You have been hired as a financial analyst by a private equity firm. Your firm along with the management of Tiffany & Co. is investigating the possibility of taking the company private, i.e. your firm and Tiffany’s management will buy all of the shares.
You have been assigned to address the issues found below. The information that you provide will be used by the decision makers to determine a price per share for the stock. For the computations use the information found on the Yahoo! Finance web pages for Tiffany & Co. (TIF). The numbers used would be for the financials of January 31, 2014 and January 31, 2015. Other computations and issues which require more current information will be found on these webpages as well.
For discussion questions, a good source of information is found in the company’s Form 10-K Annual Report for 2014, as well as recent articles concerning Tiffany. The link to the company’s official web site can be found at the bottom of the Profile page on Yahoo! Finance. Your grade for the qualitative answers depends on the quality and quantity of relevant information, as well as the quality of writing.
a) Discuss Tiffany in the context of the forces considered in performing an environmental scan.
b) Discuss the risks that Tiffany needs to consider in conducting its operations.
c) Explain whether you believe that TIF can take on more debt. Use some computations to support your conclusion.
d) Discuss TIF’s inventory position.
e) Construct the DuPont Identity for Tiffany, Macy’s, Inc. (M), and Dillard’s Inc. (DDS). Explain your results.
f) Determine the MVA for TIF, M, and DDS and discuss the results.
g) Determine the EVA for TIF and discuss the results. Assume that TIF’s cost of capital is seventeen percent. Use a tax rate of 29 percent for TIF. Discuss the results. h) Determine TIF’s free cash flow for the most recent year. Comment on the
results.
i) Compare and discuss the PE ratios for TIF, M, and DDS.
j) Discuss the overall financial health of Tiffany.
k) After the final price is determined for Tiffany, do you believe that this is evidence of an efficient or inefficient market? Explain.