Plagiarism report needs to be submitted along with the answers
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Case 6 Report Instructions
CASE 6: The Financial Detective, 2016
Case Introduction/Overview
This case presents the student with financial ratios for eight pairs of unidentified companies and asks them to mate the description of the company with the financial profile derived from the ratios. The primary objective of this case is to introduce students to financial ratio analysis—in particular, the range of ratios and the insights each one affords. This case presumes that students have already been introduced to the definitions of various financial ratios through other readings or lectures. Search the web if you need a refresher on ratios (there are many articles and tutorials on this topic).
The structured exploration of pairs of companies within an industry affords a number of important insights into strategy and financial performance. First, the economics of individual industries account for significant variations in financial ratios because of differences in technologies, product characteristics, or competitive structures. Second, financial performance results from managerial choices: within industries, the wide variation in financial ratios is often a result of the differences in corporate strategy in marketing, operations, and finance. For those reasons, this case is a good springboard into subsequent classes, which deal with the interaction of strategy and financial performance.
Case Report Instructions
The report for this case is a bit different from other assignments in the course. For this report, copy and paste the tables that begin on the next page into a Word file (or delete this page and replace with a cover page). For each industry, indicate by typing your letter choice in the second column which data column you think goes with each company description (note that the descriptions have been truncated; see the case for a full company description). For example, in the first table titled “Airline”, indicate in the “Associated Correct Data Column” box whether “A major airline that flies domestically and internationally …” is data column A or B in Exhibit 6.1. You can type the letter (A or B) in the column box (it should be centered, but if not, please center your answer choice).
Then, you must provide at LEAST (more preferred for an excellent report) three (3) reasons for your choices. Type these in the space provided (reasons should be several sentences and they must directly relate to the data in Exhibit 6.1. For example, if you think that an airline that operates both domestically and internationally … would have more Cash and ST Investments than an airline that operates primarily in the United States …, write this as a reason and clearly explain why you believe this to be a reason. Your reasons for your choices are as important (perhaps more so) than whether or not your choices are correct.
Airlines
Description (see case for extended details)
Associated Correct Data Column (A or B)
A major airline that flies both domestically and internationally …
Operates primarily in the United States …
Reasons:
1.
2.
3.
Beer
Description (see case for extended details)
Associated Correct Data Column (C or D)
A national brewer of mass-market consumer beers …
The largest craft brewer in the United States …
Reasons:
1.
2.
3.
Computers
Description (see case for extended details)
Associated Correct Data Column (E or F)
Sells high-performance computing systems (“supercomputers”) to …
Sells personal computers as well as handheld devices and software …
Reasons:
1.
2.
3.
Hospitality
Description (see case for extended details)
Associated Correct Data Column (G or H)
Operates hotels and residential complexes …
Owns and operates several chains of upscale, full-service …
Reasons:
1.
2.
3.
Newspapers
Description (see case for extended details)
Associated Correct Data Column (I or J)
Owns and operates two newspapers in the southwestern United States …
Renowned for its highly circulated newspaper offered both in …
Reasons:
1.
2.
3.
Pharmaceuticals
Description (see case for extended details)
Associated Correct Data Column (K or L)
A diversified company that sells both human pharmaceuticals …
Focuses on generic pharmaceuticals and medical devices …
Reasons:
1.
2.
3.
Power
Description (see case for extended details)
Associated Correct Data Column (M or N)
Focuses on solar power …
Owns large, mostly coal-powered electric-power-generation plants …
Reasons:
1.
2.
3.
Retail
Description (see case for extended details)
Associated Correct Data Column (O or P)
A leading e-commerce company that sells a broad range of products …
A leading retailer in apparel and fashion accessories for …
Reasons:
1.
2.
3.
Case 7 Report Instructions
CASE 7: Whole Foods Market: The Deutsche Bank Report
Case Introduction/Overview
This case examines the decisions of Deutsche Bank research analyst Karen Short in May 2014 while covering the stock of Whole Foods Market, the leading natural and organic food retailer. Having recently issued a “buy” recommendation for the stock backed by a strong financial forecast, Short must reevaluate her decision in the face of a lower-than-expected earnings announcement by Whole Foods management and an associated market price decline.
Students are invited to scrutinize the analyst’s financial forecast considering the developing industry dynamics and Whole Foods’ competitive position. The forecasting objective focuses on evaluating the appropriateness of Short’s current financial forecast by exposing students to the mechanics of financial statement modeling and sensitivity analysis. The valuation objective focuses on evaluating her buy recommendation using a discounted-cash-flow–or market-multiples–based valuation approach.
Case Report Instructions
This is a “Directly answer a set of questions” case report. For this case study, answer each of the following questions (as per the guidelines in “Learning with Cases and Writing Case Reports”).
The following questions concern issues related to financial forecasting:
1. How would you describe Whole Foods’ strategy?
2. Prepare a competitor analysis. How would you define Whole Foods’ industry? Who are Whole Foods’ competitors?
3. How attractive is Whole Foods’ current market position? Is it sustainable?
4. What do the financial ratios in Exhibit 4 tell you about the past operating performance of Whole Foods? How informative are the historical ratios for Whole Foods’ prospective performance?
