Strategic Options Available To Harley Davidson Business Essay Example For Students

Strategic Options Available To Harley Davidson Business Essay This study aims to measure the strategic options available to the Harley Davidson organisation. Harley Davidson Inc. has two operational sections, bike and funding. Harley Davidson Financial Services ( HDFS ) offers loans, rhythm insurance and protection programs to run into the demands of their proprietors, whilst the bike section designs, green goodss and markets chiefly heavyweight touring, usage and public presentation bikes. It besides manufactures bike parts and accoutrements, cogwheel and dress. The company is the lone major American manufacturer of bikes and operates globally, with gross revenues largely in North America, Europe, Asia/Pacific and Latin America. We will write a custom essay on Strategic Options Available To Harley Davidson Business specifically for you for only $16.38 $13.9/page Order now Although in the past the company has experienced growing and continued success, attributed to its trade name trueness, in 2009 Harley Davidson ( H-D ) had to close down and consolidate mills due to the effects of the recession and the autumn of the US lodging market. Strategic options can merely be developed after the company s strategic place is known. Thus the first subdivision of the study uses tools and constructs to find H-D strategic place. In visible radiation of the company s strategic place strategic options are so formulated ; this is presented in subdivision 2. The 3rd subdivision of the study so uses the success standards model presented by Johnson, Scholes and Whittington in corporate scheme, as a footing to measure the strategic options presented and recommendations are made. Outline1 THE STRATEGIC POSITION OF HARLEY DAVIDSON INC.2 1.1 The Environment3 1.1.1 Pestle Analysis4 1 Figure 15 1asdf: asdf: :6 1.1.2 Porter s Five Forces Model7 Competition8 Menace of Substitutes9 Buyer Power10 Supplier Power11 Menace of New Entrants12 1.2 Resources Strength and Capabilities13 Organizational Resources14 Physical Resources15 Technological Resources16 Human Resources/Capital17 Innovation Resources18 Reputational Resources19 Capability20 Intentionally Incorporate Technological Resources21 Manufacturing22 Distribution23 STRATEGIC OPTIONS24 Figure 6. Strategy Development Directions THE STRATEGIC POSITION OF HARLEY DAVIDSON INC. This subdivision of the study is concerned with understanding the strategic place of Harley Davidson Inc. in an effort to explicate strategic options for the company. It first identifies the alterations that are happening in the environment and how these alterations affect H-D and its concern activities and back the resource strength and capablenesss of H-D. 1.1 The Environment In order to understand the environment which H-D operates in the undermentioned models are used with the purpose of assisting to place cardinal issues and challenges and ways of get bying with complexness and alteration. 1.1.1 Pestle Analysis In 2009 H-D stood to derive from the Economic Stimulus Package, passed into statute law by the Barack Obama Administration. The federal stimulation bundle gives taxpayers interruptions if they purchase a new auto, light truck, RV, or bike. ( Wachter 2009 ) . In add-on, Coachman industries besides a maker of leisure vehicles, and a rival of H-D was eliminated from the New York Stock Exchange. Harmonizing to the Datamonitor study: the bike industry section has had economic growing for the past three old ages, and has merely late been sing diminution. In 2007 it declined 2.3 % , yet is forecasted to retrieve 4.3 % by 2012. An economic factor in favour of H-D, despite this diminution, is that the U.S. industry generated entire grosss of $ 10.2 billion in 2007, of which 98.8 % were of bikes ( non scooters, motorbikes, etc. ) . Furthermore, within the U.S. economic system H-D holds the bulk of bike gross revenues. Therefore, even while industry growing is worsening, H-D gross revenues and other bike gross revenues are still go oning to increase. Figure 1 shows bike industry growing versus gross revenues. 