FCF Valuation
Q1 - Mark Cartwright is trying to sell his business. He asked you, as a GW MBA, to value the business for him, so he can decide how to price it.
You ran two scenarios of the forecast, then you ran the FCF VALUATION MODEL for each scenario, A & B above.
Reconcile the two scenarios by examining their inputs and outputs, and recommend to Mark how much you think his business is worth.
Include a justification based on your analysis and reconcilation of the two scenarios. HINT: How do Scenario A&B assumptions (inputs) differ?
MARKET MULTIPLES (COMPARABLES) VALUATION OF EQUITY
Q1
After you finished the FCF Valuation (previous tab), you learned of a business similar to Cartwright Lumber that was sold recently to a new owner.
The data for that sale, a peer company, are already entered for you, in the Q2 Market Multiples template, cells B4.B7.
Interpret that analysis, following the steps explained in chapter 6.
Explain the results of your Market Multiples analysis in the box provided.
Q2
Reconcile the FCF Valuation results with the Market Multiples Valuation results. HINT: Use Summary at row 24.
Q3
Instead of the FCF Valuation and the Market Multiples Valuation, is it valid to use a simple capitalization formula,
such as the #2 formula on page 97 of the Cohen Finance Workbook?
Calculate the value of Cartwright using that formula and discuss the implications.
Q1: ROE, ROA, ROIC are given for Cartwright Lumber and Apex Lumber.
Read the Cohen Finance Book chapters 1 & 2, concentrating on the how-to's of ratio analysis in chapter 2.
If you need it, chapter 1 acts as an accounting refresher.
1a: Why is Cartwright ROE higher than Apex ROE? Is it better? Why? Why not? Write answer in box.
1b: Why is Cartwright ROA lower than Apex ROA? What does it tell you about the two companies? Write answer in box.
1c: How do the Cartwright & Apex ROICs compare? What does this suggest about the two companies? Write answer in box.
Q2: FINANCIAL STATEMENT ANALYSIS WITH RATIOS
1a: Using the ratios below, appraise the trend (2001-03) of Cartwright's liquidity. Cite specific ratios to justify your analysis.
1b: Using the ratios below, appraise the trend (2001-03) of Cartwright's leverage. Cite specific ratios to justify your analysis.
1c: Using the ratios below, appraise the trend (2001-03) of Cartwright's asset use (efficiency). Cite specific ratios to justify your analysis.
1d: Using the ratios below, appraise the trend (2001-03) of Cartwright's profitability. Cite specific ratios to justify your analysis.
1e: Interpret the DuPont Formula ratios by explaining if its four ratios are a valid substitute for the ratios in Q1a-1d above. Cite specifics.
1f: Appraise Cartwright's 'business risk'.
1g: Appraise Cartwright's 'financial risk'.
1h: Based on Cartwright's 2001-03 performance, make a qualitiative summary judgment about it.
Q1a
Discuss how the interest expense (row 25) calculation works and whether or not it includes the
short term borrowing on the Cartwright balance sheet. HINT: What is the source of
the data used in the ratio on row 14?
Q1b
How much does Cartwright need to borrow and when? Explain by citing specifics from the forecast.
Q1c
Does Cartwright have the ability to pay the interest expense? Explain by citing specifics from the forecast.
Q1d
Does Cartwright have the ability to repay the loan principal? Explain by citing specifics from the forecast.
Q2a
Explain how the p 45 table from the Cohen Finance Workbook, shown above starting on row 47, works and its
significance to Cartwright's (and most other businesses too) external financing needs problem.
Q2b
Revise the short-form forecast model from Q1, using the 'input cells zeroed' model at the top of this tab.
As the banker, assume a lower growth rate in sales, and explain, showing specifics from the revised forecast,
how it helps Cartwright solve his external financing needed problem. Enter revised data in the blue cells, using your judgment.
Attachment:- Template.xlsx