The COO for Sonvilier Pen, an elite manufacturer of high-quality ballpoint and fountain pens, had gotten a proposal to outsource two pen components to Li Manufacturing, a specialist in the molding and production of intricate metals, located in southeastern China. The proposal was intriguing, but there were a number of factors for the COO to consider before making a decision.

Stoker has a decision to make: he has been offered him a job in a 40-year-old successful barbershop that has retained its old-fashioned atmosphere, or with a small loan, he could open his own shop. Students are asked to prepare a projected annual income statement and answer some questions about what it would take to run a barbershop.

When courted by KKR, Harman International was experiencing robust times. After several months of due diligence performed by KKR and its financial and legal partners, KKR announced that Harman International had agreed to be acquired in a private equity transaction valued at $8 billion. But by the time the documents pertaining to the Harman International/KKR transaction were on the table, the financial markets that had ridden on the enormous momentum from prior years into the first half of 2007, almost overnight experienced a cooling-off period of unprecedented magnitude. Unfortunately, Harman International's fourth quarter results released in August 2007 were disappointing, prompting some critical questions: What was the real intrinsic value of Harman International, and which financial metrics were most meaningful in assessing that value? Should KKR follow through on the proposed transaction or pay a required $225 million termination fee? Was going private still in the best interest of Harman International, or should the CEO abandon the transaction and have his company pay the termination fee? Followed by the (B) case, UV4348.

Prudential Financial was a financial-services company whose stock value has declined due to the financial crisis that took hold of the markets in 2008 and to investor concerns regarding the financial leverage of financial-services companies during this time. Prudential's balance sheet, income statement, and statement of stockholders' equity are shown in exhibits accompanying the case. Each statement was presented by the company in its 2007 annual report to shareholders. Students are asked to answers a series of questions using these exhibits.

Frustrated by not being able to find a pair of red cowboy boots in her size, a Florida woman, who works as a bookkeeper, and her out-of-work husband decide to open their own business. Although the store manages to earn a small profit, early sales returns dampen the couple's enthusiasm. Now they need to plan for the year ahead. Students are given a balance sheet and income statement for 2006, and are asked to prepare a forecasted balance sheet and income statement for 2007.

The objective of the statement of cash flow is to facilitate an understanding of the financial consequences of business activities by providing detail pertaining to the sources and uses of a company's cash. While the income statement and balance sheet are based on accrual accounting, the statement of cash flow is intended to represent the cash-flow consequences of business activities. Most of the challenge with preparing, and ultimately understanding, the statement of cash flow is due to a failure to appreciate the relation between the statement of cash flow and other financial statements. The purpose of this note is to discuss the conceptual framework underlying the preparation of the statement of cash flow that is based on that relation.

On September 20, 2000, Jonathan Weill, a Wall Street Journal reporter in Dallas, Texas, published a piece questioning the profitability and accounting of Enron Corporation. He based his article on a study of Enron's financial statements and conversations with staff at the Financial Accounting Standards' Board (FASB), accounting professors, financial analysts, and others. "It took me a while to figure out everything I needed to... It probably took a good month or so. There was a lot of noise in the financial statements." His piece was read by James Chanos, founder and president of Kynikos Associates, a firm that specialized in short-selling. How did Weill and Chanos figure Enron out when so many others were pushing up the stock price? How did they know to do that kind of analysis? Only the answer is simple: through study, application, and more application. You cannot develop financial analysis expertise overnight. Our objective in this document, however, is to present a very basic structure for financial analysis that will help move you toward that goal. We focus on what to look for in the financial statements, how to do basic ratio analysis, what financial forecasting entails, and how analysts use financial statement data in valuation. We intentionally focus on the mechanistic nature of financial analysis because these tools are fundamental building blocks common to the analysis of most firms. Without understanding this basic structure the unique issues facing a firm would be difficult to interpret.

This case illustrates ratio analysis using financial data for a global power company. It is best suited for an introductory discussion of ratio analysis for both the cross-section and time-series. Ten years of standard ratios pertaining to profitability, efficiency, liquidity, solvency, capital structure, and market multiples are provided. The case highlights the correspondence between firm performance and equity values.

