bonne Chance James M. Sharpe, John O. Whitney Teaching Note Revision Date: Nov 30, 2012 Publication Date: Aug 03, 2012 Discipline: Entrepreneurship Source: Harvard Business School Product number: 813049-PDF-ENG Length: 11p
With a competitor nipping at his heels, his bank reluctantly covering his
recent overdraft, Jacob Zimmerman is considering expanding his
Midwestern retail jewelry business by bringing on the new Swatch
watch line to augment his high end Rolex offerings. Only 14 weeks
before year end, he is reviewing the timing of his cash flows and the
impact that various promotion options will have on his ability to place
the initial order for Swatch inventory and deal with this crisis. Jacob
Zimmermann has seen his revenues and profits declining for the last
three years after MegaRols entered his local market and has reduced
sales of his Rolex watch offerings in his Midwestern retail store. Bonne
Chance has been selected by Swatch to offer their line, which may be
an opportunity to revive sales during the upcoming Holiday season and
into 2011. The bank loan officer has covered the recent overdraft, but
she won't extend more credit. Already behind on some older invoices,
cash is very tight and in 30 days, Zimmerman has to come up with the
first payment for stocking the Swatch inventory. He has a number of
options to boost sales and liquidate inventory to cover his upcoming
purchases of non-Rolex inventory items. Each has an impact on his
cash flow and has to be carefully assessed against the reaction from
his long-time customers, Rolex and MegaRols.
Learning Objectives: Introduce weekly cash flow projections to aid
modeling the options and their impact on timing. Consider the
viewpoint of the bank officer as she attempts to limit the bank's risk.
Discuss the impact of extending payments to vendors on relations and
future purchases. Review the impact of P&L statements that are not
granular enough to show cash flow impact of decisions that have to be
made from week to week. Explore strategy alternatives when facing a
turnaround crisis. Evaluate the perceptions when actions are taken in
a turnaround. May be used as a basis for developing an integrated
balance sheet, income statement and direct cash flow statement.
Garry Halper Menswear Limited: A Loan Request for an Export Order
Garry Halper Menswear Limited (GHM) is a medium-sized
manufacturer of superior-quality men's suits and jackets that up to now
have largely been distributed in Canada. The firm has landed a very
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
James E. Hatch, Stephen R. Foerster, Steven Cox, Manpreet Hora Teaching Note Revision Date: Apr 30, 2013 Publication Date: May 01, 2013 Discipline: Finance Source: Ivey Publishing Product number: W13188-PDF-ENG Length: 17p
large order for men's suits with Sutton's in the United States. To meet
the order, the firm has decided to import partly completed suits from
China. The treasurer of GHM must assess the financing needs and
related risks that result from this large increase in sales. At the same
time, he believes that the company's present bank is timid in its
response to the firm's needs, and he would like to consider another
banking relationship.
Learning Objectives: This case is designed to take on the
perspective of the corporation, or the bank supplying funds to the
corporation, or both. From the standpoint of the corporation's chief
financial officer (CFO), the case introduces students to the financial
management implications for a firm that both imports and exports
goods. Discussion points in the case include identifying the amount
and duration of a firm's working capital needs, managing foreign
currency exposure, managing the risks of offshore purchasing and
selling, and structuring a working capital loan. From the standpoint of
the bank, students should assess the opportunities and risks presented
by a client that is importing and exporting.
Primo Benzina AG Graeme Rankine Teaching Note Publication Date: Sep 24, 2009 Discipline: Accounting Source: Thunderbird School of Global Management Product number: TB0013-PDF-ENG Length: 7p
This is a Thunderbird Case Study.
Primo Benzina AG was a retail chain of petrol stations offering petrol,
snacks, restaurant meals, and high-quality service in central Europe.
The company began operations with four outlets and sales of 2.4
million in 2006, and grew to 24 outlets and sales of 38.1 million in
2009. The company's rapid growth in revenues was accompanied by
declining profitability. Dresdner Bank reluctantly increased the
maximum amount available to the company to 12 million from 10
million. In early 2010, Otto Schroder, Chief Executive Officer, and
Annegret Heuermann, the company's chief financial officer, completed
a review of the company's financial situation. The company's
executives were unsure whether the new credit limit would permit the
company to implement its growth strategy, since the company now had
a limited amount of cash available to finance additional outlays for
working capital and capital expenditures.
Learning Objectives: Students will review the company's business
strategy; develop cash flow statements to assess the company's cash
flow generation; conduct an analysis of the company's recent
performance; develop proforma financial statements; and suggest
changes to the company's operating and financing policies that would
provide the company with a sustainable business. This case has been
used successfully in MBA programs to cover cash flow analysis,
working capital management, financial analysis, and proforma financial
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
statements, and in corporate custom programs with a focus on finance
and strategy.
Chapter 6: Projecting Financial Requirements and Managing Growth Abstract
Jones Electrical Distribution (Brief Case) Thomas R. Piper, Jeffrey DeVolder Teaching Note Publication Date: Apr 06, 2010 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4179-PDF-ENG Length: 6p
Subjects include: Financial Analysis, Forecasting, financing, bank
loans, loan evaluation, ration analysis, cash flow, and electrical supply
industry.
