Carlton Polish Case Essay

1247 Words Dec 22nd, 2011 5 Pages
lCARLTON POLISH COMPANY

1. What should Charlie Carlton do? Mr. Carlton should first evaluate the company to see how much it is worth. If he finds that fifty percent of the company is worth more than $2.5 million he should buy the shares from Mr. Miller and run the company as he plans. He can use two methods to determine the value of the company: discount cash flow (DCF) approach and /or comparison with similar companies, which are publically traded. He should also consider relevant non-financial factors such as his family’s history in this company and his parents’dependence on the success of the business.

2. What is the polish/cleaning suppliers market like? The total market for industrial and
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5. Assess the financial strength of the company: * The company has never reported a loss for more than 100 years * The proforma financial data in the case indicates an increase of 10% per year in sales. * Carlton Polish is a stable company not significantly affected by the economic cycle. * Growth rate is higher than the industry’s growth rate for each of last 10 years. * The main concern is that the company would have a lot of debt if they have to borrow money from the bank, continue to pay Charlie Carlton’s parents, and pay off the $1 million debt to Mr. Miller. 6. Assess whether the pro forma projections are reasonable or not? The pro forma projections seem reasonable for the following reasons: * From 1976 to 1982 the compound annual growth in net sales was 18.5% and the compound annual growth of after tax profit was 25.9%. Therefore, a 10% net sales growth shown in the proforma financial data seems reasonable. * In addition, the market is expected to keep pace with the general economic in the future. 7. What will shareholder’s equity look like after the transaction? Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity. 8. What is a reasonable estimate of the company’s worth?

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