Essay on Strategic Capital Management, Llc (a)

1123 Words Apr 18th, 2011 5 Pages
Executive Summary:

The objective of this report is to evaluate investment opportunities for Strategic Capital Management, LLC regarding stocks of Creative Computer and/or its subsidiary firm Ubid. The analysis deduces arbitrage to be the best investment strategy.

Strategic Capital Management (SCM), LLC:

SCM is a recent entrepreneur venture founded by Elena King and two of her fellow classmates. The company has currently generated 20 million dollars and aims for annual returns of 10 percent. Its investors are charged a management fee of 2% of assets under management and an incentive fee equal to 20% of profits. Moreover company policy requires investors to keep their money invested for a minimum of two years.

Recent meetings
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In order to increase awareness of its internet portion of their business Creative Computers announced an IPO on July 6, 1998. In six months’ time twenty-percent of Ubid shares were up in an IPO and eighty-percent were distributed to shareholders of Creative Computers in a tax free spinoff six months after the initial IPO.

Financial Performance

Ubid showed remarkable sales in its first year of operations. Ubid sales increased to 15.3 million dollars in its third quarter-a staggering growth rate of 637% over its first quarter. However, this promising sign is diluted by the fact that this sort of performance is common to most internet industries. Furthermore, the fact that the company experienced a pre-tax loss of 1.1 million dollars as well as negative net earnings serves as a cautious reminder.

On the other hand Creative Computers is experiencing financial success. Its 3rd quarter performance summed to 186 million dollars in net sales (51% above 1997s third quarter). Excluding Ubid sales, 170 million was generated a 39% increase over its 1997 performance. In addition, without Creative Computers investment in Ubid, quarterly net income equaled 1.1 million.

This suggests Creative Computers to be quite profitable and Ubid to be a potentially risky investment.

Balance sheet

Creative Computers hold cash and equivalents of 15.5 million dollars. This buffers the company
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