Jones Electrical Distribution is faced with a need for increased bank
financing due to its rapid sales growth. Students must determine the
reasons for the rising bank borrowing, estimate the amount of
borrowing needed and assess the attractiveness of the loan to the
bank. Allows students to practice ratio analysis, financial forecasting
and evaluating financing alternatives.
Learning Objectives: Highlight the difference between income
statement profit and cash flow profile and resulting capital
requirements. Understand the relationship between sustainable growth
rate, capital intensity and profitability. Practice in developing financial
projections under different profitability and net working capital
scenarios.
Cartwright Lumber Co. Thomas R. Piper Teaching Note Revision Date: Mar 29, 2004 Publication Date: Feb 12, 2004 Discipline: Finance Source: HBS Premier Case Collection Product number: 204126-PDF-ENG Length: 4p
The Cartwright Lumber Co. faces a need for increased bank financing
due to its rapid sales growth and low profitability. A rewritten version of
an earlier case.
Learning Objectives: Students must determine the reasons for the
rising bank borrowing, estimate the amount of borrowing needed, and
assess the attractiveness of the loan to the bank, to practice ratio
analysis, financial forecasting, and evaluation of financing alternatives.
Cambridge Space Systems plc Graeme Rankine Teaching Note Publication Date: Aug 22, 2008 Discipline: Accounting Source: Thunderbird School of Global Management Product number: TB0039-PDF-ENG Length: 12p
This is a Thunderbird Case Study.
Cambridge Space Systems plc, a small private company
headquartered in Cambridge, England, was engaged in the design and
manufacture of small rockets and space systems for commercial,
military, and civil customers. In September 2005, Cambridge
approached Equator Partners, a private equity firm, about a potential
buyout. Since Equator funded its acquisitions with large amounts of
debt, potential acquisitions needed excellent cash flow generation, and
modest levels of long-term debt. Andrew Amphlett, a recently hired
MBA from London Business School, had to analyze Cambridge to
determine whether Equator Partners should pursue a buyout of the
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
closely held firm.
Learning Objectives: This case provides financial statement
information for a U.K.-based designer and manufacturer of small
rockets and space systems. Students are asked to evaluate recent
operating and cash flow performance, assess the ability to service its
outstanding debt obligations due in one year; prepare a cash flow
statement, and consider how the company will handle the debt
repayment issue. The case has been used in the first financial
accounting course in the Thunderbird MBA program to discuss cash
flows, financing, and financial ratio analysis.
Double G Western Wear Paul Simko Teaching Note Publication Date: Oct 16, 2008 Discipline: Finance Source: Darden School of Business Product number: UV1029-PDF-ENG Length: 4p
Frustrated by not being able to find a pair of red cowboy boots in her
size, a Florida woman, who works as a bookkeeper, and her out-of-
work husband decide to open their own business. Although the store
manages to earn a small profit, early sales returns dampen the
couple's enthusiasm. Now they need to plan for the year ahead.
Students are given a balance sheet and income statement for 2006,
and are asked to prepare a forecasted balance sheet and income
statement for 2007.
Chapter 7: Time Value of Money Basics and Applications Abstract
Developing Financial Insights: Using a Future Value (FV) and a Present Value (PV) Approach Mark E. Haskins Teaching Note Publication Date: Jun 01, 2011 Discipline: Finance Source: Darden School of Business Product number: UV5137-PDF-ENG Length: 12p
This case has two aspects. First, it provides a tutorial on the basic
concepts associated with straightforward time-value-of-money
scenarios. The topics of future value (FV) and present value (PV) are
discussed and exemplified for both lump sum and recurring cash flow
situations. In this vein, the derivation and use of four useful time-value-
of-money reference tables are presented to highlight the underlying
logic, connections, and mechanics of determining FVs and PVs.
Second, this case provides students with several simple vignettes in
which they can apply the foregoing time-value-of-money insights and
techniques. The case can be effectively used in degree and nondegree
programs, and it requires no additional reading materials. It is well
suited for one 90-minute class period, and all or selected subsets of
the vignettes contained in it may be assigned. A Teaching Note is
available to registered faculty.
Replacing El Poderoso Fredrik Odegaard Teaching Note Publication Date: Nov 12, 2009 Discipline: Finance
A professor is considering buying a new car and is evaluating two
models, one with air conditioning and a comfort package, the other
with no extras. The two cars are relatively close in price but still above
his initial budget, and he is wondering how much he might be able to negotiate the price. A factor that complicates the matter is that the car
Case Map for
Stephen Foerster Financial Management – Concepts and Applications
(Pearson)
Source: Richard Ivey School of Business Foundation Product number: 909E25-PDF-ENG Length: 2p
with the comfort package has a lower interest rate. The professor
therefore needs to understand what the net present value of the
difference in the two payment plans is.
Learning Objectives: This case covers the following topics:
Amortization / payment plan of debt; Compound effect of interest; Time
value of money; Decision analysis; Building spreadsheet models.
Lyons Document Storage Corporation: Bond Math William J. Bruns Jr. Teaching Note Revision Date: Jun 21, 2010 Publication Date: Jan 19, 2009 Discipline: Accounting Source: Harvard Business Publishing Brief Cases Product number: 3215-PDF-ENG Length: 7p
In 2009 a recent MBA must analyze the possible refunding of bonds
issued in 2000 when interest rates were much higher. She must
consider the possible consequences of repurchasing company bonds
outstanding using cash that might be obtained by issuing new bonds at
a lower interest rate. Students need to carry out a quantitative assignment.
