THE GEORGE WASHINGTON UNIVERSITY CROCS, INC. Case Study Report

¹

SUBMITTED TO PROF. NEIL COHEN School of Business and Public Management The George Washington University

BY Anil Kumar Cheerla

FINA 6224 FINANCIAL MANAGEMENT

WASHINGTON, DC January 26, 2011

Q1: Consider which comparable peers are good matches and use them to perform a multiples analysis, calculating and defending an estimate of Crocs value. Soln: Comparable companies analysis – Done to determine appropriate valuation multiple for Crocs, Inc. • • Selected peer group based on industry, business and financial characteristics Included explosive growth stocks such as Lulelemon & Under Armour having similar prospects for growth and ROIC as Crocs, Inc. and some …show more content…

This sum is the enterprise value of Crocs, Inc. The total FCF’s are then discounted and any debt outstanding is deducted. Since Crocs has negligible debt, the PV represents the equity valuation.

Fig5. Equity Valuation

The resulting value is $93.75 which is above the current market value of $65. So through the discounted free cash flow valuation, Crocs, Inc. as of August 2007 is undervalued compared to its intrinsic value.

Q3. Create a copy of this tab, with your completed work, for Q3. Be careful! Don't delete your work save the file first. Rename the new tab 'Q3', and perform a sensitivity analysis using profit margin as the key driver. Revisit your previous valuation result and decide what changes are necessary, if any. Write your sensitivity analysis explanation below the analysis on the Q3 tab. Soln: The sensitivity analysis was conducted using profit margin as the driver. Crocs, Inc has been a tremendous growth story with growing multiples of sales revenue and gross profits. The years from 2003 to 2006 saw huge investments in fixed assets and SG & A expenses as sales was being ramped. In order to meet the growing demand, Crocs invested heavily in new manufacturing facilities, opened up new stores, expanded operations globally, acquired other complimentary companies, hired more labor and sales personnel. As long as the continued demand exists and there is new demand for Crocs products from new market segments, both