Essay on Interco Case

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Interco Case Study

Interco’s financial performance was moderately successful for the 1988 fiscal year. Interco’s current ratio (3.6 to 1) and debt-to-capitalization rate (19.3%) indicate that the company is financially flexible. Furthermore, both overall sales and net income increased from the previous year (1987) due largely to the strong performance of Interco’s furniture and footwear divisions. Sales in 1988 increased by 14.7% in the furniture division and 34.2% in the footwear division. Despite the promising nature of these two divisions, Interco still had to contend with the nagging issue of the underperforming apparel and general retail groups. Due to a number of factors including declining consumer spending and aggressive
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Historical data on the indexes of closing prices (see Exhibit 14) attest that the current market trend is very different to the market trends for some of the benchmarks used (i.e. West Point Pepperall/Cluett, Peabody). In addition, it is difficult to determine the true nature and equatability between the proposed benchmarks and Interco for each company can differ in its cash flow and revenue growth, its riskiness, and its future expansion opportunities. In consequence finding comparable ratios becomes increasingly problematic and challenging. Thus, the issues that are specific to Interco limit the strength and validity of the valuation analysis. One must also note that comparable transaction analyses do not account for premiums or synergies gained in a transaction. There are a variety of possible questions in regards to Wasserstein, Perella and Co.’s discounted cash flow analysis of Interco. The financial analysts made some assumptions that could be questioned as ill-founded. An increase in Working Investment for the Apparel and Retail divisions was predicted but the Strategic Positioning Goals of Interco dictated that underperforming assets were to be divested. Based on the 1988 Income Statement of Interco Apparel and Retail divisions, could easily be judged as underperforming assets. Based on the date it
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