It has been over a month since there has been a
blind valuation exercise at GuruFocus. So, I thought I would share a case I have been studying lately.
Company A and Company B are two U.S. companies. Below I have tried to give you summary information for them for the 10 years leading to the crisis without revealing too much about the companies. After all, the point of the exercise is to think about these two companies, try to value them and choose the better investment, not to guess the names. If you are so familiar with the industry that the names pop right at you, then it will be well worth it to share your expertise in an article about the two companies. Otherwise, don't get preoccupied with the names. It's the practice that counts, and it's not knowing the names that makes it valuable.
Here is the data. The numbers are in millions USD and have been rounded. The tax rate is the normal U.S. corporate tax rate.
Company A | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
Sales | 8,900 | 10,800 | 12,600 | 10,300 | 9,500 | 10,100 | 9,900 | 10,400 | 11,500 | 12,400 |
Gross | 2,000 | 2,500 | 2,900 | 2,500 | 2,300 | 2,400 | 2,300 | 2,600 | 2,800 | 2,900 |
Operating | 230 | 370 | 550 | 190 | 110 | - | - | 90 | 210 | (10) |
Net | 100 | 140 | 200 | 160 | 200 | 80 | (90) | 60 | 140 | (10) |
Cash | 120 | 270 | 640 | 450 | 1,250 | 880 | 780 | 1,000 | 840 | 740 |
Receivables | 600 | 570 | 590 | 590 | 160 | 140 | 170 | 230 | 220 | 380 |
Inventory | 1,400 | 1,500 | 1,700 | 1,800 | 1,200 | 1,400 | 1,500 | 1,500 | 1,700 | 1,600 |
PP&E | 1,000 | 1,000 | 1,000 | 1,000 | 700 | 600 | 700 | 700 | 800 | 900 |
Total assets | 3,200 | 3,400 | 4,000 | 3,900 | 4,500 | 3,800 | 3,700 | 3,800 | 4,100 | 4,000 |
Payables | 800 | 800 | 1,000 | 900 | 1,000 | 1,100 | 1,000 | 800 | 1,100 | 1,200 |
LT debt | 420 | 430 | 250 | 120 | 10 | 10 | 20 | 20 | 50 | 50 |
Total liabilities | 1,500 | 1,500 | 1,800 | 1,500 | 1,800 | 1,500 | 1,500 | 1,800 | 2,100 | 2,200 |
Equity | 1,700 | 1,900 | 2,100 | 2,400 | 2,700 | 2,400 | 2,200 | 2,100 | 2,000 | 1,800 |
Company B | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
Sales | 8,300 | 10,100 | 12,500 | 15,200 | 17,700 | 20,900 | 24,500 | 27,400 | 30,800 | 35,900 |
Gross | 1,300 | 1,800 | 2,400 | 3,000 | 3,800 | 4,900 | 5,900 | 6,500 | 7,700 | 8,800 |
Operating | 170 | 350 | 540 | 610 | 910 | 1,010 | 1,300 | 1,440 | 1,640 | 2,000 |
Net | 80 | 220 | 350 | 400 | 570 | 100 | 710 | 980 | 1,140 | 1,380 |
Cash | 520 | 790 | 750 | 750 | 1,860 | 1,910 | 2,600 | 3,350 | 3,790 | 3,790 |
Receiables | 100 | 130 | 190 | 210 | 220 | 310 | 340 | 380 | 450 | 550 |
Inventory | 1,060 | 1,050 | 1,180 | 1,770 | 1,880 | 2,080 | 2,610 | 2,850 | 3,340 | 4,030 |
PP&E | 330 | 420 | 700 | 1,440 | 1,660 | 2,060 | 2,240 | 2,460 | 2,710 | 2,940 |
Total assets | 2,100 | 2,500 | 3,000 | 4,800 | 7,400 | 7,700 | 8,700 | 10,300 | 11,900 | 13,600 |
Payables | 760 | 1,010 | 1,310 | 1,770 | 2,200 | 2,200 | 2,460 | 2,820 | 3,230 | 3,930 |
LT debt | 210 | 30 | 20 | 180 | 810 | 830 | 480 | 530 | 180 | 590 |
Total liabilities | 1,500 | 1,500 | 1,900 | 3,000 | 4,800 | 5,000 | 5,200 | 5,800 | 6,600 | 7,400 |
Equity | 600 | 1,000 | 1,100 | 1,800 | 2,500 | 2,700 | 3,400 | 4,400 | 5,300 | 6,200 |
At the end of the period, Company A had 171 million shares outstanding. Company B had 481 million shares outstanding.
You can email, tweet, or post your thoughts in the comments. My account at both
Twitter and Gmail is dgenchev.
In a week, I will give you a summary of the replies and my thoughts on the companies.