Learning Objectives: (1) To understand the nature of a bond contract
and to isolate the cash flows when the bond is issued, during each
investment period, and the point when the bond is finally retired. (2) To
understand the multiple impacts of changing interest rates on bonds.
(3) To understand key principles in calculating the value of any
financial security.
Chapter 8: Making Investment Decisions Abstract
Hansson Private Label, Inc.: Evaluating an Investment in Expansion Erik Stafford, Joel L. Heilprin, Jeffrey DeVolder Teaching Note Revision Date: Mar 01, 2010 Publication Date: Jun 04, 2009 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4021-PDF-ENG Length: 11p
A manufacturer of private-label personal care products must decide
whether to fund an unprecedented expansion of manufacturing
capacity. The decision prompts fundamental financial analysis of the
potential project, including development of cash flow projections and
net present value calculations. Students will be required to compute
net operating profit after tax, cash investment in working capital, and
ongoing capital expenditures for a proposed investment, and to
discount values to the present. The case also facilitates a systematic
consideration of the company's capital planning process.
Learning Objectives: (1) Introduce the standard financial tools for
assessing the attractiveness of a proposed capital investment, and to
give students practice in using those tools. (2) Provides opportunity to
discuss the complementing of discounted cash flow analysis with
industry analysis. (3) To examine issues surrounding capital planning
process, especially as it applies to a large investment.
Target Corporation Kenneth Eades, David Ding, Saul Yeaton Teaching Note Revision Date: Nov 19, 2010 Publication Date: Nov 17, 2008 Discipline: Finance
This case puts students in the role of Target Corporation's CFO as he
considers the pros and cons of a variety of capital-investment
proposals. The CFO is preparing his thoughts prior to a meeting of the
Capital Expenditure Committee (CEC) with other Target senior
executives to consider the merits of ten capital-project requests (CPR),
five of which were expected to require extra attention. Each CPR has a
Case Map for
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Source: Darden School of Business Product number: UV1057-PDF-ENG Length: 22p
"dashboard" that summarizes the critical inputs used to compute the
net present value (NPV) and internal rate of return (IRR) as well as
data about the type of investment (new store or remodel), market size,
location, customer-demographic information, as well as the sensitivity
of NPV and IRR to changes in various inputs. Students are tasked with
evaluating the CPRs by balancing corporate-growth objectives with the
economics of the projects.
Learning Objectives: To understand the capital-budgeting-decision
process for a large corporation; each should support the corporation's
business and financial objectives. The capital-investment decision is
important strategically because of the choice of where to spend the
funds. To review the use of NPV and IRR as decision metrics.
Although individual cash flows are not provided for the CPRs, the
dashboards give substantial sensitivity analysis for changes in the
value drivers of the projects, and therefore afford the opportunity for
students to review the principles of NPV and IRR calculations. To
understand the multidimensionality of a capital-investment decision. As
a major retailer, Target executives recognized the importance of brand
awareness to the success of the company, which makes the NPV only
part of the consideration for a capital-project request.
USEC Inc. Kenneth Eades, Lucas Doe, Ben Mackovjak Teaching Note Publication Date: Nov 05, 2008 Discipline: Finance Source: Darden School of Business Product number: UV1051-PDF-ENG Length: 11p
This case is designed to present students with the challenges of
formulating a discounted-cash-flow (DCF) analysis for a strategically
important capital-investment decision. Analytically, the problem is
representative of most corporate investment decisions, but it is
particularly interesting because of the massive size of the American
Centrifuge Project and the potential of the project to significantly affect
the stock price. Students must determine the relevant cash flows,
paying close attention to the treatment of input costs, selling prices,
timing of investment outlays, depreciation, and inflation. An important
input is the appropriate cost of uranium, which some students argue
should be included at book value, while others argue that market value
should be used. Although the primary objective of the case is to focus
on the estimation of cash flows, students are provided with a
straightforward set of inputs to estimate USEC's weighted average cost
of capital. The case is designed for students who are learning, or need
a refresher on, DCF analysis. Because of the basic issues covered, the
case works well with undergraduate, MBA, and executive-education
audiences. The case also affords the opportunity to explore a variety of
issues related to capital-investment analysis, including relevant costs,
incremental analysis, cost of capital, and sensitivity analysis. The case
is an excellent example of the value of a firm as the value of assets in
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place plus the net present value of future growth opportunities.
Learning Objectives: The basics of incremental-cash-flow analysis:
identifying the cash flows relevant to a capital-investment decision; The
construction of a side-by-side DCF analysis for a replacement
decision; An illustration that the value of a firm equals the value of
assets in place plus NPV (future growth opportunities); Calculation of
weighted average cost of capital; The importance of sensitivity analysis
to a capital-investment decision.
New Heritage Doll Company (Brief Case) Timothy A. Luehrman, Heide Abelli Teaching Note Publication Date: Sep 15, 2010 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4212-PDF-ENG Length: 9p
A manufacturer and retailer of specialty doll products must decide
which of two projects to fund. The decision requires the student to
compute cash flows for the 2 projects, discount values to the present
and compare and contrast different project performance measures.
