BUSI 692
Case 6 Report Instructions
CASE 6: The Financial Detective, 2016
Case Introduction/Overview
This case presents the student with financial ratios for eight
pairs of unidentified companies and asks them to mate the
description of the company with the financial profile derived
from the ratios. The primary objective of this case is to
introduce students to financial ratio analysis—in particular, the
range of ratios and the insights each one affords. This case
presumes that students have already been introduced to the
definitions of various financial ratios through other readings or
lectures. Search the web if you need a refresher on ratios (there
are many articles and tutorials on this topic).
The structured exploration of pairs of companies within an
industry affords a number of important insights into strategy
and financial performance. First, the economics of individual
industries account for significant variations in financial ratios
because of differences in technologies, product characteristics,
or competitive structures. Second, financial performance results
from managerial choices: within industries, the wide variation
in financial ratios is often a result of the differences in
corporate strategy in marketing, operations, and finance. For
those reasons, this case is a good springboard into subsequent
classes, which deal with the interaction of strategy and financial
performance.
Case Report Instructions
The report for this case is a bit different from other assignments
in the course. For this report, copy and paste the tables that
begin on the next page into a Word file (or delete this page and
replace with a cover page). For each industry, indicate by
typing your letter choice in the second column which data
column you think goes with each company description (note that
the descriptions have been truncated; see the case for a full

company description). For example, in the first table titled
“Airline”, indicate in the “Associated Correct Data Column”
box whether “A major airline that flies domestically and
internationally …” is data column A or B in Exhibit 6.1. You
can type the letter (A or B) in the column box (it should be
centered, but if not, please center your answer choice).
Then, you must provide at LEAST (more preferred for an
excellent report) three (3) reasons for your choices. Type these
in the space provided (reasons should be several sentences and
they must directly relate to the data in Exhibit 6.1. For example,
if you think that an airline that operates both domestically and
internationally … would have more Cash and ST Investments
than an airline that operates primarily in the United States …,
write this as a reason and clearly explain why you believe this
to be a reason. Your reasons for your choices are as important
(perhaps more so) than whether or not your choices are correct.
Airlines
Description (see case for extended details)
Associated Correct Data Column (A or B)
A major airline that flies both domestically and internationally
…
Operates primarily in the United States …
Reasons:
1.
2.
3.
Beer
Description (see case for extended details)
Associated Correct Data Column (C or D)
A national brewer of mass-market consumer beers …

The largest craft brewer in the United States …
Reasons:
1.
2.
3.
Computers
Description (see case for extended details)
Associated Correct Data Column (E or F)
Sells high-performance computing systems (“supercomputers”)
to …
Sells personal computers as well as handheld devices and
software …
Reasons:
1.
2.
3.
Hospitality
Description (see case for extended details)
Associated Correct Data Column (G or H)
Operates hotels and residential complexes …
Owns and operates several chains of upscale, full-service …
Reasons:
1.

2.
3.
Newspapers
Description (see case for extended details)
Associated Correct Data Column (I or J)
Owns and operates two newspapers in the southwestern United
States …
Renowned for its highly circulated newspaper offered both in …
Reasons:
1.
2.
3.
Pharmaceuticals
Description (see case for extended details)
Associated Correct Data Column (K or L)
A diversified company that sells both human pharmaceuticals …
Focuses on generic pharmaceuticals and medical devices …
Reasons:
1.
2.
3.
Power
Description (see case for extended details)
Associated Correct Data Column (M or N)

