Essay on Carlton Polish Case

Words: 1231
Pages: 5


1. What should Charlie Carlton do? Mr. Carlton should first evaluate the company to see how much it is worth. If he finds that fifty percent of the company is worth more than $2.5 million he should buy the shares from Mr. Miller and run the company as he plans. He can use two methods to determine the value of the company: discount cash flow (DCF) approach and /or comparison with similar companies, which are publically traded. He should also consider relevant non-financial factors such as his family’s history in this company and his parents’dependence on the success of the business.

2. What is the polish/cleaning suppliers market like? The total market for industrial and
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Using comparable company analysis, we can use price per earnings (PE) ratio to estimate the market value of the Carlton Polish company. The average PE ratio for EL is 9. Using this PE for Carlton Polish, we come up with a market value of close to $4 million. Price/earning = 9 → Price = 9*$441,000 (Carlton Polish’s earnings in 1983) = $3,969,000 Since the value of the company is the sum of the market value of the firm’s equity and the market value of the firm’s debts: V = E + D (p.385), we must add for long and short term debt, which is $2,240,000 (current liabilities+ long term debt in 1982). So, the total market value of Carlton Polish would be about: $6,209,000. 9. What new business strategies, if any, do you see or could be achieved?

Carlton Polish could: * Increase market share by entering new geographic areas (expanding to the west) * E.g. build new manufacturing facilities to limit freight costs. * Increase sales to distributors by helping them to increase their market shares * Acquire more one or more distributors to achieve vertical integration and get closer to the end users. * Could sell directly to end users in some markets. * Expand and improve its product lines through internal means or by acquisition. Conclusion: Based on an estimate the market value of $6.2 million, Charlie