Subjects Include: Cashflow Forecasting, Internal Rate of Return,
Corporate Finance, Capital Planning, Capital Budgeting, Net Present
Value, Project Valuation, Capital Rationing, Resource Allocation.
Learning Objectives: 1) Introduce the standard financial tools for
assessing the attractiveness of two proposed capital investments in a
toy manufacturer 2) Compare two project performance measures: NPV
and IRR.
Stryker Corp.: In-sourcing PCBs Timothy A. Luehrman Teaching Note Revision Date: Jan 16, 2009 Publication Date: May 25, 2007 Discipline: Finance Source: Harvard Business School Product number: 207121-PDF-ENG Length: 6p
Examines a proposed investment in the capability to manufacture
printed circuit boards (PCBs) in-house rather than buying them from
third-party contract manufacturers. Stryker Corporation's Instruments
business is considering the proposal in response to difficulties with
existing suppliers. Requires students to formulate and execute basic
quantitative capital budgeting analyses, specifically, to compute net
present value (NPV) internal rate of return (IRR) and payback period.
Learning Objectives: To be used as a basic project valuation
exercise.
Chapter 9: Overview of Capital Markets: Long-Term Financing Instruments Abstract
Wells Fargo Convertible Bonds Malcolm P. Baker, Liz Kind Teaching Note Publication Date: Mar 21, 2006 Discipline: Finance Source: Harvard Business School Product number: 206022-PDF-ENG Length: 20p
Howard Atkins, the chief financial officer of Wells Fargo, is considering
issuing $3 billion in convertible debt. With an investment-grade credit
rating, Wells Fargo is not the typical issuer of convertible securities, but
the market conditions in 2003 are unusual. Strong demand from both
convertible arbitrage hedge funds and income mutual funds appears to
create an opportunity for Wells Fargo to raise capital at a low cost.
Learning Objectives: To discuss the financing strategy of a large
financial institution that raises over $30 billion in new capital each year,
the influence of investor demand and market conditions on corporate
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financial policy, and the valuation and structure of a convertible
security from the perspective of outside investors and the firm.
Corning: Convertible Preferred Stock Malcolm P. Baker, James Quinn Teaching Note Revision Date: Nov 07, 2006 Publication Date: Dec 01, 2005 Discipline: Finance Source: Harvard Business School Product number: 206018-PDF-ENG Length: 15p
Corning, with large investments in fiber optic technology, was hit
particularly hard by the collapse of the telecommunications industry in
2001. With over $4 billion in debt, the firm's survival appears to rest on
raising additional equity capital. James Flaws, the chief financial
officer, is considering raising $500 million with an issue of mandatory
convertible preferred stock. Learning Objectives: To discuss the
costs of financial distress, the use of convertible securities, the
influence of investor demand and market conditions on corporate
financial policy, and the valuation of contingent claims.
Prada: To IPO or Not to IPO: That Is the Question Stephen Sapp Teaching Note Publication Date: Aug 17, 2012 Discipline: Finance Source: Ivey Publishing Product number: W12153-PDF-ENG Length: 19p
Prada currently requires a significant amount of capital both to re-
finance debt that is maturing in the next six to twelve months and to
finance its intended growth into the Asian (especially Chinese)
markets. Since financial markets are aware of Prada's pressing need
to raise capital, it is important for the board of directors to develop a
credible strategy for raising the necessary capital of at least €1 billion.
Although the press has been suggesting that Prada will do an initial
public offering, the company has tried this several times in the past
with no success, mainly because of bad timing (9/11, the SARS
outbreak, and the ongoing global financial crisis and European
sovereign debt crisis). The board has approached Guido Santini of the
investment bank Grupo Capo Milano to come up with a number of
credible alternatives and a strategy for raising the needed capital.
Learning Objectives: This case is designed to provide students with
an opportunity to evaluate some of the wide variety of financing tools
available to firms in global financial markets. The case deals with
Prada's pressing need to raise a significant amount of capital. Although
it is widely speculated that Prada will raise capital through an IPO, the
fact that this is not the first time an IPO has been planned leaves the
discussion of the pros and cons of the different alternatives open. The
case takes the position of investment banker Guido Santini, who is
tasked with coming up with multiple alternatives to propose to the
board. He cannot just propose one alternative given Prada's past
experiences with raising capital, so he needs to rank several
alternatives. The case provides ample background on different debt
and equity options in Europe, North America, and Asia.
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Winfield Refuse Management, Inc.: Raising Debt vs. Equity W. Carl Kester, Sunru Yong Teaching Note Publication Date: Oct 22, 2012 Discipline: Finance Source: HBS Brief Cases Product number: 913530-PDF-ENG Length: 6p
A small, publicly traded company specializing in non-hazardous waste
management considers a major acquisition in the Midwestern U.S. The
acquisition can provide entry into the region, help the firm compete in a
competitive industry, and improve its cost position. The company has a
long-standing policy to avoid long term debt and until now has made a
series of small acquisitions using only internal financing. The chief
financial officer wants the board of directors to reconsider the policy
and suggests funding the acquisition through a bond issue. Several
company directors disagree and prefer that the firm issue common
stock. Students must analyze the costs of issuing either a bond or
common stock before making a final recommendation for financing the
acquisition.