1 Figure 1 1asdf: asdf: : The Motorcycly Industry Council ( MIC ) discloses that leisure merchandise industries are confronting steep diminution nevertheless the bike section though worsening, is non making so at a steep rate. Tim Buche, President of the MIC says Overall bike gross revenues were down 7.2 % , non about every bit crisp a diminution as many other consumer merchandises in today s economy/ ( Wasef 2009 ) . .u4eb6d6bbed6c5e60cb438e9922df9ef3 , .u4eb6d6bbed6c5e60cb438e9922df9ef3 .postImageUrl , .u4eb6d6bbed6c5e60cb438e9922df9ef3 .centered-text-area { min-height: 80px; position: relative; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 , .u4eb6d6bbed6c5e60cb438e9922df9ef3:hover , .u4eb6d6bbed6c5e60cb438e9922df9ef3:visited , .u4eb6d6bbed6c5e60cb438e9922df9ef3:active { border:0!important; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .clearfix:after { content: ""; display: table; clear: both; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u4eb6d6bbed6c5e60cb438e9922df9ef3:active , .u4eb6d6bbed6c5e60cb438e9922df9ef3:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .centered-text-area { width: 100%; position: relative ; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u4eb6d6bbed6c5e60cb438e9922df9ef3:hover .ctaButton { background-color: #34495E!important; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u4eb6d6bbed6c5e60cb438e9922df9ef3 .u4eb6d6bbed6c5e60cb438e9922df9ef3-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u4eb6d6bbed6c5e60cb438e9922df9ef3:after { content: ""; display: block; clear: both; } READ: Disposable diapers EssaySocially H-D has a competitory border which is owed to its client base, strong trade name trueness and demographic tendencies such as the increse in female operators. This trueness is indicated in the mean age of H-D consumers. H-D mean consumer purchasing age is 42 old ages old and increasing ( Gauvin 2005 ) . H-D aspires to increse it consumer demographics, nevertheless aˆÂ ¦although the younger coevals below 35 old ages of age has posted the largest additions in owernship, the coevals that is on the border of the babe boomer section will be the chief accelerator of growing for the industry ( Koncept 2007 ) . One societal factor that may negatively impact the sale of H-D motocycles is the stigma that has been attached to these leisure vehicles. Alot of people believe that bikes are unsafe and this belief is strengthened due to the high rate of bike human deaths and clangs. H-D stands the opportunity of get awaying this stigmatization if the public positions their motorcycles as patrol cars and non velocity motorcycles . Technologically H-D can take advantage of antilock brake systems. Antilock brakes could assist riders avoid fatal crases harmonizing to a survey done by the insurance industry. 1.1.2 Porter s Five Forces Model Competition H-D operates within the Recreational Vehicles industry along with five other major rivals: Winnebago, Polaris, Thor, Arctic Cat and Marine Products. The top performing artists within the industry and keep 92 % of the market portion by volume with a market capitalisation of 64.653 Billion of a entire Industry of 7 Billion.Other houses in different industries that are direct merchandise challengers include Honda Motor Company Limited, Yamaha Motor Co, Ltd. , and Suzuki Motor Corporation ( Appendix 1 ) . The presence of these big transnational corporations with exceptionally high assets boosts the grade of competition within the industry. Because of the little figure of stuff challengers, the market s gross is shared between fewer houses and enhances the grade of competition for bottom line net income. This competition forces most rivals to seek and diversify their concern theoretical accounts through geographical enlargement or perpendicular enlargement, taking to involvements and investings in a assortment of other sections such as the car, watercraft, industrial and agrarian equipment countries. ( Datamonitor 2004 ) . Menace of Substitutes The Recreational Vehicle industry faces menaces from the Automobile Industry, from public transit options and bikes. The menace is mostly dependent on the indispensableness of bikes and other lifestyle merchandises to the terminal user. ( Datamonitor 2008 ) . In most developed states, bikes are leisure points and are non a necessity and are hence mostly dispensable or substitutable by more practical points such as autos or more cost effectual agencies of transit such as bikes. This deficiency of necessity increases the menace of replacements and is one of the major grounds why the external market goes into diminution during economic recession. Buyer Power Overall, purchaser power is low due to sustainable competitory advantage of merchandise distinction which is impossible for other trade name rivals to fit. Supplier Power Large transnational corporations such as Harley-Davidson can have stuffs from many different international providers and face low shift costs due to minimum merchandise distinction. This presence within the international market encouragements Industry leaders power. Overall, supplier power is moderate. Menace of New Entrants Overall, this menace is moderate due to high set up costs, high trade name acknowledgment, client trueness and high research and development costs. 