Paint-Pen
Autor: Qendrim Sopjani • September 21, 2015 • Case Study • 552 Words (3 Pages) • 2,292 Views
Case: Paint-Pen
Date: September 21, 15
Which of the numbers are critical to SEE and FEEL (i.e. understand) Paint-Pen and why? This is important!!
Cash flow is one of the significant factors that determents the stability of the company. From the Balance Sheet we can see the company has solid cash levels. The operating cash ratio results to be constant year to year (around 16%), which shows that the cash flow was increasing in proportion with the increase in sales. This is evident in year 1993 to 1995, whereas we can see that the cash ratio drops to 7% in 1996. The cash is mainly generated through operations.
In addition to solid operating cash flow, the income statement of Piant-Pen also shows that the company has been increasing its sales with 24% and 15% in the last two years, respectively. On the other hand, the profit margins were stable during the last three years, at around 13%. And the inventory is growing at the same rate as the sales.
According to the Balance Sheet, the company does not have any interest bearing debt in the end of 1996.
What is the company worth and how did you arrive at that number? What did you take into consideration?
According to my calculations, the company is worth $14 Million. I used the discounted cash flow method to find the value of the company. Considering that we did not have enough data, I made some assumptions in order to come up with a relevant valuation. I assumed that the sales will be increasing at a rate of 17% in the upcoming 4 years and the terminal growth rate will be 2%. I also predicted the costs to be at a constant level with year 1996 as percentage of sales. In addition, I also assumed a contact depreciation and a constant capital investment necessary in each year. Since in the last year there was no interest bearing debt, I assumed that there will not be any debt in the upcoming years as well, therefore, I discounted the cash flow at the cost of the equity. Risk free rate, Beta, and Market Risk premium were taken as random assumptions. As for working capital, I assumed a constant rate as a percentage of sales for Accounts receivable, inventory, and accounts payable.
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