Assessment of Financial Health

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Home Neighborhoods Making Of

Cases in Finance - Final Project Report
Friendly Cards, Inc. (1988)

Gary Cao
Noah N Flom
Robert Harris
Srini Pidikiti

May 1997 TABLE of CONTENTS

1 Assessment of Financial Health & Pro Forma Financial Statements
1.1 Review of History and Statement of Financial Health
1.1.1 Industry
1.1.2 Friendly Cards History
1.1.3 Friendly Financials
1.2 Review and Evaluation of Pro Forma Statements
1.3 Financial Policy / Covenants 2 Beaumont's Decisions
2.1 Envelope Machine Proposal
2.1.1 Evaluation
2.1.2 Financial Effect of Investment
2.1.3 Recommendation
2.2 Evaluation of West Coast (new equity offer)
2.2.1 Advantages
2.2.2 Disadvantages
2.3 Valuation of Creative Designs, Inc.
2.3.1 Capital Structure Argument
2.3.2 Weighted Average Cost of Capital Assumptions (WACC)
2.3.3 Cash Flows, Terminal Value, Equity Value Valuations
2.4 Pooling Implictions (Friendly + CD)
2.5 Friendly Cards Stock Valuation 3 Overall Assessment 4 Goals for the Financial Structure of Friendly Cards, Inc.
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PART 1. Assessment of Financial Health & Pro Formas 1.1 Review of History and Statement of Financial Health

Wendy Beaumont, president of Friendly Cards, Inc., has rapidly expanded her greeting card business through internal growth and acquisitions. Ms. Beaumont realizes that money is currently tight, however, she is adamant about future growth and has sought our opinion as to determine her best course of action. In presenting a decision we will first conduct an analysis of the industry, then give a short history of
Friendly Cards, Inc. (Friendly), and then examine Friendly's financial statements to determine the financial health of the company.

Industry Information The greeting card industry is dominated by three large companies,
(Hallmark, American Greetings, & Gibson), which are