Final Case Assignment
Dr. John’s Products, Ltd.
The purpose of this final assignment is to determine the degree to which you have comprehended the entire base of course knowledge to the point where you can apply it to a problem-solving situation. Prior to engaging in this final assignment, you have worked through a number of other quizzes and assignments that were designed to provide you with knowledge, understanding and the ability to apply different tools of financial analysis to entrepreneurial financial problems.
As you engage in completing this assignment, it is important to understand that your performance assessment will be based on the degree to which you can correctly apply the technical tools of financial analysis covered in class, and your ability to integrate course material learned in the readings and video presentations. If you can demonstrate this to a satisfactory level, you will earn an “A” for the class. Here is the case scenario:
You have been hired as a financial consultant by to provide an independent evaluation of Dr. John’s Products, Ltd. for a private equity investor group. Their original request included the following questions:
- What strengths and experiences does the entrepreneur bring to the conception and development of this business? (Is John Osher “the right guy” for this business?)
- Identify and describe the nature of the opportunity available to the company.
- Identify and describe how the company is pursuing that opportunity.
- Identify and describe the key elements of the business structure that the company has developed to pursue the opportunity.
- Evaluate the risk and likelihood of success:
- What strategies are being taken to avoid risk and exposure to loss?
- What would need to happen in order for this company to succeed?
- How likely is this venture to be successful?
- What would be the value of the company using both a discounted cash flow and a venture capital model?
Avoid an approach in which you simply answer these questions one-by-one, rather, take an integrated approach to analyzing and valuing this entrepreneurial opportunity. Be sure that you apply the methods of analysis covered in the readings and videos.
Valuation Scenarios and Assumptions
Your market research team has conducted an analysis that provides you with three different market penetration scenarios. These are referred to as the low, base, and high penetration scenarios. The assumptions for each of these scenarios, along with other general assumptions, are provided in the accompanying spreadsheet.
Part of your analytical process will be to use the data for the four publicly traded firms (case Exhibit 5a) to develop the following valuation multipliers:
- Value to sales
- Value to gross profit
- Value to EBITDA
Any or all of multiples can be used in your VC valuation analysis. Your final recommendation should include an opinion regarding which of the multiples are the best choices for the valuation.
Write a four-page (maximum) report in response to the request that has been made. Include supporting documentation in the form of tables and charts included at the end of the text of your report (i.e., do not embed the exhibits within your text: include them as appendices). Address the report to Trevor McNevan, Chief Investment Officer of the TFK Equity Group.
NOTE: The table on the next page provides the valuation scenario assumptions. This information is also provided in a separate spreadsheet document.