Corporate Finance/Corporate Valuation Essay
Company’s financial reports often display important markers of their economic development and as well provide the researchers with the data concerning their general market’s failures and successes and major tendencies in their development. However, declared statistical data often shows only explicit aspects of companies’ financial state while implicit micro and macroeconomic markers often remain hidden.
Though an analyst may understand company’s growth, market capitalization, amount dividends etc., this information seems to have no relationships with the general macroeconomic context in which a company exists. As a result, there is a growing necessity to implement the comprehensive approach to the analyses of companies’ major financial aspects that may be regarded as the “keys” to understand their economic and market’s background. In the present paper we shall focus on the aspects of corporate finance and will define major financial markers for one of the companies that may be an illustration to a specific sector of an industry.
The last criteria for the company that will serve an object of our analysis (as a company must be a representative of its kind of an industry to make the valuation more market-related and illustrative) is especially important. It is also noteworthy that not all financial reports
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Very often they also lack important data that is necessary in provision some specific calculations. The experts believe that the aspect of company’s size also plays important role in provision of comprehensive financial analysis of its macroeconomic profile. Small companies usually fail to give detailed information concerning their financial activity and are often less interesting to a researcher as they a just “one of the thousands” other almost the same organizations.
At the same time, huge global corporations (GM, Daimler-Chrysler, Nike, Sony or Samsung) are often difficult for statistical evaluation as present many irrelevant data or the information of secondary importance. Besides, such giants of the industry are often believed to be “insubmergible” players of the market whose stocks only raise in price and market capitalizations increase in geometric progression.
As a result, the instances of middle-level companies (that are neither the leaders of their industries but still remain too important to be underestimated by their major competitors) are more valuable and important for the research due to the following criteria. Dislike small companies they provide all necessary statistical data that allows its comprehensive generalization (speaking of the US market, one could mention first if all 10-K and 10-Q forms that provide all annual financial information of company).
At the same time, this data is not overloaded with auxiliary statistics and data of global sales that makes it easier for comprehensive analysis, including financing, dealings, shareholders, market capitalization, etc. Using the explained criteria as the fundament of our further analyses and have chosen “Timberland Inc. ” company (USA) for further comprehensive financial valuations. As mentioned before, this choice may be explained by several major factors. The first criterion (i. e. : company’s size) has been already thoroughly explained above. Though “Timberland Inc.
” is one of the leaders in American outdoor apparel (in the last decade it has been in Top-20 of domestic companies specializing in active footwear and sports apparel and has a strong tendency to strengthen its financial positions in the market approaching to the Top-10 of national manufacturers in the industry) and footwear market, the company is, in fact, middle-sized (if we take for analyses the average size of manufacturers in this market) and is significantly smaller than such giants of world market as Nike, Reebok, Adidas, LA and other multibillion brands. The other important aspect of “Timberland Inc.
” that arrests researchers’ attention is company’s unique niche in the market. Timberland is one of the world leaders amidst the companies producing apparel for the outdoor activities and footwear with a bias on know-how innovative technologies and specific target-group. These factors have significantly contributed to Timberland’s positions in the market and its market price during the recent decade when people’s concern in sports and active rest has become more important than ever before. Eventually, the company has undergone some sufficient changes during the recent five-ten years that were marked both with financial profits and losses.
However, during the recent five years that company has become a synonym of success: new marketing strategies and effective accounting have contributed to the overall marketing achievements of “Timberland Inc. ” Taking these facts into consideration we have taken “Timberland Inc. ” (TBL) for the further analyses. On the analyses of the stated data we have formulated five major objectives for the present research, i. e. : • To evaluate the general financial profile of the company during the recent three years based both on Timberland’s own statistics and market’s data. • To develop P/E valuation of TBL company during the last three years
• To flesh out Discounted Cash Flow (DCF) Model • To work out the Weighted-Average Cost of Capital Method analysis (WACC) • To correlate financial markers of the TBL company and its marketing and business strategies in the denoted period of time. The major outlined research questions for the present paper are as following: • Was Timberland Inc. exposed to the general challenges and opportunities in the apparel and footwear industry in the United States? • Were company’s financial success on industry’s average or outreached/retreated the average markers? • How business activity of the company has influenced its major financial markers, i.
