Mystery Companies Valuation

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Jul 03, 2012
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 A1998199920002001200220032004200520062007
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 B1998199920002001200220032004200520062007
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.