Financial Case Study
Order Description
Treat the case as a business case with a finance emphasis. Write from the perspective of a consultant to the firm’s management, advising how to optimize the owners’ wealth. The marketing, operations and other management aspects are important. About half the grade is on the qualitative analysis. Always approach the case from the perspective of a financial management perspective, despite some cases seeming to emphasize a financial institution’s perspective.
? Write cases in standard English prose (paragraphs and sentences).
? Exclude repetition of material from the casebook.
? The only limit only the number of tables/graphs is discretion. Give a descriptive label for each table/graph. Put your assumptions in a table rather than in your write up. Write at least one paragraph in your write up on each scenario/table. Describe what the scenario models, how likely it is and which numbers are the most important. Interpret the important numbers. Exclude technical reviews saying how you divided A by B to get C or how you hacked up the “v.”
? In the last paragraph, unequivocally state and defend your recommendations. Conceptually, a recommendation cannot be a scenario.
? Spreadsheet analysis is essential.
Case Tips
•Do cash flow forecasts for 2005-2009 checking to see if the deal can be 80% debt funded
•Do a valuation
•WACC: 9%
•Consider sensitivity to the long-term growth rate (3%, 4%, …)
•Exchange rate: 0.8388
•Extra: estimate the benefits to Bain including Bain’s rate of return.
VALUATION COMPARABLES
EPS Price/Earnings EBITDA EV/EBITDA
Market
Price at Shares O/S Cap. (in $ Net Enterprise
Ticker Currency 11/18/2004 (in mms) mms) FY 2004A FY 2005E FY 2004A FY 2005E Debt Value FY 2004A FY 2005E FY 2004A FY 2005E
US Value Retailers
99 Cents Only Stores1 NDN USD $16.08 71.80 $1,154.5 $0.78 $0.42 20.6x 38.3x ($8.29) $1,146.3 $110.3 $75.6 10.4x 15.2x
Family Dollar Stores2 FDO USD 31.80 172.40 5,482.3 1.43 1.53 22.2x 20.8x (149.6) 5,332.7 478.0 512.1 11.2 10.4
Dollar General Corp DG USD 21.18 334.10 7,076.2 0.92 1.01 23.0x 21.0x 290.1 7,366.3 662.5 721.5 11.1 10.2
Dollar Tree DLTR USD 29.88 114.70 3,427.2 1.54 1.64 19.4x 18.2x 184.5 3,611.7 400.7 422.8 9.0 8.5
US Discount Retailers
Wal-Mart Stores WMT USD 55.8 4,249.00 237,094.2 2.03 2.40 27.5x 23.3x 25,750 262,844.2 12,713.0 14,672.0 20.7 17.9
Canadian Retailers
Shoppers Drug Mart Corp. SC CAD 36.15 209.9 7,587.9 1.24 1.46 29.2x 24.8x 741.8 8,329.7 568.5 636.3 14.7 13.1
Sears Canada Inc.3 SCC CAD 17.90 107.1 1,917.1 1.32 1.35 13.6x 13.3x 1,954.9 3,872.0 451.4 413.6 8.6 9.4
Forzani Group FGL CAD 11.07 32.7 361.9 0.86 0.81 12.9x 13.7x 114.5 476.5 82.3 76.5 5.8 6.2
Loblaw Companies Limited L CAD 67.01 274.3 18,380.8 3.05 3.50 22.0x 19.1x 4,498.0 22,878.8 1,860.0 2,125.0 12.3 10.8
Canadian Tire CTC CAD 70.00 81.2 5,684.0 2.89 3.25 24.2x 21.5x 1,066.3 6,770.3 613.0 695.0 11.0 9.7
1NDN FY2005SE adjusted for $8.3 million in one-time lawsuit/legal fees.
2Family Dollar’s 2005E EBITDA are actuals from their August 2004 year end.
3Net Debt includes the securitiezed off-balance sheet obligations.
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