1.2 Resources Strength and Capabilities Organizational Resources H-D has a formal construction that works for the company: decentralized, adept squads and leading circles that value employee input. Programs they use to be after, study and track stock list and production include their Supply Management Strategy system ( SMS ) , Vibration Tech A ; PdM engineering systems, every bit good as their web-based H-D Distribution provider web that provides sellers with a wealth of information about supply and demand within the company. .uddd400e2612670d65f7abeac5e70a482 , .uddd400e2612670d65f7abeac5e70a482 .postImageUrl , .uddd400e2612670d65f7abeac5e70a482 .centered-text-area { min-height: 80px; position: relative; } .uddd400e2612670d65f7abeac5e70a482 , .uddd400e2612670d65f7abeac5e70a482:hover , .uddd400e2612670d65f7abeac5e70a482:visited , .uddd400e2612670d65f7abeac5e70a482:active { border:0!important; } .uddd400e2612670d65f7abeac5e70a482 .clearfix:after { content: ""; display: table; clear: both; } .uddd400e2612670d65f7abeac5e70a482 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .uddd400e2612670d65f7abeac5e70a482:active , .uddd400e2612670d65f7abeac5e70a482:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .uddd400e2612670d65f7abeac5e70a482 .centered-text-area { width: 100%; position: relative ; } .uddd400e2612670d65f7abeac5e70a482 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .uddd400e2612670d65f7abeac5e70a482 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .uddd400e2612670d65f7abeac5e70a482 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .uddd400e2612670d65f7abeac5e70a482:hover .ctaButton { background-color: #34495E!important; } .uddd400e2612670d65f7abeac5e70a482 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .uddd400e2612670d65f7abeac5e70a482 .uddd400e2612670d65f7abeac5e70a482-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .uddd400e2612670d65f7abeac5e70a482:after { content: ""; display: block; clear: both; } READ: Peloponnesian War Strategies EssayPhysical Resources The Harley Triangle provides a footing for tracking and supervising the house s physical resources. Location and Sophistication of direction and the expertness of fabrication forces and other employees is the key in accessing natural stuffs, procurance and upkeep related to fabricating equipment. H-D workss are streamlined and well-maintained, which is a nucleus resource for H-D. Technological Resources H-D has many technological resources: including many different trade name name Patents, Trademarks, and Copyrights which protect its repute and image. Human Resources/Capital Trust, Knowledge, Managerial capablenesss, every bit good as organisational civilization are H-D s most valuable human resources. The company civilization, gives H-D a major competitory advantage. Employees and providers know their input is valued and take pride in their work. Peoples involved are passionate about the trade name and this adds unseeable value to the company. Innovation Resources Employee and provider, every bit good as direction s thoughts are immense resources for H-D, as these people know the concern and cognize its possible. Since there are such a assortment of inputs, H-D s capacity to introduce and create/develop new merchandise is non capable to stagnancy or groupthink. However, H-D does seek to remain true to its niche market, and this creates some boundaries for advanced thoughts. Reputational Resources Repute with clients, trade name name, perceptual experiences of merchandise, and repute with providers are all really good to H-D s operations, and maintain clients loyal to the merchandise. Interactions and relationships are stressed at H-D in order to guarantee quality craft and reciprocally good engagement in all phases of production. Capability Intentionally Incorporate Technological Resources H-D ensures that all procedures and activities throughout its value concatenation are integrated utilizing web based SMS systems, barcodes, and studies that enable its JIT stock list flow. This allows production to flux swimmingly. Manufacturing H-D s JIT stock list pull system means that it must hold streamlined fabrication abilities. H-D does this by guaranting quality inputs into its fabrication workss, flow production methods, and well-maintained equipment. H-D fabrication workss are capable of bring forthing many different theoretical accounts and establish their stock list off of client pull demand, cut downing costs around the board every