MFA8023 CORPORATE FINANCIAL ANALYSIS CASE STUDIES

KRISPY KREME DOUGHNUTS, INC Suggested Questions 1. What can the historical income statements and balance sheets tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.? 2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise? 3. 4. price decline? Is Krispy Kreme financially healthy at year-end 2004? In light of your answer to question 3, what accounts for the firms recent share

5. What is the source of intrinsic investment value in this company? Does this source appear on the financial statements? VALUE LINE PUBLISHING, OCTOBER 2002 Suggested Questions

1. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home
Depot? What additional information do the different ratios provide? Complete compare a similar analysis for Lowes. and

2. How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiores estimates are required to drive the 2002 returnon-capital estimate below Home Depots cost-of-capital estimate of 12.3 percent? Look specifically at gross margin, cash operating expenses, receivable turnover, inventory turnover, and P&E turnover. What effect does sales growth have on return on capital? Explain your findings. 3. Do you agree with Galeotafiores forecast for Home Depot? How would you adjust It? 4. How would your forecast assumptions differ for Lowes? Complete and recommend a year Lowes forecast to Galeotafiore. five-

AURORA TEXTILE COMPANY Suggested Questions 1. How has Aurora Textile performed over the past four years? Be prepared to provide financial ratios that present a clear picture of Auroras financial condition. 2. List the factors affecting the textile industry. What do you think is the state of the industry in the United States? How should you incorporate the state of the textile industry into your analysis? Why should anyone invest money in the industry? 3. What are the relevant cash flows for the Zinser investment? Using a 10% WACC and assuming a 36% tax rate, what do you get as the NPV for the project? What are the value drivers in your analysis? What do you estimate as the cost per pound for customer returns under the Zinser alternative? (Hint: for a replacement decision, analysts often find it

helpful to prepare two sets of cash flows and two NPVsone for the status quo and one for the new machine.) 4. Craft a memo to the board of directors stating your recommendation about investing in the new Zinser machine. Part of your memo should explain why it is better to invest in the Zinser or to pay a dividend to the shareholders. Be sure to explain the primary reasons that justify your recommended course of action. COMPASS RECORDS Suggested Questions 1. Please assess the economic benefits of owning and producing an album versus licensing an artists recording. What are the initial outlays under either scenario? What are the benefits over time? Do the NPV and IRR results suggest that one scenario is superior to the other? 2. What uncertainties or qualitative considerations might influence your recommendation? How do variations in the forecasted sales affect the decision? Please estimate the impact on NPV from a change in your estimate of future sales for Adair Roscommons album. 3. What should Alison Brown do? Prepare a recommendation as to whether Compass Records should license Adair Roscommons next recording, or produce and own it.