Better World Books Harvard Case Solution & Analysis

Better World Books Case Solution 

Introduction

Better World Books, which is also known as BWB, is an internet based book selling company. The company has developed a new business model that integrates Corporate Social Responsibility into a profit making business.The company has set its mission to donate at least 10% of its earnings to developing literacy rate across the world. During the year 2009, the company generated $7.5 million for literacy programs during the world.

The company was started by three individuals from a college, who started by selling their second handbooks to earn some extra money which resulted in a business idea for the individuals. The unique thing about the company is development of technology, which has provided significant growth in revenue for the company.

Question.1)

How much money is this business making now? How much money can it make as it grows? Think of answering these questions as a puzzle, use the bits and pieces of information in the case and then fill in any “blanks” with reasonable assumptions. Be ready to defend your numbers and assumptions.

Current Year Earnings

The company has earned considerably high net profits during the year, almost of $12.759 million which shows a very high return on capital employed of 315%. The percentage is largely over valued because the company may need to pay taxes which will reduce its profits. Moreover,no interest expenses or dividends payments have been deducted which will further reduce the earnings of the company.

The revenue of $30 million given is used in calculating the profits. As the company sells about 10,000 books a day therefore over the year, the company should be able to sell over 3 million books. Moreover,as the company pays $0.5 on each qualifying book, therefore the cost of sales is $1.8 million assuming similar depreciation for fixed assets technology purchased by the company. Other expenses to the company include salaries to directors and ware house employees, IT services, donations and entertainment expenses for book raising events. The company is expected to earn a cash flow of $ 6.1 million which should be sufficient for investors.

Forecasted Next Year Earnings

The company expects to increase its earnings by 20% due to technological advancements that the company has been performing. It is expected that the increase in revenue will be due to increase in sales price of the books, however the number of books sold is also assumed to increase by about 20%. Other expenses are expected to increase in similar proposition. Therefore, the free cash flows to the company will increase to $ 9 million................

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