Learning Objectives: Understand key characteristics of debt,
common stock, and preferred stock. Discuss analytic concepts such as
dilution, leverage, and debt capacity. Identify the factors relevant to
different types of securities in financing long-term expansion. Interpret
an EBIT chart to make financing decisions.
Convertible Bonds of Countrywide Financial Corporation Ravi Jagannathan, Zhi Da Teaching Note Publication Date: Jan 01, 2007 Discipline: Finance Source: Kellogg School of Management Product number: KEL323-PDF-ENG Length: 11p
On October 22, 2004, junior trader Mary Lucas was browsing through
the recent trading activities of a few convertible bonds the firm held.
First Convergence Inc. was a hedge fund specializing in convertible
arbitrage founded by three Wall Street traders in 2002. Prior to starting
at the firm, she had known little about convertible bonds. Now she
stayed late almost every day in order to learn as much about the
business as possible. Suddenly, she noticed something unusual about
the trading of a convertible bond issued by Countrywide Financial
Corporation (NYSE:CFC). Although the average daily trading volume
on this bond had been only three thousand during the previous month,
it had shot up to fifty thousand in the last three days. Lucas
remembered this particular bond. In fact, First Convergence was
actually holding a slightly different convertible bond (known as the
liquid yield option note or LYON) issued by the same company. On
August 20, Countrywide had offered to exchange the new convertible
bond for the original LYON. First Convergence had accepted the
exchange offer, thus ending up with the new convertible bond. At that
time, Lucas was asked to help evaluate the offer, so she was familiar
with the features of both bonds. "What's happening?" she asked
herself. She quickly checked the recent price movement on
Countrywide's stock. The stock had plunged 11.5 percent on
Wednesday, October 20, after the company announced earnings
below analysts' expectations. On the same day, trading on the
convertible shot up. These two events must be related. But how? Is
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there a potential investment opportunity?
Learning Objectives: Understanding various features of a convertible
bond; identifying and exploiting an arbitrage opportunity
Chapter 10: Assessing the Cost of Capital: What Investors Require Abstract
Flash Memory, Inc. (Brief Case) William E. Fruhan, Craig Stephenson Teaching Note Publication Date: Aug 20, 2010 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4230-PDF-ENG Length: 9p
The CFO of Flash Memory, Inc. prepares the company's investing and
financing plans for the next three years. Flash Memory is a small firm
that specializes in the design and manufacture of solid state drives
(SSDs) and memory modules for the computer and electronics
industries. The company invests aggressively in research and
development of new products to stay ahead of the competition.
Increased working capital requirements force the CFO to consider
alternatives for additional financing. In addition, he must also consider
an investment opportunity in a new product line that has the potential
to be extremely profitable. Students must prepare financial forecasts,
calculate the weighted average cost of capital (WACC), estimate cash
flows, and evaluate financing alternatives. This case is especially
recommended as a final exam case for a standard MBA-level course in
corporate finance.
Subjects Include: Capital Budgeting, Cash Flows, Financial
Forecasting, Long Term Financing, Net Present Value (NPV), and
Weighted Average Cost of Capital (WACC)
Learning Objectives: Integrate skills and tools for financial
management. Calculate weighted average cost of capital. Evaluate net
present value and create financial forecasts for an investment
proposal. Analyze and choose among financing alternatives.
Midland Energy Resources, Inc.: Cost of Capital (Brief Case) Timothy A. Luehrman, Joel L. Heilprin Teaching Note Publication Date: Jun 19, 2009 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4129-PDF-ENG Length: 12p
Finance, Capital Asset Pricing Model (CAPM), Weighted Average Cost
of Capital (WACC), Capital Structure, Risk Assessment, Corporate
Finance, Cash Flow, Valuation, Beta, North America, Energy, Oil and
Gas, Cost of Capital, Cost of Equity, Discount Rate, Risk Premium,
Market Risk Premium, Discounted Cash Flow (DCF) The senior vice
president of project finance for a global oil and gas company must
determine the weighted average cost of capital for the company as a
whole and each of its divisions as part of the annual capital budgeting
process. The case uses comparable companies to estimate asset
betas for each operating division, and employs the Capital Asset
Pricing Model to determine the cost of equity. Students are required to
un-lever and re-lever betas and, choose an appropriate risk-free rate,
and compute costs of debt and equity.
Learning Objectives: (1) Familiarize students with WACC and CAPM
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and associated data and formulas. (2) Consider single vs multiple
hurdle rates. (3) Explore the effects of leverage on WACC.
Encana Corporation: The Cost of Capital James E. Hatch, Larry Wynant, Ken Mark Teaching Note Revision Date: Jun 18, 2010 Publication Date: Apr 02, 2007 Discipline: Finance Source: Richard Ivey School of Business Foundation Product number: 907N02-PDF-ENG Length: 7p
Two managers attending a week-long executive education course are
working on an assignment which requires them to estimate the cost of
capital for EnCana Corporation, a leading North American oil and gas
producer. The two managers disagree about which costs need to be
taken into account to complete the assignment. They are not sure
about the costs of different sources of capital, the overall cost of capital
and the appropriate use of the hurdle rate.