e. : P/E (1), DCF (2) and WACC (3). • How marketing and business achievements or failures of the company have contributed to its macroeconomic profile and positions in the industry. The outline of the statistical and financial valuations We shall dispose the company’s statistical and financial reports covering 1998-2003 time periods and evaluate “Timberland Inc. ”. P/E ratio, build a DCF model and provide WACC analyses of the company. To make the case study more illustrative, the major financial markers of the company will be compared and contrasted with the relative coefficients of its competitors.
Brief introduction into timberland’s business and financial background The “Timberland Inc. ” company designs, manufactures and sells unique ragged footwear that comprises over 75% of its sales, apparel for outdoor activities, and accessories for men, women, and kids. TBL’s first success was brought in 1950-1960s by its legendary yellow hiking boots that became extremely popular with those who like the feel of boots but do not necessarily do a lot of hiking (Jennings, 1998). The company was established in 1950s by Swartz family that has been in the shoe business since Nathan Swartz bought the Abingdon Shoe Company (New Hampshire) in 1952.
The history of TBL Company began in 1978 when Abingdon Shoe Company (ASC) changed its name to Timberland. Already the first years of TBL manufacturing experience brought company tremendous success: TBL’s core product, its yellow waterproof boots with rugged soles were a cult hit on US college campuses in late 1970s and 1980s. In 1980s TBL started first exports of its goods to Europe and positioned itself as a global manufacturer and seller. The “outdoor craze” of 1980-1990s has contributed to company’s success significantly: TBL’s sales grew rapidly and the brand was growing loyalty amidst American consumers.
TBL opened its first store in 1986 and went public the next year. The family of chairman, Sidney Swartz and his son, president and CEO Jeffrey Swartz, owns nearly 50% of the company’s stock and controls over 98% of company’s voting shares. Regardless dramatic marketing success of the company, already in 1990s TBL faced some serious challenges in the market. Decrement of company’s profits and emergence of a number of potential competitors (their financial profiles will be evaluated in the next sections) have somehow hampered development of TBL .
However, in the middle 1990s TBL achieved its past success and within several years has doubled its previous marketing successes. The CEO’s of TBL have successfully implemented company’s developmental strategy taking into account brand’s most serious asset and first of all, its awareness to most people in the US and many foreigner customers: Timberland was in many ways a synonym of outdoor activity footwear and apparel for thousands of professionals and enthusiasts in America.
Already in 1997 the company raised it sales at 19%. In 1997, TBL reconsidered its corporate strategy by restructuring its product development and development of more “tuned” distribution (Jennings, 1998). The new distribution strategy has successfully promoted the Timberland brand and associated its commodities with extreme quality and dependability. The new sales strategy was designed to optimize international sales by expanding company’s distribution overseas, mainly in Europe and, in a lesser degree, in Asian region.
In the US, TBL has 19 owned specialty stores and 142 concept shops within major department store and specialty retail locations. Worldwide, TBL’s international subsidiaries and distributors operate 132 Timberland retail stores. TBL utilizes a medley of subsidiary and distributor networks in more than 90 countries around the world. The company has plants in the Dominican Republic and Puerto Rico. Since its second wind in 1997 TBL has also changed its business strategies.
TBL orientates on young adults and youngsters who represent “upper bracket” active layer of society. Present goals of the company’s lie in increment of brand awareness through insuring high quality and authentic image that appeals both to professionals and serious outdoor enthusiasts. It is also important to evaluate the breakdown revenues of “Timberland Inc. ” in the observed time period. This analysis will help to evaluate future prospects of the company as well as major trends in its financial activity.