The final exam is now posted under the Assignments section of the course. It will be worth 35 points. The multiple choice portion will be 20 points. Short calculations (were substituted for some multiple choice instead) and will be worth 10 points total in parts 1, 2, and 3. Part 4, is the case analysis and will be worth 5 points. Please be advised in part 2 under ratios that you are only required to do ratios for 2013 and 2014. The interest ratio cannot be done with information given. You may assume a discount rate of 15%.
Business Valuation Case (please be aware that some information is actual and some is fictious)
Lowe’s is a publicly-traded yet closely held company operating in the United States. Assume you are in the early stages of preparing a business valuation on Lowe’s to assist owner(s) in making future business decisions about expanding.
Included in the case is a copy of Lowes, Inc. Unadjusted Income Statement and Balance Sheet, Income Statement and Cash Flow Statement for the last fiscal year; all numbers are in thousands. All questions on this case use the attached data as basis.
Growth
There has been an increase in sales over the last several years, but 2013 showed some slowing due to competition with Home Depot. The company has opened new stores, but it is difficult to determine whether expansion efforts will keep it competitive with costs and benchmarks to other companies. It’s disconcerting to expand the product line and open new stores and not significantly increase a company’s growth. Expected growth is 12%. Competitor benchmarked growth is at 15%. The risk-free rate is 1% and company beta is 1.38
Cost Control
The company needs to control its operating costs more effectively.
Products have been purchased from the same supplier. Possibly the company’s purchasing is concentrated through one supplier and has not allowed the company an opportunity to determine better competitive prices through alternative suppliers. This presents some risk to the company if the supplier were to terminate its relationship with the subject company. Supplies are vital to the operations of any business enterprise. Access to adequate supplies and competitively pricing are key factors to a company’s long term success.
Technology
An upgrade to the company systems was done in 2011 and expenditures to-date have not been to maintain systems at that level. Competitors have invested in new technology at rate of 2% of sales. The company’s technology investment has been at .5% of sales.
Turnover
The receivable turnover for the subject company is about one-half the industry average. In 2014, it was 50.7, while the industry average was 101.7. This ratio measures how much of a company’s sales are reflected in accounts receivable. Daily’s Clothing needs to concentrate additional effort in the collection of its receivables.
Profitability
Both its return on equity and return on assets are less than the industry averages with percentages declining steadily in the past few years. above the industry; however, both percentages have been declining steadily during the past few years.
Risk
The current ratio indicates the amount of liquid assets available to liquidate current debt or the company’s ability to meet its current obligations. We are told that the company has expanded its facilities, as well as its product lines. It seems that this expansion has been paid for through the addition of company debt.