1. Analyzing a Company
As of April 29, 2016

2. General Overview of Company Structure
Financial Strength
Profitability
Stability
Operational Trends

3. 1. Profitability Financial Strength Profitability Stability
Operational Trends

4. Franchise Power & Profitability
Return on Assets
Return on Capital
Free Cash Flow to Total Assets
Net Income
Total Assets
Efficiency of cash management (cash + STI)
Efficiency of inventory turnover
Efficiency of investment in PP&E

5. Franchise Power & Profitability (contd.)
Return on Assets
Return on Capital
Free Cash Flow to Total Assets
EBIT
Total Capital
Total Capital = Net PP&E + Net Working Capital (Current Assets – Current Liabilites); Excludes cash and interest bearing assets
Measures exclusively investments in operating assets of the business excluding effects of capital structure and tax

6. Franchise Power & Profitability (contd.)
Return on Assets
Return on Capital
Free Cash Flow to Total Assets
Measure efficiency of capital expenditures
Measures efficiency of working capital
Free Cash Flow
Efficiency of cash management (cash + STI)
Efficiency of inventory turnover
Efficiency of investment in PP&E
Total Assets

7. 2. Stability Financial Strength Profitability Stability
Operational Trends

8. Stability Declining Leverage Liquidity Improvement (Current Ratio)
Favorable Net Equity Issuance Position
Debt
Total Assets

9. Stability (contd.) Declining Leverage Liquidity Improvement
(Current Ratio)
Favorable Net Equity Issuance Position
Current Assets
Current Liabilities
Receivables
Inventory
Accounts payable
Notes payable
Taxes
Current ratio highlights whether or not the company is liquid enough to cover all of its assets today if sold today

10. Stability (contd.) Declining Leverage Liquidity Improvement
(Current Ratio)
Favorable Net Equity Issuance Position
Share repurchase
Share issuance
Enables a firm to optimize shareholder payout

11. 3. Operational Trends Financial Strength Profitability Stability

12. Operational Trends Improving ROA Improving FCFTA
Improving Gross Margins
Improving Asset Turnover
Change versus 1 year prior

13. Operational Trends (contd.)
Improving ROA
Improving FCFTA
Improving Gross Margins
Improving Asset Turnover
Change versus 1 year prior
Sources of Competitive Advantage (Porter)
Differentiation (high margin)
Low Cost Production (high turnover)
Sales
Jewelry Business
High margin
Low turnover
Discount Retailer
Low margins
High turnover
Invested Capital
See’s Candy
High margin
High turnover

14. 4. Holistic Assessments

15. Taking a “Step Back”
Market Opportunity
(New and Current Products & Crown Jewel)
Strength of sales in conjunction with pricing, sensitivity of demand to changes in price, competitors actions, and corporate tax rates all affect profitability
What is the business worth?
How long will value sustain itself?
What is likelihood the gap between price and value is realized?
What is the potential risk / reward: when will value change or corrupt?
Business Pivot: Product / Service Launches & Sentiment
Growth considerations include increased volume due to predictable increases in the general population, increased product use by customers, increased market share, greater market penetration into the population, or price increase
What is competition doing?