Cooper Industries Financial Analysis

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EXECUTIVE SUMMARY Nicholson File Company has a dominant position in the complementary tools industry and is in line with Cooper’s current growth and acquisitions strategy. Based primarily on a comparison of discounted cash flows, a maximum price per share is estimated at $87.04. This price represents the industry growth and estimated improvements of Nicholson’s operational and product costs. Going into the future we feel Nicholson will not compromise Cooper Industries current earnings. Our current valuation shows Cooper Industries can continue to be competitive in its acquisition of Nicholson File while maintaining a satisfactory return on investment. FORECASTED INCOMES To establish a forecast for Nicholson File, assumptions were made in regards to costs, growth, and revenue. Financial statements for the past 5 years were analyzed to produce average percentage growth of sales revenue. To identify a high and low maximum share value, two sets of assumptions were made. A conservative model representing current company growth, based on a current calculated growth rate of 3.39%, used a forecasted Cost of Goods Sold (CGS) and Selling, General, Administrative (SGA) of 65.58% and 22.01% of sales respectively (See Exhibit 1a). A more robust growth rate of 6% with a gradual increase over four years was used based on current industry growth and Cooper’s anticipated goals for Nicholson. A rate of 65% and 19% of sales were used for CGS and SGA in this model (See Exhibit 1b.). We feel this comparison helps illustrate potential in the company. EXHIBIT 1.a (Future Cash Flows from Operations) OPERATIONS ($ MILLIONS) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Sales Growth 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% 3.39% Net sales 55.3 57.18 59.11 61.12 63.19 65.34 67.55 69.84 72.21 74.66 77.19 Cost of goods sold (67.58% of

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