5. Examine Exhibit 7 in detail. How important are each of the underlying financial assumptions in the ROA forecast? What assumptions (i.e., margins, asset turnover, growth) play the biggest role in driving the anticipated improvements in ROA?
6. Do you agree with the existing financial assumptions in the Deutsche Bank forecast? If so, why? If not, what adjustments would you make to the model?
The following questions concern issues related to valuation:
7. What evidence is there that Whole Foods has been successful? Do you anticipate that this success will continue?
8. The student spreadsheet for Whole Foods Market located on the student textbook website (file titled: “Case_07_Whole_Foods_Market_F1776X” extends the Exhibit 7 forecast for eight years. As a starting valuation, what do you believe the implied value of Whole Foods’ shares to be, based on this base-case forecast? For your discount rate, please use a market risk premium of 5.0%.
9. What is your assessment of the base-case forecast? Do you believe that it provides a fair representation of the financial prospects for Whole Foods? If not, what changes would you make?
10. What are the primary value drivers underlying the stock price of Whole Foods?
11. To date, Short’s research report recommends that Whole Foods is undervalued by the market and is a buy. In light of recent events, do you think she should continue to maintain that recommendation? Back up your analysis with a discounted cash flow valuation of Whole Foods that explicitly outlines the assumptions that are important to support your argument.
NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:
http://highered.mheducation.com/sites/1259277194/student_view0/index.html
This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.
Case 8 Report Instructions
CASE 8: Horniman Horticulture
Case Introduction/Overview
This case captures the problems concerning cash flow and working-capital management typical of small, growing businesses. At the end of 2015, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture, a $1-million-revenue woody-shrub nursery in central Virginia. While experiencing booming demand and improving margins, the Browns are puzzled by their plummeting cash balance. The case highlights the difference between cash flow and accounting profits, as well as the common negative effects of growth on cash flow. It also provides a forum for instilling appreciation for the relevance of free cash flow to business owners and managers, introducing financial-ratio analysis, developing the concept of the cash cycle and working-capital management, and motivating the use of financial models.
Case Report Instructions
This is a “Use a set of provided questions to prepare a formal case report” assignment. For this case study, you must write a professional report as per the guidelines in “Learning with Cases and Writing Case Reports.” You should create an action-oriented advisory report that presents concisely your analysis and recommendations. The questions below should help you analyze the case and identify the specific issue(s) raised. These are not questions that you should directly answer in your report; instead these questions are designed to help you frame your report with specific focus on the last question: “What is the problem?”
1. What is your assessment of the financial performance of Horniman Horticulture?
2. Do you agree with Maggie Brown’s accounts-payable policy?
3. What explains the erosion of the cash balance?
4. What do you expect the financial position of the business to be in 2016? Extend the financial statements through 2016, assuming that Bob Brown grows revenue by 30%. Note: To make the balance sheet balance, define cash as equal to (Curr. liab. + Net worth) – (Accounts receivable + Inventory + OCA + Net fixed assets).
5. What is going right with this business? What concerns you?
6. Where is the cash going?
7. Will strong business performance in 2016 improve the cash position?
8. Do you agree with Maggie Brown’s accounts-payable policy?
9. What are the alternatives for solving the business’s cash problem?
10. What is the problem?
NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:
http://highered.mheducation.com/sites/1259277194/student_view0/index.html
This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.
Case 11 Report Instructions
CASE 11: Roche Holding AG: Funding the Genentech Acquisition
Case Introduction/Overview
This case examines the decision by the Swiss pharmaceutical Roche Holding AG (Roche) to offer a record $42 billion bond in February 2009. In light of a pending acquisition of U.S. biotechnology leader, Genentech, Roche management planned to sell $32 billion in bonds at various maturities from 1 year to 30 years and in three different currencies (U.S. dollar, euro, and British pound). In a context of substantial uncertainty in both world financial markets and the value of the Genentech deal, students are introduced to the pricing of corporate bonds by being invited to price Roche’s bold global offering.
The case is designed to introduce the concept of a risk premium and to accomplish the following potential additional learning objectives:
· Motivate the concept of a risk premium and the notion of a cost of debt by exposing students to estimating default risk, credit ratings, and credit spreads
· Review yield curve principles and mechanics
· Practice bond math and credit market terminology
· Establish institutional detail for the public security offering process
· Introduce the risk-return paradigm in finance
Case Report Instructions
This is a “Directly answer a set of questions” case report. For this case study, answer each of the following questions (as per the guidelines in “Learning with Cases and Writing Case Reports”).
1. What is going on at Roche?
2. What are the business and financing risks associated with the acquisition of Genentech? Is this a good time to do the deal? Why or why not?
3. Do you believe the bond issuance will have an impact on Roche’s bond rating? Why or why not?
4. How do we assess the impact of the bond offering on Roche’s credit rating and default risk?
5. How do we estimate the risk premium associated with the estimated default risk?
6. What are the prevailing spreads for non-Roche bonds? Do you think these spreads are similar to investor’s required yield for the Roche bonds?
7. What is your specific recommendation for the coupon rate for the Roche 5-year, 10-year, and 30-year U.S. dollar bonds?
8. What would your coupon rate recommendation be for the 7-year bond in euro?
NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:
http://highered.mheducation.com/sites/1259277194/student_view0/index.html
This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.