The Setting: You are employed as a Financial Analyst for the private equity firm Celash, Byrne & Moovon. They are considering approaching either the management of Merck (MRK) Lilly (LLY) to discuss with management their possible interest in selling out to CB&M. You have been asked to do a comprehensive analysis and evaluation of both companies and make a recommendation as to which of the two is the most desirable acquisition and at what price. You report directly to Mr. Moovon (pronounced "move on"). He is not a patient person and has a low tolerance for waffling and indecision. You have less than two months to complete the task and he will expect frequent updates. You can also expect that he will interrupt you with other projects. (Welcome to the real world.)

c. Detailed Financial Statements for your companies are filed with the Securities and Exchange Commission and available on the company web sites.

d. The Value Line Investment Survey (available online from the Columbia College Library.

e. Your imagination and creativity.

you need to comes all of the various ratios to include at least six. These six are in addition to the formulas from week one.
What is Expected: A detailed comparison of the two companies using all of the relevant ratios and the calculations involved. The ratios should be accompanied by text explaining what each means and why they differ between the two companies. You will not get away with data for one year. Here is his minimum expectation of ratios to be analyzed and explained. In each case he wants to see five years of data. He doesn't want to hear you can't find five years of data. Mr. Moovon expects you to begin with the Balance Sheet.

1. Start with the Capital Accounts. How do they differ? How are they the same? Are they realistically presented? What are the Book Values, and what are the present Ratios of the stock Prices to Book Value.

2. Now look at the Fixed Assets (the Property Account). Do either of your companies show as Assets items that need explanation? What are they? How are they explained? You might have to go into the footnotes to the Financial Statement to find the answers.

3. Are the Non Current Assets material and how are they explained? Are there material Intangible Assets? (Chapter 8 in Graham) What would be material for companies as large as the ones you are working with?

4. Do your companies have Deferred Tax Accounts? How are they treating taxes?

5. Now let's look at the Current Assets. Are the companies maintaining adequate liquidity? Mr. Moovon is going to want to see the relevant ratios, so you had better calculate them and have them ready. (You will find most of them in Chapter 3 of the text.)

6. Liabilities. As Mr. Moovon always says, "You can't be sure about the Assets but the Liabilities are always real." Does either company have too much debt? If so, CB&M won't touch them. Can either company carry significantly more debt? How much more? CB&M always loads the companies it acquires with as much debt as they can carry. That's how they finance the deal.

7. Are there any hidden assets? Now move on to the Income Statement.

1. Are the companies as profitable as they should be? What ratios would tell us that? OK! Now calculate them. Let's see those Efficiency Ratios.

2. Now that you have calculated the ratios, what can CB&M do to make them more profitable? What do you suggest? Not all of the ratios will apply to all of the companies. As a double check let's run a DuPont Analysis on both companies. Mr. Moovon will be disappointed if you leave that out. Put a value on both companies. Calculate some varatios like Price/Book Value, Price/ Earnings Per Share luation (make sure you use fully diluted share numbers), Price/EBITDA Per Share. If you chose JCP and TGR, how do these ratios compare with some other retail operations? You might want to compare these companies to others in their field or to some big box retailers. What is the current market value (debt and equity) of each of your two companies? Mr. Moovon will need to know this to formulate a reasonable bid (or walk away).

Now is the time to do the detailed Financial Analysis of our two companies in preparation for submitting your recommendations in Week Seven. Make sure you calculate all of the appropriate ratios called for in the Project and be sure to provide at least five years of ratios. Use the Financial Statements for the most recent fiscal year filed with the SEC and for earlier periods look at Value Line at sites like Yahoo Finance. They can also generally be found on the company websites. Tell me what they mean to you. That will help you focus on the recommendation you are going to make in two weeks. This should be a detailed discussion and analysis and critical thought. If you just provide a cut and paste of financials as your answer, it will receive a failing grade. You will need to show that you truly understand the various ratios and financials by examining and detailing and contrasting the information. It is best to take at least 6 ratios or more and compare the two firms as well as compare the two firms to the industry.