The Valuation And Financing Of Lady M Confections Harvard Case Solution & Analysis

The Valuation And Financing Of Lady M Confections Case Study Help

Different Comparable

Number of comparabletools are used to evaluate the public companies’ respectivevalues with respect to the market. Comparable tools are the company’s business valuation techniques, which are used to examine the comparison of the company with its competitors. While surveying the public markets, following multiple comparable are used to evaluate the company:

  • Price/ Earningsvaluation multiple.
  • Price/ Book Value multiple.
  • EV/ EBITDA multiple.
  • ROE multiple.
  • ROA multiple.

EBITDA multiple

EBITDA multiple can be calculated by dividing the firm’s value with its EBITDA. In this case, the EBITDA multiple is considered as 12x, which represents an accurate industry multiple on the average basis(Mauboussin, 2018). Research represents this multipleas a widely used multiple throughout theindustry,because it is considered as an easiest approach to calculate the firm’s value that can yield accurate results. Thus, this comparable is appropriate for the company’s valuation as compared to other comparable tools.

Question: 5

Debt Financing

It is assumed that the entire Lady M company has been purchased by using PE fund. A debt financing has been arranged form ABC bank for Lady M. The PE fund is the private equity fund, which is used for investment strategies. Thus, by considering the terms and conditions of the debt financing, some major changeshave been made, which are highlighted by the yellow color. Thus, after doing the changes, it could be seen that the free cash flows for each year and its respective NPVs are less as compared to the previously calculated FCF and its NPVs. The changes include the interest payments and the principal amount payments, with an inclusion of other changes. Thus, it is concluded that the debt financing will not yield increasingreturns and positive NPVs for each year as compared to the previous calculations. So, the debt financing should not be considered. (See appendix 2 for further details)

Recommendations

After evaluating the entire situation with the help of stated facts and figures; it is recommended that the NPV for each respective year represents a positive amount, which means that the project is attractive and will yield increased revenues by compensating the invested amount in future. It could be seen that the project’s overall NPV is positive and represents that the project is attractive, which could yield increased returns revenues by compensating the invested amount in future. In addition to this,it is concluded that the debt financing will not yield increasing returns and positive NPVs for each year as compared to the previous calculations. So, the debt financing should not be considered.

Conclusion

It is concluded that Lady M confections was primarily established to supply cakes as a wholesale business to the New York’s luxury hotels and restaurants, which was established in May 2001. Daisy Tom and Romaniszyn are considering potential growth opportunities- the Chinese investor’s offer and opening of a new boutique at World Trade Center location. Both options are viable and carry potential risks. They have to decide on the attractiveness of these two options, along with an analyzation of the potential threats and risks. It is recommended that the NPV for each respective year represent positive amount, which means that the project is attractive and will yield increased revenues by compensating the invested amount in future.................................

 

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