# VIDEO LECTURE on Valuing Liz Claiborne

Jan 01, 2000 10-K for Liz Claiborne.

So what is the company worth? Show your work. Don’t cheat yourself–do the work BEFORE clicking on my notes or the video lecture!

http://www.scribd.com/doc/71969500/Liz-Claiborne-10-K-Jan-1-2000

Solution and Lecture notes to valuation of Liz Claiborne: http://www.scribd.com/doc/71969836/Greenwald-Class-Notes-5-Liz-Claiborne-Valuing-Growth-2

Let  me know what you learned, liked and disliked.

### 12 responses to “VIDEO LECTURE on Valuing Liz Claiborne”

1. Interesting, I’ll take a look. I’m from UK, so we don’t have “10-Ks”. Wow, 205 pages – that’s a book. I guess the trick is to filter. Something for me to think about.

2. Yes, you have to read selectively. Go to the financials from balance sheet to cash flows. If you are lost then go to the video.

You should be able to pick out the the key aspects of the business in about 20 minutes. If you are lost then look it up or move on.

You will get with practice. After 2,000 10-Ks (Annual Reports) it becomes second nature. Here in the US, you can order 500 annual reports from diffrerent companies with a click of the mouse.

3. Hi John,

this is an excellent exercise and case study. Here is what I did
1) Computed Sales per share \$46.
2) Computed book value per share \$15.
3) Net Cash = 38 – 116
4) Computed Invested Capital = \$500million
5)EBIT = \$300million
6) Pre tax ROIC = 60%

Valuation
1) 10x EBIT max would be \$3000. Market Cap would be \$2900m
2) Used diluted shared outstanding of 62 million (v/s BG uses 55 million..)
3) Value comes to \$45-\$46.
4) Applied a generic 15 P/E to EPS of \$3. = gives \$45.
5) Finally, maybe worth 1x Sales that is \$46.
6) FCF = \$200 (Cash From Ops – Capex). I would think a well managed retailer that is growing could be worth 15x FCF. So again get \$3000 million EV.

So, my buy price considering the growth and ROIC would be 30% discounted from that around \$30-\$33 range. \$25 would be nice as indicated in the lecture.

I did not follow the EPV calculation in the lecture. How he arrived at Brand value. I will have to see it again and see more examples.

Thanks

• Good job. Thanks for sharing your work.

4. John, I am interested in knowing how much time you spend reading 10-k’s. I ask people this question a lot. Some say read the whole document for the last 5 years (page for page) and others are more selective. How do you typically read them? Do you have a process? Does it depend on how familiar you are with the company? Do you take notes or make an excel spreadsheet on the company, etc? Do you print off the documents or read them on your computer? Thanks.

• Dear Logan James:

This is a good question, and it requires a blog post at least to address the issue. In the next day or so I will post your question and my reply with links.
But while I work on replying, perhaps I should turn the question around and ask, “Why do you read a 10-K?” If you say, “To find a good investment or business,” then be specific in what you would be looking for. How you read a 10-K relates back to YOUR search strategy, valuation technology, risk management, and investment goals.

If you need further guidance in thinking this through there is no better reference for improving your analytical reading abilities than Mortimer Adler’s, How to Read a Book.”. Some might think, “Who does this guy think he is? I learned to read back in 1st grade.” Well, I learned from this book how to read with a purpose and more efficiently. That book is a classic.

5. Did a quick valuation without looking at the comments, and came up with an approach that was, surprisingly, very very similar to adlib, right down to choosing 10X EBIT. How spooky is that? Off to look at the video and read the lecture notes now.

6. I just went through the video and its useful. I then checked M* and was shocked to find the market cap at \$800 million and EV of \$1.6Billion. And this after the stock just doubled over the last month from \$4 to \$8!!

What happened to this company?

Any lessons to be learnt?

7. If anyone has been following recent events, here is a good link

http://seekingalpha.com/article/301383-liz-claiborne-shedding-brands-gaining-growth-potential

They sold of the name sake brand to JCP and some other brands..to reduce debt to about \$300 million. EV will be \$1.1 billion. They have given guidance to EBITDA for 2011 and 2012.

8. Thank you for the book recommendation John. I learned a few important lessons from the book over the weekend. Namely, the importance of reading with a purpose, asking the right kind of questions and thinking independently (doing your own work and try not to read what others say before forming your OWN conclusions). Also, using a reference such as Value Line is important, but you need to know what you are looking for, and again, asking the right kind of questions from the reference and realizing that it is just a starting point.

9. John, quick questions…. If the current brands of Liz Clairborne were not able to sustain the current level of sales would we also need to add some of the acquisition of new brands to calculate the EPV? Since new brands would need to replace old brands that are going out of fashion and not being able sustain them selves at current levels.

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