Focuses on solar power …
Owns large, mostly coal-powered electric-power-generation
plants …
Reasons:
1.
2.
3.
Retail
Description (see case for extended details)
Associated Correct Data Column (O or P)
A leading e-commerce company that sells a broad range of
products …
A leading retailer in apparel and fashion accessories for …
Reasons:
1.
2.
3.
Case 7 Report Instructions
CASE 7: Whole Foods Market: The Deutsche Bank Report
Case Introduction/Overview
This case examines the decisions of Deutsche Bank research
analyst Karen Short in May 2014 while covering the stock of
Whole Foods Market, the leading natural and organic food
retailer. Having recently issued a “buy” recommendation for the

stock backed by a strong financial forecast, Short must
reevaluate her decision in the face of a lower-than-expected
earnings announcement by Whole Foods management and an
associated market price decline.
Students are invited to scrutinize the analyst’s financial forecast
considering the developing industry dynamics and Whole
Foods’ competitive position. The forecasting objective focuses
on evaluating the appropriateness of Short’s current financial
forecast by exposing students to the mechanics of financial
statement modeling and sensitivity analysis. The valuation
objective focuses on evaluating her buy recommendation using a
discounted-cash-flow–or market-multiples–based valuation
approach.
Case Report Instructions
This is a “Directly answer a set of questions” case report. For
this case study, answer each of the following questions (as per
the guidelines in “Learning with Cases and Writing Case
Reports”).
The following questions concern issues related to financial
forecasting:
1. How would you describe Whole Foods’ strategy?
2. Prepare a competitor analysis. How would you define Whole
Foods’ industry? Who are Whole Foods’ competitors?
3. How attractive is Whole Foods’ current market position? Is it
sustainable?
4. What do the financial ratios in Exhibit 4 tell you about the
past operating performance of Whole Foods? How informative
are the historical ratios for Whole Foods’ prospective
performance?
5. Examine Exhibit 7 in detail. How important are each of the
underlying financial assumptions in the ROA forecast? What
assumptions (i.e., margins, asset turnover, growth) play the
biggest role in driving the anticipated improvements in ROA?
6. Do you agree with the existing financial assumptions in the
Deutsche Bank forecast? If so, why? If not, what adjustments
would you make to the model?

The following questions concern issues related to valuation:
7. What evidence is there that Whole Foods has been
successful? Do you anticipate that this success will continue?
8. The student spreadsheet for Whole Foods Market located on
the student textbook website (file titled:
“Case_07_Whole_Foods_Market_F1776X” extends the Exhibit
7 forecast for eight years. As a starting valuation, what do you
believe the implied value of Whole Foods’ shares to be, based
on this base-case forecast? For your discount rate, please use a
market risk premium of 5.0%.
9. What is your assessment of the base-case forecast? Do you
believe that it provides a fair representation of the financial
prospects for Whole Foods? If not, what changes would you
make?
10. What are the primary value drivers underlying the stock
price of Whole Foods?
11. To date, Short’s research report recommends that Whole
Foods is undervalued by the market and is a buy. In light of
recent events, do you think she should continue to maintain that
recommendation? Back up your analysis with a discounted cash
flow valuation of Whole Foods that explicitly outlines the
assumptions that are important to support your argument.
NOTE: You can access a student spreadsheet file that you might
find helpful for this case on the textbook website found at the
following link:
http://highered.mheducation.com/sites/1259277194/student_vie
w0/index.html
This directory contains Excel spreadsheet files with the primary
exhibits for this case. Some of the Excel tables exercisable
models which will allow you to test ideas with minimum setup
time.

