Interco Essay

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Interco (1) Assess Interco’s financial performance. Why is the company a target of a hostile takeover attempt? INTERCO 1. Assess Interco's financial performance. Why is the company a target of a hostile takeover attempt? Interco had ample financial flexibility. Interco's overall financial health was relatively healthy. It is Highly-liquid. The current ratio was 3.6 on February 29, 1988which mean that it has plenty of cash to cover any of its current liabilities. Moreover, Interco’s capitalized leases were 19.3%. The company was financially “overcapitalized”. When looking at the company collectively, Interco also looks healthy, with sales increasing 4.04% in 1987 and 13.4% in 1988.Growth in earnings moved Interco further toward its goal of a 14-15% return on equity: 1988’s ROE of 11.7% was up from 9.7% in fiscal 1987. However, if closer examination is undertaken, it is clear to see that the general retail and apparel businesses are struggling while footwear and furniture have been flourishing. Its apparel business has dropped in operating earnings from $66M in 1986 to $20M in1988. This represents a -19.70% drop in earnings as a percentage of total Interco earnings from 1987 to 1988. The general retail business has been stagnant. Its earnings slightly increased while its business has not grown much. The apparel manufacturing and general retail divisions remained on-going problems, due largely to a changein thenature of these businesses like decline in consumer spending, imports from countries with lower labour costs. Therefore, since the overall performance of the company was improving, although some divisions were not pulling their weight, this means the stock price might be undervalued. Interco management and Wall Street analysts believed that the apparel group’s performance would continue toweaken Interco’s overall operations and cause the equity markets to

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