So What is it Worth?

Let’s take 15 minutes to look at assessing, valuing or passing on the case study with the link below:

If you do the work, you will learn many moral, philosophical and business lessons from this case. I promise.

I will post late this week the “answer” or my analysis with further links on this company. We’ll have fun with this one.

7 responses to “So What is it Worth?

  1. What jumps out at me (my thoughts in order as I read it):
    Page 1:
    Tremendous revenue growth, but net income is not keeping up: margins are getting compressed.
    I thought this was a tech company initially (giving “they are changing the world”, etc.) and was surprised to see a dividend being paid.
    Lots of debt, too much in relation to earnings.
    Balance sheet: PP&E gives away who this company is.
    Cash flow statement: company is investing a huge amount into capex. Burning cash funded by increasing debt. This is unsustainable.

    What’s it worth? Got to value it based on the balance sheet, and need to discount the assets heavily.

    Assign about 25B in value to current assets and 20B-30B to remaining assets. Given about 54B of total liabilities, not really any equity value here.

  2. Left a comment earlier but it didn’t go through. Don’t want to retype the whole thing so here’s a summary:
    -Earnings growing faster than profits
    -Dividend is puzzling
    -Too much debt in relation to earnings
    -PP&E on balance sheet gives away which company this is
    -Company is burning cash due to major capex and funding it with increasing amounts of debt.
    -What’s it worth? Need to look to balance sheet and discount the assets heavily. I would estimate 45-55B of assets vs 54B of liabilities. Equity value is negligible.

  3. Thanks Ben

    I won’t comment until posting the “solution” and analysis at the end of the week/early next week so as not to give away too much.

    Alliance Bernstein (The famous Institutional Value Shop) recommended that the Florida State Pension Fund invest. What were they thinking?

  4. Pingback: Answer to Case Study: So What Is It Worth? | csinvesting

  5. Since I am relatively new to investing I try to keep things as simple as possible, once I saw the huge jump in revenues from 99 to 2000 I went to see what the op income was and saw that it was only about 2B on $100B of sales, why would I want to buy into something with that small margins, on top of that it had only $1.3B in cash, and current liabilities of about $28B. I decided it was a bad company.

    Probably too simplistic but it lead me to the right conclusion when I saw your answer and who the company was.

  6. You might be a beginner but there were 50 MBAs at various wirehouses who recommended Enron at $80 plus. Go figure.

    Keep up the good work.

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