Learning Objectives: The purpose of this case is to provide an
opportunity for the students to learn: 1. the theory underlying the
concept of the cost of capital; 2. the nature and estimation of the risk
premium; 3. how to estimate the cost of capital for various sources of
funding; 4. the factors determining the weights to be employed in
computing the cost of capital, and 5. how the cost of capital might be
used in investment decisions.
Chapter 11: Understanding Financing and Payout Decisions Abstract
Dividend Policy at Linear Technology Malcolm P. Baker, Alison Berkley Wagonfeld Teaching Note Revision Date: Feb 11, 2004 Publication Date: Oct 28, 2003 Discipline: Finance Source: HBS Premier Case Collection Product number: 204066-PDF-ENG Length: 18p
In 1992, Linear Technology, a designer and manufacturer of analog
semiconductors, initiated a dividend. The firm increased its dividend by
approximately $0.01 per share each year thereafter. In fiscal year
2002, Linear experienced its first significant drop in sales since its
1986 initial public offering. Sales dropped by 47%, and profits fell by
54%. In the spring of 2003, CFO Paul Coghlan is deciding whether to
recommend yet another increase in dividends to lift Linear's payout
ratio to 33.1%, high by the standards of technology firms.
Learning Objectives: To provide an introduction to payout policy and
Modigliani and Miller's dividend irrelevance proof. The particular setting
allows students to consider why profitable technology firms, like Cisco
Systems, Microsoft, and Intel, used no debt, retained large cash
balances, and preferred to return cash to shareholders in the form of
repurchases rather than dividends; how the tax and market
environment for dividends has changed over time; and the impact of
the proposed dividend tax reforms and market environment of 2003 on
future payout policy.
California Pizza Kitchen Michael J. Schill, Elizabeth Shumadine Teaching Note Publication Date: Sep 02, 2008
This case examines the question of financial leverage at California
Pizza Kitchen (CPK) in July 2007. With a highly profitable business
and an aversion to debt, CPK management is considering a debt-
financed stock buyback program. The case is intended to provide an
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Discipline: Finance Source: Darden School of Business Product number: UV1203-PDF-ENG Length: 17p
introduction to the Modigliani and Miller capital structure irrelevance
propositions and the concept of debt tax shields. With the background
of a pizza company, the case provides an engaging context to discuss
the "pizza graphs" that are commonly used in corporate finance
curriculum to illustrate the wealth effects of capital structure decisions.
Learning Objectives: The case serves to motivate the following
teaching objectives: 1. Introduce the Modigliani-Miller intuition of
capital structure irrelevance; 2. Establish how the cost of equity is
affected by capital structure decisions by defining financial risk and
introducing the levered-beta capital asset pricing model (CAPM)
equation; 3. Discuss interest tax deductibility and the valuation tax
shields; 4. Explore the importance of debt capacity in a growing
business
Chapter 12: Designing an Optimal Capital Structure Abstract
Blaine Kitchenware, Inc.: Capital Structure (Brief Case) Joel L. Heilprin, Timothy A. Luehrman Teaching Note Publication Date: Oct 08, 2009 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4040-PDF-ENG Length: 9p
Topics Include: Corporate Finance, Interest Tax Shields, Capital
Structure, Financial Strategy, Stock Repurchase and Kitchen Tools
A diversified mid-sized manufacturer of kitchen tools contemplates a
stock repurchase in response to an unsolicited takeover. The company
must determine the optimal debt capacity and capital structure, and
subsequently estimate the resulting change in firm value and stock
price. Attention is also given to the value of interest tax shields.
Learning Objectives: To help students understand optimal capital
structure, static tradeoff theory, and interest tax shields.
Debt Policy at UST, Inc. Mark Mitchell Teaching Note Revision Date: May 03, 2001 Publication Date: May 10, 2000 Discipline: Finance Source: HBS Premier Case Collection Product number: 200069-PDF-ENG Length: 14p
UST, Inc. is a very profitable smokeless tobacco firm with low debt
compared to other firms in the tobacco industry. The setting for the
case is UST's recent decision to substantially alter its debt policy by
borrowing $1 billion to finance its stock repurchase program.
Learning Objectives: To introduce to optimal capital structure, with
emphasis on calculation of interest tax shields.
Chapter 13: Measuring and Creating Value Abstract
Coca-Cola: Residual Income Valuation Exercise Suraj Srinivasan, Beiting Cheng, Edward J. Riedl
The exercise illustrates the use of the residual income (also known as
the abnormal earnings) valuation approach. Students are asked to
provide a valuation of Coca-Cola Company using the residual income
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Teaching Note Publication Date: Nov 14, 2012 Discipline: Accounting Source: Exercises Product number: 113056-PDF-ENG Length: 4p
valuation methodology and understand how it maps into the
discounted cash flow method. Students learn how forecasts of sales,
performance, dividends, and other valuation inputs feeds into a
valuation model. Students also learn the modified Dupont
decomposition technique and how to reclassify financial statements to
perform the modified Dupont analysis.
Learning Objectives: How to value large-cap companies using the
residual income method.