bit good as stock list finished merchandises that sit unsold in warehouses ( of which H-D has really few ) . Distribution JIT stock list direction needs good transit flow logistics. H-D has the capableness to cut down lead times and guarantee pull bringing through its private fleet of trucks and contracts with distribution providers. STRATEGIC OPTIONS The designation of possible waies physiques on an apprehension of H-D strategic place. The version of Ansoff s product/market matrix is used for placing waies for strategic development. Development waies are the strategic options available to H-D in footings of merchandises and market coverage taking into history the strategic capableness of the company and the outlook of stockholders. ( Johnson et al 2005 ) . Figure 6, the version of Ansoff s product/market matrix summarizes the strategic options available to H-D. Figure 6. Strategy Development Directions Beginning: Johnson et Al ( 2005 ) Researching Corporate Scheme H-D can take one or more of the undermentioned options: It can protect and construct on its current place. It can develop new markets for its merchandises. It H-D can besides develop new merchandises in new markets and It diversifies into new markets and develops new merchandises. These options can be pursued through different development methods which are internal development, amalgamations and acquisitions and strategic confederations. The options chosen has to turn to the cardinal issues and challenges faced by the H-D, the company must besides fulfill stakeholders outlooks but most of import H-D must hold the resources and capablenesss to develop the options chosen. In other words the option must be suited, acceptable and executable ( Johnson et al 2005 ) .

A examination and valuation of Lush Ltd. The WritePass Journal

A examination and valuation of Lush Ltd. Introduction A examination and valuation of Lush Ltd. IntroductionHistoryLeadership teamGlobal brandProductsIngredientsEthos and campaigningBenefits of Listing on Stock Exchange Free Cash Flow Valuation AssumptionsValuation Stages Related Introduction Lush is about passion and innovation: passionate about the nature, environment and growth; and innovative for its handmade, unpacked and fresh cosmetics, seductive perfumes, and natural products. Born from the ashes of Cosmetics to Go, Lush is now headquartered in Poole, Dorset in the UK. The company was initially registered with the Companies House by the name of Cosmetic House Limited in 1994 but was later renamed to Lush in the year 1995. It now operates over 600 stores in 43 countries worldwide. The fuel for this growth has been the result of adopting fresh natural ingredients, ideas and fun. The company’s’ ideology is the most important part of everything that it signifies. Lush produces and sells a range of handmade products, like face masks, soaps, bath bombs, bubble bars, hand and body lotions, hair treatments, etc. Lush uses natural resources like fruits, vegetables, essential oils, and synthetic ingredients without any animal fat in all its products. It is also against animal testing and performs tests solely with volunteers instead. This philosophy of its leaders attracts like-minded people, staff and clients, and communicates the brand essence with a clear vision and direction. History The original incarnation of what is now Lush began in the 1970s when Mark Constantine, an herbal trichologist, and Elizabeth Weir, incorporated a company named Constantine Weir. They began with developing recipes for bath and beauty products and toted them round to potential buyers. Their verdict was: â€Å"Too earnest, very authentic, not at all commercial.†Ã‚   Constantine Weir was one of the associate and suppliers to The Body Shop (acquired by LOrà ©al in 2006), a UK -based company founded in 1976 by http://en.wikipedia.org/wiki/Anita_RoddickAnita Roddick. As The Body Shop grew, Anita made a bid the rights to many of the products produced by Constantine Weir for The Body Shop. It was good to be associated with the fastest growing cosmetic company in the world which was using products and ideas by CW. This association was hampered after The Body Shop floated in 1984, when the partnership became uncomfortably formal. The Body Shop eventually bought the intellectual property rights to the business of Constantine Weir for  £9m in 1991. CW managed to dodge the buyout by starting a new company named ‘Cosmetics to Go’ in 1988. This company was primarily a mail-order business which failed ignominiously in 1994. However, CTG managed to obtain new finance from Peter Blacker, of British Ensign Estates and his finance director