Timberland assignment
To consider before completing your write up:
1) What are some of the features of the shoe wear industry that determine its profit potential? How difficult is it to earn abnormally high profits in this industry? What is Timberland's strategy for attempting to achieve profitability higher than the industry norm?
2) Decompose Timberland's return on equity (ROE) for 1992. Compare the results with those of Nike and other competitors, based on the most recent year's results. Is Timberland abnormally profitable? What components of profitability cause Timberland to be above or below normal?
3) Analyze Timberland's ROE for the last four quarters, and compare the results with those for 1992. What accounts for the improvement in profitability?
4)Using the forecast model (the Foster model) described in Chapter 5, forecast quarterly EPS for 1993:IV and for each of the quarters of 1994. How do these forecasts compare with those considered in the previous question? What could account for the differences?
5) Briefly analyze a detailed DCF or RIM of Timberland using the template provided on the course Web page.
Written assignment
1) List the key components of profitability that improved Timberland's profitability during 1993. Discuss how likely it is that the advantages can be sustained in the future.
2) Assume Timberland maintains its net profit margin at the current level. How large a sales increase would be required for 1993 and 1994 to generate the EPS forecast by Lydia Miller? Is there some combination of alternative profit margin forecasts and sales forecasts that you would consider more plausible?
3) Prepare a forecast of sales, expenses, and cash flows for the years 1993 and 1994, using the assumptions from the previous question as a starting point. What assumptions are necessary to generate EPS forecasts consistent with those of Lydia Miller? What does she appear to be assuming about Timberland's margins and rates of return on investment?
4) Start with forecasts of ROE and growth in book value from question 3. Add forecasts of these variables for years beyond 1994 and insert them into the shortcut formula for price-to-book ratios. What price-to-book ratio is implied for Timberland. Is it as high as the market price-to-book ratio based on an $80 stock price? Identify a set of assumptions about future ROEs, growth, and cost of capital that would justify the observed price-to-book ratio and indicate your assessment of the reasonableness of these assumptions.
5) Based on your work, would you recommend Timberland's stock to an investor in late 1993?