Case 8 Report Instructions
CASE 8: Horniman Horticulture
Case Introduction/Overview
This case captures the problems concerning cash flow and
working-capital management typical of small, growing
businesses. At the end of 2015, Bob and Maggie Brown have
completed their third year of operating Horniman Horticulture,
a $1-million-revenue woody-shrub nursery in central Virginia.
While experiencing booming demand and improving margins,
the Browns are puzzled by their plummeting cash balance. The
case highlights the difference between cash flow and accounting
profits, as well as the common negative effects of growth on
cash flow. It also provides a forum for instilling appreciation
for the relevance of free cash flow to business owners and
managers, introducing financial-ratio analysis, developing the
concept of the cash cycle and working-capital management, and
motivating the use of financial models.
Case Report Instructions
This is a “Use a set of provided questions to prepare a formal
case report” assignment. For this case study, you must write a
professional report as per the guidelines in “Learning with
Cases and Writing Case Reports.” You should create an action-
oriented advisory report that presents concisely your analysis
and recommendations. The questions below should help you
analyze the case and identify the specific issue(s) raised. These
are not questions that you should directly answer in your report;
instead these questions are designed to help you frame your
report with specific focus on the last question: “What is the
problem?”
1. What is your assessment of the financial performance of
Horniman Horticulture?
2. Do you agree with Maggie Brown’s accounts-payable policy?
3. What explains the erosion of the cash balance?
4. What do you expect the financial position of the business to
be in 2016? Extend the financial statements through 2016,
assuming that Bob Brown grows revenue by 30%. Note: To

make the balance sheet balance, define cash as equal to (Curr.
liab. + Net worth) – (Accounts receivable + Inventory + OCA +
Net fixed assets).
5. What is going right with this business? What concerns you?
6. Where is the cash going?
7. Will strong business performance in 2016 improve the cash
position?
8. Do you agree with Maggie Brown’s accounts-payable policy?
9. What are the alternatives for solving the business’s cash
problem?
10. What is the problem?
NOTE: You can access a student spreadsheet file that you might
find helpful for this case on the textbook website found at the
following link:
http://highered.mheducation.com/sites/1259277194/student_vie
w0/index.html
This directory contains Excel spreadsheet files with the primary
exhibits for this case. Some of the Excel tables exercisable
models which will allow you to test ideas with minimum setup
time.
Case 11 Report Instructions
CASE 11: Roche Holding AG: Funding the Genentech
Acquisition
Case Introduction/Overview
This case examines the decision by the Swiss pharmaceutical
Roche Holding AG (Roche) to offer a record $42 billion bond in
February 2009. In light of a pending acquisition of U.S.
biotechnology leader, Genentech, Roche management planned to
sell $32 billion in bonds at various maturities from 1 year to 30

years and in three different currencies (U.S. dollar, euro, and
British pound). In a context of substantial uncertainty in both
world financial markets and the value of the Genentech deal,
students are introduced to the pricing of corporate bonds by
being invited to price Roche’s bold global offering.
The case is designed to introduce the concept of a risk premium
and to accomplish the following potential additional learning
objectives:
· Motivate the concept of a risk premium and the notion of a
cost of debt by exposing students to estimating default risk,
credit ratings, and credit spreads
· Review yield curve principles and mechanics
· Practice bond math and credit market terminology
· Establish institutional detail for the public security offering
process
· Introduce the risk-return paradigm in finance
Case Report Instructions
This is a “Directly answer a set of questions” case report. For
this case study, answer each of the following questions (as per
the guidelines in “Learning with Cases and Writing Case
Reports”).
1. What is going on at Roche?
2. What are the business and financing risks associated with the
acquisition of Genentech? Is this a good time to do the deal?
Why or why not?
3. Do you believe the bond issuance will have an impact on
Roche’s bond rating? Why or why not?
4. How do we assess the impact of the bond offering on Roche’s
credit rating and default risk?
5. How do we estimate the risk premium associated with the
estimated default risk?
6. What are the prevailing spreads for non-Roche bonds? Do
you think these spreads are similar to investor’s required yield
for the Roche bonds?
7. What is your specific recommendation for the coupon rate for
the Roche 5-year, 10-year, and 30-year U.S. dollar bonds?

8. What would your coupon rate recommendation be for the 7-
year bond in euro?
NOTE: You can access a student spreadsheet file that you might
find helpful for this case on the textbook website found at the
following link:
http://highered.mheducation.com/sites/1259277194/student_vie
w0/index.html
This directory contains Excel spreadsheet files with the primary
exhibits for this case. Some of the Excel tables exercisable
models which will allow you to test ideas with minimum setup
time.
Page 4 of 4