Andrew Gerrie, who now form an integral part of the board of Lush. In 1994, CTG was renamed to Lush as result of a contest wherein they requested their existing customers to suggest a new name. Leadership team Peter Blacker and Andrew Gerrie were the first to help Constantine when CTG was already in agony and later were responsible in establishing Lush. Gerrie, an opulent entrepreneur had tremendous experience in cash and finance, was a great support to Constantine after having lost his confidence following the CTG debacle. Gerrie had a catalysing effect on the growth of Lush’s fortunes and is leading the expansion of the company. Constantine’s expertise in producing cosmetics is well complemented by Andrew’s ability of managing finances. Constantine and Andrew are the recognised leaders of the company. Besides being experts in their respective fields, they are socially intelligent, organisationally efficient and have a strong sense of imagination. The leadership team of Lush includes Elizabeth Bennett,  Helen Ambrosen, Karl Joseph Bygrave and Margaret Joan who are also the shareholders. Global brand Lush is a leading global brand with over 600 stores and subsidiaries in 43 countries worldwide and production laboratories in Europe, Canada, Australia, South America, Singapore and Japan. Their aim is to offer â€Å"the freshest products in the history of cosmetics.† All the stores in UK are fully owned by the company and the stores overseas are subsidiaries with local managers. The Lush store partnership model ensures management coherence and commitment with the company. Personal ownership adds motivation while willingness to invest in Lush means that the Lush concept is endorsed. At the same time Lush remains directly involved and able to steer the branch. Lush does not supply any other retailer so everything they produce is only sold in Lush shops or on-line from Lush websites. Products Lush produces many different types of cosmetic products, from hair, face, body, and foot care, all the way to bath and shower care. Lush creates solid products to reduce packaging waste and the need for preservatives. Solid products are sold wrapped in paper or in small bags. Lush encourages customers and staff to purchase products using their own shopping bags to be more eco-friendly and even motivate customers to let their products go naked (without any packaging whatsoever). Some examples of Lushs solid products include bubble bath bars, shampoo bars, hair conditioner bars, solid shower gel, and massage bars. Lush also carries bath bombs, also called bath ballistics, which are solid balls made of sodium bicarbonate and citric acid that fizz as they dissolve in the bath, releasing essential oils that scent the bath and soften the skin, and in some cases glitter, confetti, flower petals or seaweed. They hand-make the products in a factory in small batches based on orders from indivi dual stores in order to keep their products fresh. In order to stay in touch with their fresh standard, Lush does not sell any product in their store thats older than 4 months and most products have a total shelf life of approximately 14 months. Ingredients Lush lists their product ingredients in English as well as Japanese, French and many other languages, and uses fruit, vegetables, other plant products, and safe synthetics. Many products are labeled with a use-by date and who made the product. All Lush products are vegetarian, and less than 30% contain animal products such as beeswax, honey, free range, unfertilized eggs and lanolin. Lush uses minimal packaging (over 70% of their products contain no packaging at all); the packaging that they do use is 100% recyclable and are made from used plastics and cardboard. Products which contain no animal ingredients at all are marked as vegan in Lush catalogues, on store displays, and on the container itself. Lush uses methyl- and propyl- parabens, which have been used in food preservation and are both made of plant materials. Only the liquid products contain parabens; solid products have no preservative content as it is water that can breed bacteria in products. 70% of Lush products are preservative-free. Ethos and campaigning Lush does not buy from companies that carry out, fund, or commission any animal testing. Lush itself tests its products on human volunteers before they are sold. In keeping with its stated ethos, Lush has also begun to phase out its use of sodium palm kernelate. Sodium palm kernelate is derived from trees in the natural habitat of orguntans. Greenwash, a pine scented soap, is the first soap to be made using palm-free soap noodles, but as of 2008 all Lush soaps are made with palm-free soap base. Their aim is to have 100% of [their] packaging easily recyclable, compostable or biodegradable†.   