Mercury Athletic Footwear Case Study
Mercury Athletic Footwear Case Study
John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. Business did not do as expected, WCF was then eager to abandon its apparel. John Liedtke saw this as an opportunity to take over Mercury and as result increase its business revenue. In order to determine whether this is an essential business opportunity John needs to complete preliminary financial valuations to make a solid decision. Active Gear’s current income statements and balance sheets have made it evident that the firm has a lot of potential for growth when acquiring an additional company. After maintaining simple production and supply chains AGI avoided the worst of industry write-downs and missed profit opportunities (Luehrman, Helprin (2009). In comparison to other larger industry’s AGI has a strong operating margin. Even though AGI is a profitable firm it has a downfall that it is much smaller than many of its competitors and is slowly becoming a disadvantage. In order to foresee future growth AGI should take the necessary measures to incorporate Mercury Athletic Footwear. Similar to AGI, Mercury has potential room for growth despite its former acquisition with West Coast Fashions.
In order to determine Mercury’s future financial growth John should use financial forecasting. This is essential for budgeting as well as planning purposes. The most obvious involves using cash flow forecasts (Formula shown on Exhibit 1). Cash flow forecasts are used to predict account balances several years into the future and indicates what is expected to exist during a forecast period (Gabehart Valuation Services. (2003). In conducting a 5 year projection from 2006 to 2011 in both the income statement and balance sheets John can identify Mercury’s net worth and highlight what its
John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. Business did not do as expected, WCF was then eager to abandon its apparel. John Liedtke saw this as an opportunity to take over Mercury and as result increase its business revenue. In order to determine whether this is an essential business opportunity John needs to complete preliminary financial valuations to make a solid decision. Active Gear’s current income statements and balance sheets have made it evident that the firm has a lot of potential for growth when acquiring an additional company. After maintaining simple production and supply chains AGI avoided the worst of industry write-downs and missed profit opportunities (Luehrman, Helprin (2009). In comparison to other larger industry’s AGI has a strong operating margin. Even though AGI is a profitable firm it has a downfall that it is much smaller than many of its competitors and is slowly becoming a disadvantage. In order to foresee future growth AGI should take the necessary measures to incorporate Mercury Athletic Footwear. Similar to AGI, Mercury has potential room for growth despite its former acquisition with West Coast Fashions.
In order to determine Mercury’s future financial growth John should use financial forecasting. This is essential for budgeting as well as planning purposes. The most obvious involves using cash flow forecasts (Formula shown on Exhibit 1). Cash flow forecasts are used to predict account balances several years into the future and indicates what is expected to exist during a forecast period (Gabehart Valuation Services. (2003). In conducting a 5 year projection from 2006 to 2011 in both the income statement and balance sheets John can identify Mercury’s net worth and highlight what its
References: Gabehart Valuation Services (2003). Forecasting Considerations and Techniques. Retrieved from: http://www.business-valuation.biz/artForecastingCons.asp#top Olley, John (2006). Forecasting Financial Statements. Retrieved from: http://www.associatedcontent.com/article/91410/forecasting_financial_statements_pg3.html?cat Luehrman A. T., Helprin L. J. (2009). Mercury Athletic Footwear: Valuing the Opportunity. Harvard Business Publishing.