Teuer Furniture Harvard Case Solution & Analysis

Comparable Valuation Analysis

The parameters or the dimensions on which the companies are being compared are listed below;

• Total assets
• Cash flow from Assets
• Sales growth
• Asset Price/Cash flow assets
• Asset price/adjusted net income
• Asset price/sales
• Equity price/net income

On the basis of the total assets held by the companies, it is being evaluatedthat the total assets of the nine companies are increasing year by year showing that the assetswhich are reported on the balancesheet of the companies tend to increase value of the companiesand ultimately benefit the operations of the business.

In addition to this, it can be noted that increased assets wouldgenerate cash flows, improve sales andreduces cost or expenses.

Another dimension is the cash flow from assets which is significantly important to determine the cash inflow generated from the assets. It is essential that the cash flow from assets must be positive, however the cash position of the company can be resulted from the investment losses or gains resulted from the cash or amount being spent on the investment in the capital assets includingequipment and plant.

Amongst all of the comparable companies, the companies having positive cash flow from assets are listed below;

• Ethan Allen interiors Inc.
• Haverty furniture companies
• La-Z boy incorporated
• Stanley furniture company
• Tempur sealy international Inc.
• William Sonoma Inc.

Thus, it is analyzed that the comparable firmsshould be those having positive cash flow from assets, sales growth, Asset Price/Cash flow assets,Asset price/adjusted net income, Asset price/Sales and Equity price/net income.

The companies having positive cash flow from assets are ETH, TPX and WSM.They have shown increasing total assets in the balance sheet, but ETH and TPX have decreasing growth in sales.

As the Teuer Furniture is having 24.0 times cash flow from assets, it can be compared with the companies thatgeneratedcash inflows from the investment in the capital assets. The companies are ETH, TPX and WSM.

In addition to this, the Asset price/adjusted net income of TPX and WSM can be compared with Teuer because their values are close to that of Teuer.  It can be seen that TPX and WSM represent earning of the business after deducting all costs or expenses, this in turn reflects the financial health of company as compared to other companies.

The price of share can be wisely compared with the revenue generated by the company. After analyzing the companies showing asset price/sales ratio, it is determined that TPX has high price to sales ratio as compared to other eight companies.

Lastly, if theequity price/net income ratio is higher of any company it shows that the investors would be expecting higher earnings growth in the forthcomingyears. After evaluating the companies on the basis of the price earnings ratio, it is analyzed that TPX have higher equity price/net income or price earnings ratio as compared to other companies, depicting the fact that the company is in strong financial position satisfying its investors through providing higher earnings growth.

Question No.03

Through using multiple approaches, the Teuer Company is valued. The set of companies that have been chosen on the basis of the certain dimensions are TPX and WSM. The relevant multiple and the price of share is calculated, which can be seen in appendix.

The multiples of the comparable selected companies do differ with the Teuer Company because the average of the comparable companies is taken. The asset price/cash flow assets relevant multiple is 28.59371556, asset price/ adjusted net income is 17.69970658, asset price / sales is 1.314988092 and equity price/net income is 17.13196692 of the comparable companies.

There is a difference in the valuation of multiple calculated through discounted cash flow approach because the valuation of multiple is performed of the comparable companies. The comparable valuation multiples are used to value both selected companies.

Even though, all of the nine stated companies exist in the home furnishing industry, it is analyzed that these companies differ across the number of potential dimensions and parameters.

Conclusion:

After taking into account all facts and figures, it is being analyzed that the comparable valuation multiple analysis is useful in order to value the firm on the basis of the four equally important multiples.

In addition to this, the sales growth of Teuer Company is increasing year by year but overall net income is decreasing due to the increasing portion of cost of goods sold.

Furthermore, the companies are chosen on thebasis of positivevaluation multiple providing a better picture of the financial health of the company. The chosen companies includeTPX and WSM.

Exhibit A:

Exhibit B:

Exhibit C:

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