Lush is a supporter of controversial direct action, animal rights operations including the Sea Shepherds, a group that works to protect whales, seals, and other aquatic animals.   In 2007 Lush started openly supporting campaigning groups by sending a dozen cheques for  £1000 each, including road protests groups such as Road Block and NoM1Widening, Hacan Clear Skies (anti-aviation group), and Dump the Dump (which is fighting against an incinerator) They introduced the Charity Pot body lotion, each pot promotes a different small charity on the lid, and the full purchase price (except for VAT) goes to charity. They have also introduced a range of Go Green products that they say are inspired by Rebecca Lush (no relation), a roads campaigner who set up Road Block in the early 1990s and who pied Jeremy Clarkson for his glorification of the car. Benefits of Listing on Stock Exchange Listing on a stock exchange can add value to a business of any size. Moreover, stock exchange listing cast a wider net into the capitalization pool i.e. the potential sources of equity funding, when a company is planning for expansion and leveraging. A listing will also to attach importance to Employee Share Ownership Scheme of Lush. By obtaining a listing on a stock exchange, Lush will gain market exposure to a broader membership of the financial community including market makers, traders, retail investors and various financial institutions. This will eventually benefit Lush it’s a growing business and worth investing. Thus, listing will potentially increase capital investments of Lush, as opposed to private negotiations and networking, providing a better exposure to a larger financial market and wider range of investors.Being listed on an exchange implies that Lush meet the requirements and standards set by the exchange. This will add credibility to its business and therefore enhance its brand equity by improve customer’s perception of value in the company and its products. Moreover, listing will enhance financial information and investor public relations through the information/disclosures made available as required by listed companies. Listing will facilitate Lush to ascertain its Enterprise Value and share price. A need for capital investment is one of the main factors for Lush to lists on a stock exchange. Lush is a product based company and requires capital for producing inventories. Given the fact that they use on natural ingredients, their products are slightly expensive since they have to import or cultivate their ingredients regularly. Stock market listing will provide wider and more accessible forms of investment for both investors and businesses. This will largely support a free market for buyers and sellers to meet, access and trade capital for ownership and vice versa. It could also be used as one of several sources of capital leveraging. Lush finances its production through debt. Their debt gearing is a striking 40.63% which is very high for a product manufacturing company. Also their interest cover of 13.84% is also high. Listing on the exchange will provide a low cost of capital financing. It will also provide increased capitalization through wider market exposure and reduce the reliance on alternative sources of funding such as venture capital firms. This lower reliance for alternative sources of financing will improve negotiating leverage of the company when obtaining financing from venture capital firms whether it be through less liability protection as determined by the stock ownership terms or lower cost of capital. In other words, if the market exposure gained through listing is positive, the effects on financing can also be positive. To summarize, listing a business on a stock exchange may be a good idea for a business seeking improved market awareness, greater potential for capital investment, enhancements to brand equity and negotiating influence etc. Listing on an exchange should probably be in line with or in accordance with business strategy, otherwise the listing may be premature or unnecessary. Free Cash Flow Valuation The discounted-cash-flow approach attempts to determine the value of the company (or â€Å"enterprise value†) by computing the present value of cash flows over the life of the company. Since a corporation is assumed to have infinite life, the analysis here is broken into a forecast period and a terminal value. Ideally, the forecast period should equate with the interval over which the firm enjoys opportunities for