Circon Abridged Harvard Case Solution & Analysis


RICHARD AUHLL was a prime capitalist, who believed that a capitalist market not only provides returns to the shareholders but also creates value through the efforts of the employees, management and government that leads you to strive even further.

Richard Auhll is the Chairman and CEO of Circon Corporation, who focuses on manufacturing of medical instruments and devices.


Auhll received his professional qualification in aerospace engineering from the University of Michigan in 1963 and later pursued the master's degree in the same field from Stanford University during that time he began his professional career at United Technology as a rocket engineer working in that field for 5 years. But after reaching its saturation level for value addition Auhll wanted to move into the business field as many engineers had done so; hence, he aspired to purse the MBA qualification, which he completed from the Harward Business School.


After completion of his MBA Auhll wanted to move out of the aerospace field, he was interviewed for the assistant Chairman post at a technology based company called, Allied Magnetics but he had his eye caught on a small division comprised of 8 people called Circon, with which he was inspired, as a result, he declined the assistant chairman offer to run that division. He joined the company in 1969.


By 1972 he had competently transformed Circon, changing its focus from industrial base to becoming a medical instruments based company, they started into the television microscope system for individual inspection and achieved high standards in the market segment, they were the ones who introduced the color video system in surgery.

In 1976, and the revolution came, Auhll made a bid for the acquisition of Circon, with $55000 of his own equity and remaining amount by loans, funding by private investors and family members. The transfer of Circon was completed for $1.1million.


In 1977 it was chartered as a California corporation with the equity holding being as following,

Circon had seen a remarkable turnaround with the company's turn over being the highlight; they had achieved a monopoly in the market for video system for surgery.

From 1977 to 1984 company saw a sale growth of 800% majority of the growth was due to internal funding.


In 1982 Auhll did take a $7million private loan reducing his own holding to 40%.


1983 saw the company going public and it was perceived very positively in the market increasing $5.75 on the first day of trading, having a P/E of 83 to 1. The dream of Auhll was achieved that was value creation as he had a net worth of $50 million at that point.


In 1986, the company diversified by acquiring ACMI corporation, ACMI focused on manufacturing of urological endoscopes, Circon was a very small company compared to ACMI but was in huge financial distress, Auhll made a $28.5million deal to acquire the company investing his own $2 million. It was not considered to be a good investment but with hard work, dedication and commitment of 3 years, Auhll was able to turn around the company.


1992 saw the rise of an entrepreneur like no other, American Entrepreneurs awarded Auhll as the Entrepreneur of the year.


April 1995, Auhll had continued with the pre-existing trend making another risky investment this time Cabot corporation, which focused on instrument for gynecology, synergies seemed evident but the acquisition had a very negative impact on the market as Circon's cash was depleted in the acquisition leading to poor financial results.


February 1996 saw the fall in share price and before Auhll could take any action to improve the performance of the company. On 1st August 1996 Auhll received the news that Leon Hirsch was going to force a hostile takeover.


The financial analysis of Circon is conducted on the basis of profitability analysis and credit risk analysis and gearing to provide a complete picture of overall operations of the company.

Profitability Analysis

To evaluate the profitability of the company the gross profit and net profit ratios are used where as EPS is calculated to evaluate the overall performance of the company, which will show the market perspective regarding the company.

Over the last 10 year of the operations of the company, Circon has been able to maintain a 50% plus gross profit margin, which shows that the company has to no concerns regarding sales as they have been steady throughout with average gross profit margin being 53% over the period of the last 10 years.

Even though the company held 50% plus gross profit margin, still the net profit margin has been variable and on an upward, downward trend showing very poor results that indicates the company has very poor cost control. This poor financial performance will reflect on the company stock market performance with the average ...............

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