Circuit City Essay

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Circuit City The objectives of this case are to improve your understanding of capital structure issues and off balance sheet financing, with an improvement in mastery of cash flow analytics and distortions. Barry M Frohlinger Circuit City Stores Case Barry M Frohlinger copyright 2003 www.learnfrombarry.com 1 Circuit City Stores financial statements are attached. In addition, find financial information on Best Buy, Circuit City’s largest competitor. [We will use the competitor information later for analysis]. You should be aware that Circuit City has a credit card operation, managed by its wholly-owned captive bank while Best Buy does not operate a credit card operation. You will use this case to improve your understanding of capital structure issues and off balance sheet financing. A] Comment on the equity structure change of the Company as of January 24, 1997. B] Identify the amount of off-balance sheet financing for the Company. C] Comment on Circuit City's capital structure decision [including debt, equity, securitization and leasing] versus Best Buy. D] Identify the distortions to Cash Flow from Operations due to off-balance sheet financing. E] Build a simple EXCEL model with VLOOKUP to run a synthetic debt rating for Interest Coverage [EBIT/Interest] and Leverage [Debt/Debt + Minority Interest + Equity] Circuit City Stores Case Barry M Frohlinger copyright 2003 www.learnfrombarry.com 2 Circuit City Stores, Inc. was incorporated in 1949. Its retail operations consist of Circuit City Superstores, Circuit City electronics-only stores and mall-based Circuit City Express stores. Certain of Circuit City Stores, Inc. subsidiaries operate CarMax Auto Superstores, a used-and new-car retail business. In addition, as of February 28, 1999, Circuit City Stores, Inc. owned approximately 75 percent of Digital Video Express. The Company has been

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