value line case study
Case study: Value line publishing
According to the case, Lowe’s management said that the growth rate of next two years would be 18% to 19%. So I prefer to use this rate as the growth rate of the first two years. The growth rate of the first two years would be 18.5%. The growth rate from 2004 to 2006 is estimated by the number of new stores, sq. footage and the historical sales. The following exhibit will show this result.
1997
1998
1999
2000
2001
Number of stores
477
520
576
650
744
Sq. footage (M)
39.86
47.795
56.981
67.774
80.702
footage/stores
8.36%
9.19%
9.89%
10.43%
10.85%
9.70% sales 10136.89
12244.88
15905.6
18778.56
22111.11
sales/footage
254.3123
256.1959
279.1386
277.0762
273.9846
Increase in sales/footage
0.741%
8.955%
-0.739%
-1.116%
1.960%
2002
2003
2004
2005
2006
Number of stores
867
997
1137
1286
1444
Sq. footage (M)
84.11093
96.72272
110.3046
124.7597
140.0879
sales
23496.85
27549.7
32034.15
36942.37
42294.32
sales/footage
279.3555
284.8317
290.4152
296.1082
301.9128
increase in sales
17.25%
16.28%
15.32%
14.49%
The number 9.7% is the geometric mean of footage/stores from 1997 to 2001 and the number 1.960% is the average of increase in sales/footage. Although the growth rate of the whole industry is decreasing, as Lowe’s goes into metropolitan market, its market share will increase. As show in this exhibit, I choose 16.28%, 15.32% and 14.49% as the growth rate of 2004 to 2006. Because Lowe’s is going to get into metropolitan markets so the footage will increase. Using sales per footage is an objective indicator to estimate how the stores’ performance.
The following exhibit will show the forecast from 2002 to 2006.
2002
2003
2004
2005
2006
assumptions
growth rate
18.50%
18.50%
16.28%
15.32%
14.49%
Gross margin
29.37%
29.94%
30.52%
31.09%
31.67%
0.00575
Cash operating expenses/Sales
18.1%
18.2%
18.5%
According to the case, Lowe’s management said that the growth rate of next two years would be 18% to 19%. So I prefer to use this rate as the growth rate of the first two years. The growth rate of the first two years would be 18.5%. The growth rate from 2004 to 2006 is estimated by the number of new stores, sq. footage and the historical sales. The following exhibit will show this result.
1997
1998
1999
2000
2001
Number of stores
477
520
576
650
744
Sq. footage (M)
39.86
47.795
56.981
67.774
80.702
footage/stores
8.36%
9.19%
9.89%
10.43%
10.85%
9.70% sales 10136.89
12244.88
15905.6
18778.56
22111.11
sales/footage
254.3123
256.1959
279.1386
277.0762
273.9846
Increase in sales/footage
0.741%
8.955%
-0.739%
-1.116%
1.960%
2002
2003
2004
2005
2006
Number of stores
867
997
1137
1286
1444
Sq. footage (M)
84.11093
96.72272
110.3046
124.7597
140.0879
sales
23496.85
27549.7
32034.15
36942.37
42294.32
sales/footage
279.3555
284.8317
290.4152
296.1082
301.9128
increase in sales
17.25%
16.28%
15.32%
14.49%
The number 9.7% is the geometric mean of footage/stores from 1997 to 2001 and the number 1.960% is the average of increase in sales/footage. Although the growth rate of the whole industry is decreasing, as Lowe’s goes into metropolitan market, its market share will increase. As show in this exhibit, I choose 16.28%, 15.32% and 14.49% as the growth rate of 2004 to 2006. Because Lowe’s is going to get into metropolitan markets so the footage will increase. Using sales per footage is an objective indicator to estimate how the stores’ performance.
The following exhibit will show the forecast from 2002 to 2006.
2002
2003
2004
2005
2006
assumptions
growth rate
18.50%
18.50%
16.28%
15.32%
14.49%
Gross margin
29.37%
29.94%
30.52%
31.09%
31.67%
0.00575
Cash operating expenses/Sales
18.1%
18.2%
18.5%