Hampton Machine Tool Company Case Study requirement
Read the CARTWRIGHT LUMBER case study and use the class notes and materials provided to aid in the analysis.
It must includes in your case studies, a financial forecast based on TVM (Time Value of Money) — a fundamental cornerstone of FINANCE. The financial forecast must also include impact on either enterprise value, stock price or some metric of valuation that enables you to justify your recommendation on how to solve the weekly case problem !!! Make sure to add statistical charts, calculation formulas, and References.
(Examples of the work have been uploaded)
(The material has been uploaded and is named class note).
Detailed guideline:
The theme for this case study is giving strong consideration to crafting an exit strategy to fully recover capital plus a return for the risk associated with owning-and-operating the firm. Solution for this case study should include consideration of an exit strategy and expected cash proceeds to the owner/operator. For example, hypothetically a business improvement theme coupled with liquidity infusion via bank loans can be viewed as one way to facilitate transition to properly implement the exit. Take into account the trends of increased demand for Repair & Remodeling as well as Do It Yourself in relation to the looming storm clouds of the big box stores (LOWE’S and HOME DEPOT) entering the region and the inherent difficulties of maintaining a family owned business with increasingly stiff competition. If you review the basics of Valuation (covered by yours truly) the exit strategy is a viable means of recovering or monetizing the Terminal Value. See attached PPT slides by yours truly on Valuation, Time Value of Money, Risk/Return and Capital Market Theory which includes how to calculate Terminal Value (with a problem based example in the Appendix).
You will need to make some type of estimate — either in value based terms or return on capital objectives — on the expected financial outcome quantifying expected added-value arising from your recommendation. This key element cannot be missing!!!
Helpful Hints for Case Study Analysis
ANALYSIS:
When evaluating a publicly traded company’s financial performance or a private business entity — start by looking at the three (3) most recent years available and analyze key financial ratios and the cash flow. Your analysis, depending upon what is appropriate for the specific business, may include the following ratios: current ratio, quick ratio, average collection period (days sales outstanding), inventory turnover ratio (if applicable), total asset turnover, debt-to-total assets ratio, net profit margin, return on assets, and return on equity. In evaluating the year-over-year comparisons, provide an interpretive (not a descriptive) text on the implications derived from this analysis. Interpretive text explains or clarifies why something has happened, thus giving your reader insight. (Example of interpretive text: The Company’s return on assets improved due to higher asset turnover and increased net profit margin as the company’s sales expanded because of growing demand and the margin improved with a higher absorption rate of fixed overhead.) By contrast, a descriptive statement is one that fails to explain or clarify why something has happened, thus leaving your reader clueless or without insight. (Example of descriptive text: The Company’s return on assets increased year-over-year.) If you focus on the topic of cash flow: identify the amount of cash generated or used from operating, investing and financing categories and identify the underlying cause or business event that influenced the change in cash generated or used in each category. (Example: A negative cash flow (i.e. high cash usage) for investing could be attributed to a capital spending program (acquiring property, plant & equipment to build a stronger operation)). If you are studying a private entity, either you may have access to similar data OR you may have to estimate based on public comparables.
1st and 2nd LEVEL DETAIL:
Each memorandum should have sufficient 1st and 2nd level detail to effectively deconstruct the case and proposed solution. The simplest way to differentiate between the two: 1st level detail is “descriptive” while 2nd level detail is “annotative or explanatory.”
> An example of 1st level detail: ABC Company has a Return on Assets (ROA) of 10% based on the product of a 5% profit margin (PM) and a 2x turnover rate (TO). ROA = PM x TO. Here is a numeric sample: 10% = (5%) x (2).
> An example of 2nd level detail: ABC Company can achieve a 15% peak ROA based on a richer product mix (which boosts profit margin) and higher sales volume (which increases turnover rate). Numeric sample: 15% = (6%) x (2.5).
CONCLUSIONS:
Your recommended course of action needs to be stated at the outset of your memo (NOT at the end). The ensuing analysis and discussion that follows your recommendation provides the rationale. It is helpful to affirm your recommendation [highlighting the basis or theme of your memo] in a brief recap or closing statement. For example, if you were to recommend that a company sell or close an unprofitable division, the theme is “restructuring” with the goal of improving overall corporate profit margin through a narrower focus. It is essential that you quantify the expected added-value from your recommendation. For example, if you recommend divestiture of a money-losing division [under the “restructuring” theme] you estimate the expected increase in net income [say from $12 million to $15 million] or improved Return on Assets [from 6% to 7.5%] or improved profit margin [from 16% to 20%] or increased earnings per share [from $4.00 to $4.80].While each weekly memorandum must quantify expected added-value (this is, after all, a FINANCE course) arising from your recommendation on how to resolve the case study project, each student is encouraged to use his or her skill set to approach the weekly cases. For example, if you are Human Resource specialist, or an Attorney at Law, or perhaps a Marketing Director, you would obviously leverage your specialized knowledge in whatever you deem workable for the case project at hand, but keeping in mind your goal is optimizing VALUE.
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