Lone Star Power was a midsize power-generation and power-distribution company. The company's new chief investment officer must evaluate a number of financial-reporting issues raised by an outside analyst. Those issues relate to (1) revenue recognition, (2) consistency of accounting policies, (3) expense timing, (4) classification of reported line items, (5) supplemental interpretive guidance from management, and (6) interim voluntary disclosures. Using a very simple setting, the case blends issues of financial transparency, financial accounting, SEC reporting requirements, and Reg. FD disclosures.

Lewis Driscoll faces a number of challenging property, plant, and equipment issues. If he purchases a new crane, what ancillary costs should be capitalized? What depreciation method should he choose? How should he account for disposal options for the old forklifts? Not only will his decisions affect current and future profitability, but they may also impact others' bonuses based on company performance.

This case asks students to identify and evaluate the merits of two factors that have led a buy-side analyst to conclude that an acquiring company is a high-risk investment: (1) the company's allocation of acquisition proceeds and (2) the quality of the target's intellectual-property (IP) portfolio. The acquirer's allocation of the acquisition cost of the target is quite different from that of one of the company's previous deals. Careful interpretation of each line item for both acquisitions yields insights into the value management seeks with the acquisition. An IP-quality report supplied by an independent IP consulting firm likewise raises a number of issues students should identify. The primary objectives of the case are to (1) introduce IP-quality concepts as they relate to a firm's patent portfolio, (2) understand the accounting basis for firms' purchase-price allocations in IP-intensive acquisitions, and (3) compare and contrast the risk implications of acquisitions of in-process portfolios of drug candidates with established products.

In December 1998, an intellectual property executive at DuPont pondered a new program for the 196-year-old company. The executive was reviewing a proposal to donate DuPont patents to universities around the United States. The move promised substantial financial benefits for DuPont-the company could save on fees to maintain the patents, and they could gain significant tax deductions. But should DuPont make such a donation, and if so, should it offer patents in the life sciences or in another discipline? Did the program hold any strategic or tax-related risks for DuPont?

In September 2003, Jeffrey Immelt, CEO of General Electric, must evaluate a final proposal for GE to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP). On close examination, the company's IP position is weaker than it appears, given recent patents filed by competitors. The economic impact of these IP challenges may be tested in the case of the company's leading product, Visipaque, for which the case gives cash flows. Discounted cash flow analysis reveals great sensitivity to the remaining years of effective patent life. A key lesson underscores the importance of due-diligence research on a firm's IP position.

In September 2003, Jeffrey Immelt, CEO of General Electric, must evaluate a final proposal for GE to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP). On close examination, the company's IP position is weaker than it appears, given recent patents filed by competitors. The economic impact of these IP challenges may be tested in the case of the company's leading product, Visipaque, for which the case gives cash flows. Discounted cash flow analysis reveals great sensitivity to the remaining years of effective patent life. A key lesson underscores the importance of due-diligence research on a firm's IP position.

A senior analyst has recently completed an on-site visit to the Las Vegas properties of MGM Mirage. She must value the enterprise after her preparation of projected financial statements. Assumptions for these statements come from a combination of standard account relations delineated in the case and from specific company projections that must be gleaned from MGM's MD&A. This case introduces students to pro forma financial statements and their relevance to cash flow and earnings-based valuation. Tools relevant to spreadsheet modeling can also be introduced. The case precedes MGM's announced acquisition of Mandalay Bay Corporation in 2004.

Associate Jack Hereford must analyze the earnings quality of Nuware Imports. His specific task is to assess the accounting policies of Nuware as aggressive or conservative and then recast the current earnings of the company as if it had employed the accounting policies used by its closest peer. A number of adjustments are required, including those related to inventory, receivables, fixed assets, stock options, investments, and pensions. Through this exercise, one sees the interplay of various discretionary accounting policies followed by management, how to infer the monetary impact of that discretion, and how to assess adequately the profitability of one company relative to another.

International Speedway Corporation was diversified across the racing industry. The company owned and operated (1) Motor Racing Network, Inc. (MRN Radio) the nation's largest independent sports radio network, (2) DAYTONA USA, the official tourist attraction of NASCAR, and (3) Americrown and Motorsports International, providers of catering services, food and beverage concessions, and producers and marketers of motor sports merchandise. Each of the company's segments had seen a surge in growth commensurate with the popularity of the sport.