Dollar General Going Private Sharon Katz Teaching Note Revision Date: Jan 16, 2008 Publication Date: Aug 12, 2007 Discipline: Finance Source: Harvard Business School Product number: 108015-PDF-ENG Length: 28p
Intended to improve students' understanding and encourage their use
of financial statement analysis. The context is Dollar General
Corporation's acquisition by private equity sponsor KKR, which took
the company private in 2007. Although the proposed merger generated
a 30% premium over the stock price at the time, and the enterprise
value to EBITDA multiple was significantly higher than comparable
transaction multiples in the retail industry, some shareholders claimed
that the price was "grossly inadequate," making the decision whether
to approve the transaction a difficult one for shareholders generally.
Learning Objectives: To understand financial statement analysis.
Off-Balance Sheet Financing at Big 5 Sporting Goods Corporation Graeme Rankine Teaching Note Publication Date: Oct 09, 2012 Discipline: Accounting Source: Thunderbird School of Global Management Product number: TB0309-PDF-ENG Length: 17p
Katka Suvarinova, a financial analyst at Southern Cross LLC, and a
recent MBA graduate, has been asked to prepare an analysis of Big 5
Sporting Goods Corporation's recent financial performance, as well as
an analysis of its accounting methods. Big 5 was a West Coast chain
of sports equipment and apparel outlets, with 398 stores at the end of
2010. After Deutsche Bank's investment report maintained a hold
rating and established a new target price of $13 per share for Big 5,
Southern Cross decided to look at the company as a possible addition
to its shorts portfolio. The shorts fund included companies that
Southern Cross believed were headed for substantial stock price
declines based on fundamental analysis. Southern Cross's portfolio
manager had asked Suvarinova to pay close attention to the
company's accounting methods, and particularly indicators that the
company had significant off-balance sheet debt, which was not
uncommon in the retailing industry. Retail companies often leased
many of their stores, rather than buying the outlets with borrowed
funds. From her MBA program, Suvarinova recalled that under U.S.
Generally Accepted Accounting Principles (US GAAP) and
International Financial Reporting Standards (IFRS), some leases were
not reported as debt on a company's balance sheet.
Learning Objectives: 1. To understand how a company creates value
for its customers, its strategy for achieving this, and the implications for
the company's financial performance, 2. To analyze a company's
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growth, its ability to generate cash flows, and its financial performance,
3. To evaluate a company's accounting methods and their impact on a
company's financial performance, and specifically to evaluate the use
of off-balance debt arising from operating leases, 4. To value the
company's common equity securities.
Valuation of AirThread Connections Erik Stafford, Joel L. Heilprin Teaching Note Publication Date: Mar 01, 2011 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4263-PDF-ENG Length: 15p
This case can be used as a capstone valuation exercise for first-year
MBA students in an introductory finance course. A senior associate in
the business development group at American Cable Communications,
one of the largest cable companies in the U.S., must prepare a
preliminary valuation for acquiring AirThread Connections, a regional
cellular provider. The acquisition would give American Cable access to
wireless technology and the wireless spectrum and enable the
company to offer competitive service bundles including wireless,
currently a hole in the company's service offering. Students learn the
basic valuation concepts including DCF (discounted cash flow) using
APV (adjusted present value) and WACC (weighted average cost of
capital) and they must choose the appropriate approach for situations
in which the capital structure is changing or assumed to be constant.
Students must consider the effect of constant debt versus the D/V
(debt-to-value ratio) in estimating betas and the costs of capital. In
addition, students analyze the effects of non-operating assets on
valuation. As an additional assignment, instructors can require
students to consider the personal tax disadvantage of debt as well as
the synergies American Cable expects to achieve following the
acquisition.
Learning Objectives: Understand the differences between APV and
DCF models. Understand valuation methodologies based on capital
structure assumptions. Estimate the effect of capital structure changes
and assumptions in determining beta and the cost of capital. Forecast
cash flows. Forecast the value of tax shields. Consider the effect of
synergies, non-operating assets, and terminal value growth
assumptions on valuation.
Mercury Athletic: Valuing the Opportunity Timothy A. Luehrman, Joel L. Heilprin Teaching Note Revision Date: Jun 20, 2011 Publication Date: Sep 18, 2009 Discipline: Finance Source: Harvard Business Publishing Brief Cases
In January 2007, West Coast Fashions, Inc., a large designer and
marketer of branded apparel, announced a strategic reorganization
that would result in the divestiture of their wholly owned footwear
subsidiary, Mercury Athletic. John Liedtke, the head of business
development for Active Gear, a mid-sized athletic and casual footwear
company, saw the potential acquisition of Mercury as a unique
opportunity to roughly double the size of his business. The case uses
the potential acquisition of Mercury Athletic as a vehicle to teach
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Product number: 4050-PDF-ENG Length: 14p
students basic DCF (discounted cash flow) valuation using the
weighted average cost of capital (WACC).
Monmouth, Inc. (Brief Case) Thomas R. Piper, Heide Abelli Teaching Note Publication Date: Jul 31, 2010 Discipline: Finance Source: Harvard Business Publishing Brief Cases Product number: 4226-PDF-ENG Length: 10p
The management of Monmouth Inc. is considering whether to acquire
the Robertson Tool Company and the value and form that the
acquisition should take. Value can be assessed using a variety of
approaches including a DCF with WACC analysis, impact on EPS and
market multiples. The case also requires the student to consider how
the offer should be designed and implemented.
