Interco Case Study
Grade 9,0
Corporate Finance II
Interco
Advanced Valuation
Comments from teacher: In question 1, why do we use these equitation’s, explain and show then, i.e. ROE can go up with more leverage. More on comparables. In Q1 assumptions explained, that are then used in DCF. Max for question 1 and 2, two pages. Must power to put in Q3. Deduct tax in table 3. In DCF, show more how calculated and assumption missing about other income and corporate expenses. Table 6 to be fixed (already been done). Skip in DCF advantage and disadvantage. Do table 4 different, use Exhibit 11, value range, use median value and calculate enterprise value with multiples en deduct net debt 318,5 and get equity value. Explain better in main text footnote 12. . Use word „discount rate“, not „discount factor“
Date 04.03.2010
Assess Interco’s financial performance Interco’s overall financial performance for the period 1986 to 19881 is robust represented by rapid revenue growth and stable cash flows. Fiscal year 1988 was solid, net sales increased by 13,4% and the company had healthy operating margins. In the same period operating cash flow had a steady level of 9,6% of net sales. ROE increased to 11,6%, but was still below the target of 14-15%.
Table 1 - Operating ratios 1986 1987 1988 1Q ´88 Net sales Growth na 4,0% 13,4% -0,4% Operating income growth na 7,0% 10,3% 1,7% Operating cash flow growth na 7,2% 11,2% Operating income margin 7,7% 7,9% 7,7% Operating cash flow margin 9,5% 9,7% 9,6% ROE 9,4% 9,5% 11,6%
* 1Q growth is between relevant quarters in 1987 and 1988 Source: Exhibit 7
7,0%
When analysing Interco’s operating groups separately2, table 2 below, it is clear that the general retail and apparel businesses are struggling, not contributing to the financial performance, while the footwear and furniture businesses have been performing well.
Table 2 Apparel 1987 - 1988 operating ratios 1987 1988 Net sales growth -9,9% -0,5% Operating earnings growth -29,1% -57,2%
Corporate Finance II
Interco
Advanced Valuation
Comments from teacher: In question 1, why do we use these equitation’s, explain and show then, i.e. ROE can go up with more leverage. More on comparables. In Q1 assumptions explained, that are then used in DCF. Max for question 1 and 2, two pages. Must power to put in Q3. Deduct tax in table 3. In DCF, show more how calculated and assumption missing about other income and corporate expenses. Table 6 to be fixed (already been done). Skip in DCF advantage and disadvantage. Do table 4 different, use Exhibit 11, value range, use median value and calculate enterprise value with multiples en deduct net debt 318,5 and get equity value. Explain better in main text footnote 12. . Use word „discount rate“, not „discount factor“
Date 04.03.2010
Assess Interco’s financial performance Interco’s overall financial performance for the period 1986 to 19881 is robust represented by rapid revenue growth and stable cash flows. Fiscal year 1988 was solid, net sales increased by 13,4% and the company had healthy operating margins. In the same period operating cash flow had a steady level of 9,6% of net sales. ROE increased to 11,6%, but was still below the target of 14-15%.
Table 1 - Operating ratios 1986 1987 1988 1Q ´88 Net sales Growth na 4,0% 13,4% -0,4% Operating income growth na 7,0% 10,3% 1,7% Operating cash flow growth na 7,2% 11,2% Operating income margin 7,7% 7,9% 7,7% Operating cash flow margin 9,5% 9,7% 9,6% ROE 9,4% 9,5% 11,6%
* 1Q growth is between relevant quarters in 1987 and 1988 Source: Exhibit 7
7,0%
When analysing Interco’s operating groups separately2, table 2 below, it is clear that the general retail and apparel businesses are struggling, not contributing to the financial performance, while the footwear and furniture businesses have been performing well.
Table 2 Apparel 1987 - 1988 operating ratios 1987 1988 Net sales growth -9,9% -0,5% Operating earnings growth -29,1% -57,2%