Generally Accepted Accounting Principles and Carlton
The Carlton Polish Company
Duisenberg School of Finance
04-03-2013
1. Comparable
Economic Laboratory (EL) is like Carlton a leading manufacturer in chemical supplies. However this company is much bigger, internationally operating and directly supplying to end-users, mainly institutions. The product range being offered is most in line with the products offered by Carlton Polish. Another comparison is the compounded growth rate of sales: EL has a growth rate of 13% and Carlton of 14.59%. To further add on that, the working capital turnover rates are quite similar. Nonetheless of some small differences, EL would be a good comparable. (See appendix, exhibit 1.1 and 1.2)
Crompton & Knowles (CK) has a broader product range than Carlton. Next to that the company also manufactures plastic and rubber extrusions machines that tend to be more cyclical than the other products. On top of that, the compounded growth rate of CK’s sales is negative (-3.9%), and the return on assets is substantially lower. This makes CK a weaker comparable for Carlton.
NHC Corporation has a broader product range than Carlton, because it also provides welding supplies and replacements parts for electricity and plumping. However the company is also growing fast and has a similar return on sales. NHC is not a strong comparable, since the product differences seem to be too large.
Oakite Products is also a producer of chemical supplies, but provides these products as an integral part of the manufacturing process and also engages in contract cleaning. Their product range therefore differs with respect to the contract cleaning. But looking at the return on assets and sales, this company also seems to be a rather good comparable.
For the valuations the weighted average of the betas of Oakite and Economics Laboratory are therefore used for the cost of equity. Economics Laboratory is a better comparable for the reasons mentioned above, and will just be weighted more heavily than Oakite.
Duisenberg School of Finance
04-03-2013
1. Comparable
Economic Laboratory (EL) is like Carlton a leading manufacturer in chemical supplies. However this company is much bigger, internationally operating and directly supplying to end-users, mainly institutions. The product range being offered is most in line with the products offered by Carlton Polish. Another comparison is the compounded growth rate of sales: EL has a growth rate of 13% and Carlton of 14.59%. To further add on that, the working capital turnover rates are quite similar. Nonetheless of some small differences, EL would be a good comparable. (See appendix, exhibit 1.1 and 1.2)
Crompton & Knowles (CK) has a broader product range than Carlton. Next to that the company also manufactures plastic and rubber extrusions machines that tend to be more cyclical than the other products. On top of that, the compounded growth rate of CK’s sales is negative (-3.9%), and the return on assets is substantially lower. This makes CK a weaker comparable for Carlton.
NHC Corporation has a broader product range than Carlton, because it also provides welding supplies and replacements parts for electricity and plumping. However the company is also growing fast and has a similar return on sales. NHC is not a strong comparable, since the product differences seem to be too large.
Oakite Products is also a producer of chemical supplies, but provides these products as an integral part of the manufacturing process and also engages in contract cleaning. Their product range therefore differs with respect to the contract cleaning. But looking at the return on assets and sales, this company also seems to be a rather good comparable.
For the valuations the weighted average of the betas of Oakite and Economics Laboratory are therefore used for the cost of equity. Economics Laboratory is a better comparable for the reasons mentioned above, and will just be weighted more heavily than Oakite.