Subjects Include: Acquisition, DCF Analysis, Market Multiples Analysis,
Revenue Forecasting, Margin Improvement, Valuation, EPS Analysis,
Stock Offer, Weighted Average Cost of Capital, and Bidding Contest.
Learning Objectives: • Students are provided with the opportunity to
evaluate an acquisition both broadly in terms of strategic fit with the
acquiring company but also narrowly in terms of financial value of the
acquisition opportunity. • Students use a variety of methods for
assessing value including DCF analysis with WACC and determination
of a terminal value, market multiples and impact on EPS. • Students
are required to carefully consider cash flow forecasts and assess
achievability. • Finally, the case requires students to think about how
Monmouth's management should design and implement a successful
offer for Robertson Tool.
Sterling Household Products Company
William E. Fruhan, Craig Stephenson Teaching Note Publication Date: Apr 30, 2013 Discipline: Finance Source: HBS Brief Cases Product number: 913556-PDF-ENG Length: 12p
Sterling Household Products manufactures and markets a broad line of
consumer goods from laundry soap and cosmetics to cleaning,
disinfecting, and sanitizing products. The company has many highly
regarded brand names and consistently reports impressive sales and
profits to the investment community. Despite a record of success, a
deeper analysis of financial measures reveals that growth rates for unit
volumes, sales, and profits are low. Looking to expand into new
markets with strong growth potential, the company considers acquiring
the germicidal, sanitation, and antiseptic product unit from Montagne
Medical Instruments, a company in the health care industry. This
acquisition seems like a natural extension of Sterling's experience and
expertise in the market for household cleaning supplies. Both parties
reach a tentative agreement on price and Sterling considers whether
the proposed investment adds value given the risks involved. Students
must perform a comprehensive investment analysis and examine both
the qualitative and quantitative issues associated with evaluating a
strategic acquisition before making a final recommendation.
Learning Objectives: Illustrate a situation in which a company
acquires a product unit in a completely different industry. In such a
transaction, consider the appropriate risk and required rate of return
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and the cost of capital to be used to value the target. Present financial
information for several firms in the health care industry and identify
which companies are peers to the acquisition target. Estimate the
asset beta coefficient for the target and determine the appropriate risk-
adjusted discount rate. Calculate expected free cash flows from an
investment given pro forma income statement and balance sheet
information. Apply appropriate risk-adjusted cost of capital for a target
to expected cash free cash flow and determine the value of a proposed
acquisition.
Shurgard Self-Storage: Expansion to Europe (Abridged) Richard G. Hamermesh Teaching Note Publication Date: Feb 11, 2010 Discipline: Entrepreneurship Source: Harvard Business School Product number: 810102-PDF-ENG Length: 10p
This case is accompanied by a Video Short that can be shown in class
or included in a digital coursepack. Instructors should consider the
timing of making the video available to students, as it may reveal key
case details.
Shurgard, a U.S.-based firm that rents storage facilities to consumers
and small businesses, is considering financing options for rapid
expansion of its European operations. Five years after entering
Europe, Shurgard Europe has opened 17 facilities in Belgium, France,
and Sweden. Along the way, Shurgard has encountered skepticism
from both European consumers and investors about the unfamiliar self-
storage concept and internal debates on how much to adapt the U.S.
business model to European lifestyles. Wall Street analysts also do not
value the impact that the European expansion could have on
Shurgard's U.S. performance as a publicly traded Real Estate
Investment Trust (REIT). As an alternative, to finance this expansion,
Shurgard received a proposed deal from a consortium of banks and
other investors where they would provide private equity financing
spaced over the next few years plus a line of credit. In return, the
investors would receive a large share of Shurgard's equity and control
of its board, which could force a public offering in less than two years.
The decision focuses on whether Shurgard Europe should accept the
conditions and valuation of the proposed deal or seek another deal at a
later point in time. Students must assess whether the self-storage
business model can deliver the growth rate in Europe that the
company has promised his potential investors. Involves calculating
some basic estimates of the company's value from financial exhibits
(enterprise value using an EBITDA multiple). Main focus is to assess
this as an entrepreneurial venture. Students do not need to be familiar
with REITs.
Learning Objectives: To examine the global expansion of a U.S.
entrepreneurial venture.
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Chapter 14: Comprehensive Case Study: Wal-Mart Stores, Inc Abstract
Valuing Wal-Mart Stock Stephen R. Foerster Teaching Note Publication Date: Sep 23, 2009 Discipline: Finance Source: Richard Ivey School of Business Foundation Product number: 906N09-PDF-ENG Length: 14p
An investment advisor at a major brokerage is considering whether she
should recommend Wal-Mart stock to her clients who do not currently
have this stock in their portfolios. Students will be presented with basic
valuation concepts including the dividend discount model, price-
earnings model and applications of the capital asset pricing model.
Learning Objectives: This case achieves a number of objectives: 1)
Review of basic financial statements (income statement, balance
sheet, cash flow statement), 2) Financial statement analysis (financial
ratios and pro forma statements), 3) Introduction to the valuation of a
stock using the Dividend Discount Model (DDM), 4) Introduction to the
price-earnings (P/E) Multiple Model, 5) Application of the Capital Asset
Pricing Model (CAPM), 6) Introduction to the use and analysis of a
variety of data sources (such as Bloomberg, Value Line, EDGAR, and
annual reports).
