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Crocs, Inc. Case Study Report Essay

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THE GEORGE WASHINGTON UNIVERSITY CROCS, INC. Case Study Report

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SUBMITTED TO PROF. NEIL COHEN School of Business and Public Management The George Washington University

BY Anil Kumar Cheerla

FINA 6224 FINANCIAL MANAGEMENT

WASHINGTON, DC January 26, 2011

Q1: Consider which comparable peers are good matches and use them to perform a multiples analysis, calculating and defending an estimate of Crocs value. Soln: Comparable companies analysis – Done to determine appropriate valuation multiple for Crocs, Inc. • • Selected peer group based on industry, business and financial characteristics Included explosive growth stocks such as Lulelemon & Under Armour having similar prospects for growth and ROIC as Crocs, Inc. and some …show more content…

Also past performance is not always reflective of future performance, so any change in the dynamics will throw off out valuation. The impact of other influential factors such as dividend payout, growth, discount rate and beta are not considered. The question, Will Crocs maintain such explosive sustainable growth in the future is subject to high uncertainty and tremendous risk?

Q2: Use the FCF Valuation Template below to modify the analysis in the case, Ex. 6 (incorrectly labeled Ex. 5), calculating and defending an estimate of Crocs value. Soln: The preferred method to determine a company’s going-concern value by adjusting for risk and time. Simply put, the value of equity = value of firm – value of debt. So to find the intrinsic or fair values of Crocs, the forecast numbers from exhibit 6 were plugged into the provided template and appropriate entries from the balance sheet and income statement were entered. Assumptions: The depreciation and amortization amounts, capital expenditures were pulled directly from exhibit 6 assuming them to be incremental. Other assumptions include the discount rate at 10.96%, the long-term growth at 6%, and market value of debt as zero and no redundant assets. The firm will have perpetual growth after 4 years at a rate of 6%. The free cash flows along with terminal value calculated are listed below:

Fig4. Free cash flows

The terminal value is calculated as a perpetuity from 2012 and

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