Carlton Polish Co.

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Carlton Polish Co.

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Abstract

There are different ways to calculate a company's value. The first method is to use the balance sheet of the company to estimate the value of a company using the DCF approach. Another method is concerning the competition analysis. By looking at similar companies in the same activity sector ("peer group") we can use their ratios to estimate the value of a company.

So, to be accurate in our valuation, we will use two methods of valuation:
-The Discounted Cash Flow Analysis
-The Financial Ratios Analysis (using multiples)

The second method will be used to confirm our first impression using the DCF Analysis. The Free Cash Flow: "Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt."

Introduction
What is Carlton Polish worth?
DCF Analysis
1. Free Cash Flows
2. Discount Rate
3. Results without leverage
4. Result with the tax shield adjustment
Financial Ratios Analysis
Would you finance the buyout if you were the bank? Why or why not?
1. Financial Analysis
2. Entrepreneur Analysis
3. Market Analysis
If you were the banker, what terms would you require on the loan?
Conclusion

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[...] Carlton Polish Co. Table of Contents 1. What is Carlton Polish worth? ......................................................................................................... 3 1.1. 1.2. Introduction............................................................................................................................. 3 DCF Analysis............................................................................................................................. 3 Free Cash Flows ............................................................................................................... 3 Discount Rate .................................................................................................................. 4 Results without leverage ................................................................................................. 6 Result with the tax shield adjustment ............................................................................. 7 1.2.1. 1.2.2. 1.2.3. 1.2.4. 1.3. 1.4. 2. 2.1. 2.2. 2.3. 2.4. 3. Financial Ratios Analysis .......................................................................................................... 7 Conclusion ............................................................................................................................... 8 Financial Analysis ..................................................................................................................... 8 Entrepreneur Analysis ............................................................................................................. 8 Market Analysis ....................................................................................................................... 9 Conclusion ............................................................................................................................... 9 Would you finance the buyout if you were the bank? [...]

[...] The sales rate is also lower than Carlton Polish. • • • Using the different characteristics listed above, we can say that Economics Laboratory is the most comparable company. We listed some arguments to prove this choice: In terms of product, Economics Laboratory has the same core business, even if the geographical spread is not the same (EL is present worldwide) it's important to compare with companies with the same core business. In terms of growth perspectives we use the CAGR (compound annual growth rate) between 1979 and 1982 (years given for the competitors) for Carlton Polish and we have found that the CAGR is equal to 14.93%. [...]

[...] Carlton Polish sells these products only in USA; EL also sells them abroad. On the distribution system, we can see that Carlton Polish uses distributors unlike EL that directly sells to the end-user. Crompton & Knowles (CK) is a manufacturer of specialty chemicals and the company is quite the same as Carlton Polish but they face a lot of financial difficulties (decrease of sales and the net income between 1981 and 1982). We can also see that CK sells these products all around unlike Carlton Polish. [...]

[...] This is another good point for Carlton Polish. The only bad thing is concerning the investment itself. In fact, if Carlton buys the company's stock from his partner, he will have to borrow money from the bank, and after 3 years he will have to “borrow” the rest of the money from his partner (leasing). This is a bit dangerous because he will have to pay 2 different loans at the same time. 2.2. Entrepreneur Analysis Carlton is a very enthusiastic person who has a lot of ideas on how to improve the company performance. [...]

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