Dressen Case Study

1960 words 8 pages
#1) I believe one major factor was how appealing Dressen had become during 1995, as opposed to previous years. It appeared that new management had turned the company around. Management stated Dressen was looking good for future growth during the end of 1995. I think management felt it was the opportune time to sell. They wanted to sell Dressen while they were making money and being successful, as opposed to hemorrhaging money from Westinghouse. Dressen was Westinghouse’s star performer in the Q3 of 1995. Sales increased 10% over the year-prior quarter. EBIT reached 12% of sales as well. Their growth strategy as well as technology and work processes lead management to believe that there was even greater growth potential. Dressen …show more content…
This will allow them to set a point of time within the operating cycle that they can focus on.

EV/EBIAT
1994
1995
Market Capitalization $ in Million

458
481
Total Debt in $ million

247
176
Total Worth in $ Million

705
657
Less: Cash in $ Million

5
2
Net Worth in $ Million

700
655
EBIAT in $ Million

-2.5
10.4
EV/EBIAT

(28,000) 6,298

The company recorded a net loss in the year 1994 of $-28,000, but it is a positive figure of $6,298 in the year 1995. My calculation for the Dividend Discount Model is as follows:
P = Dividend / WACC – g
WACC = 12%
G = Growth rate = 4%
= 1.2 / 12 – 8
1.2/ 0.08
P = $15
The average Share Price in the year 1995 was also $15.
Taking all of this analysis into consideration, I believe that $585 million is a fair price to pay for Dessen. The net worth of Dressen in terms of financial value and share valuation are strong. I believe that Warburg is underpaying for Dressen. I believe Warburg got Dressen for a good price. I feel that Warburg should have paid more for Dressen, so with a purchase price of $585 million I believe Warburg got a great value.

#3) Financial Forecasting is an important metric to use because it can estimate the future financial outcomes of a company. Analysts have to forecast the cash flows and debt obligations to analyze the financial competitiveness of a

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