Case Studies in Finance - Managing for Corporate Value Creation,

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MBA Program
Course:
Financial Analysis and Decision Making
MBA730
Instructor:
Marlena L. Akhbari
Wright State University
Finance and Financial Services

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McGraw-Hill/Irwin

McGraw−Hill Primis
ISBN: 0−390−42334−3
Text:
Case Studies in Finance: Managing for
Corporate Value Creation, 4/e
Bruner

This book was printed on recycled paper.
MBA Program

http://www.mhhe.com/primis/online/
Copyright ©2003 by The McGraw−Hill Companies, Inc. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher.

This McGraw−Hill Primis text may include materials submitted to McGraw−Hill for publication by the instructor of this course. The instructor is solely responsible for the editorial content of such materials.

111

MBAP

ISBN: 0−390−42334−3

MBA
Program

Contents
Bruner • Case Studies in Finance: Managing for Corporate Value Creation, 4/e II. Financial Analysis and Forecasting

1

6. The Financial Detective, 1996
11. ServerVault: ‘‘Reliable, Secure, and Wicked Fast’’

1
6

III. Estimating the Cost of Capital

16

12. ‘‘Best Practices’’ in Estimating the Cost of Capital: Survey and Synthesis
15. Teletech Corporation, 1996

16

IV. Capital Budgeting and Resource Allocation

52

19. Diamond Chemicals PLC (A): The Merseyside Project
20. Diamond Chemicals PLC (B): Merseyside and Rotterdam Projects

52
60

39

VI. Management of the Corporate Capital Structure

66

29. Structuring Corporate Financial Policy
31. Polaroid Corporation, 1996

66
84

VIII. Valuing the Enterprise: Acquisitions and Buyouts

100

41. Palamon Capital Partners/TeamSystem S.P.A.

1 00

iii

Bruner: Case Studies in
Finance: Managing for
Corporate Value Creation,
4/e

II. Financial Analysis and
Forecasting

6. The Financial Detective,
1996

1

© The McGraw−Hill
Companies, 2003

CASE 6

The Financial Detective, 1996

Financial characteristics of companies vary for many reasons. The two most prominent drivers are industry economics and firm strategy.
Each industry has a financial norm around which companies within the industry tend to operate. An airline, for example, would naturally be expected to have a high proportion of fixed assets (airplanes), while a consulting firm would not. A steel manufacturer would be expected to have a lower gross margin than a pharmaceutical manufacturer, because commodity products like steel are subject to strong price competition, while highly differentiated products like patented drugs enjoy much more pricing freedom. Because of unique economic features of each industry, average financial statements will vary from one industry to the next. Similarly, companies within industries have different financial characteristics, in part, because of varied strategies. Executives choose strategies that will position their company favorably in the competitive jockeying within an industry. Strategies typically entail making important choices in how a product is made (e.g., capital intensive versus labor intensive), how it is marketed (e.g., direct sales versus use of distributors), and how the company is financed (e.g., the use of debt or equity). Strategies among companies in the same industry can differ dramatically. Different strategies can produce arresting differences in financial results for firms in the same industry. The following paragraphs describe two participants in a number of different industries. Their strategies and market niches provide clues to the financial condition and performance one would expect of them. The companies’ common-sized financial statements and operating data as of early 1996 have been presented in a standardized format in Exhibit 1. It is up to you to

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