relatively high growth. The value of the company derived from free cash flows occurring after the forecast period is captured by a terminal value. To estimate the terminal value, cash flows are projected under a steady state assumption that the firm enjoys no opportunities for abnormal growth. Once a schedule of free cash flows is developed for the enterprise, the Weighted Average Cost of Capital (WACC) is used to discount them to determine the present value. The sum of the present values of the forecast period and the terminal value cash flows provides an estimate o f company or enterprise value. Free cash flow equals the sum of NOPAT (net operating profits after taxes.), plus depreciation and noncash charges, less capital investment and less investment in working capital. NOPAT is used to capture the earnings after taxes that are available to all providers of capital (i.e., NOPAT has no deductions for financing costs). Moreover, since the tax deductibility of interest payments is accounted for in the WACC, such financing tax effects are also excluded from the free cash flow, which can be expressed as: FCF=NOPAT + Depreciation – CAPEX – ΔNWC NOPAT is equal to Operating Income x (1-Tc) where Tc is the marginal tax rate (30% equal to the UK corporate tax rate). Assumptions All items were taken from financial statements of Lush. The growth figures of sales for the year 2010 has been taken to be 30% which is the average sales growth form the year 2005-2009. After obtaining listing the company is supposed to have enough funds for operation and will not require any debt financing. Hence, the growth rate is likely to growth at an average 5% for the 1st five years from its listing. This phenomenon was also observed in the case of body shop where its growth shot up rapidly (22.54% in 1984 to an avg growth rate of 37.19% in 1989)over the 1st five years from its listing on the stock exchange. The risk free rate is taken to be 4% as an average risk free rate of debt. Also the risk premium has been assumed to be 4%. The cost of debt assumed is 11.5% because Lush does a lot of short term borrowing and rates are high and generally fluctuate. Also their gearing has been really high and implies that they pay a very high rate of interest. The stock beta has been obtained from The Body Shop (now L’Oreal). The Body Shop has been used as a comparable company since its origination, method of operations and business is very similar to Lush. Some of the items have been expressed as a percentage of Sales to help us in our forecasts (% of Sales approach). The given growth rates of L’Oreal have been used to compute Sales for 2010-SS.2 COGS and SGA can be approximated on the basis of their past relationship with Sales. We have assumed that this relationship will be the same in the future. We have assumed that fixed assets will continue to grow at a rate of 40.75% which represents the average growth in fixed assets between 2005-2009. In reality, it is unlikely that Lush assets will be growing at such high rate forever. The historical depreciation/Fixed Assets ratio (average) is 23.4%. Given that there is no great variation in this historical ratio one can safely assume that the relationship between the two will be maintained in the future. We can then calculate an estimate for fixed assets and as a result depreciation itself as a function of fixed assets. Valuation Stages We assume that the valuation exercise is performed at the end of 2009, i.e. that the first FCF (end 2009) arrives 1 year from the time of the valuation. Terminal Value is then calculated as follows: Terminal Value = FCFSteady State à · (WACC − gss)4 This is the value of all cash flows after 2014 as of the end of 2014 that then needs to be converted to value today (i.e. end of 2009). So it needs to be discounted 5 periods back. PV Terminal Value = Terminal Value / (1+WACC) Then the PV of the FCFs from 2010 to 2014 is: PVFCF2010-2014 = FCF2010/(1+WACC)+ FCF2011/(1+WACC)^2 + FCF2012/(1+WACC)^3 + FCF2013/(1+WACC)^4+ FCF2014/(1+WACC)^5 The Enterprise Value is then given by PV Terminal Value + PVFCF2010-2014 This is the value of the firm to all providers of capital. To get the equity value one needs to subtract the value of total debt (ST Debt + LT Debt) The terminal value growth rate used in the valuation is 15%, which equals the long-term risk-free rate; i.e., the long-term Treasury yield. Cosmetics companies are non-cyclical companies and have very little impact of inflation on their growth. Also Lush is one of its kind, and is therefore expected to growth at 15%. Looking at the its previous growth figures (18.94% CAGR for the past 15 years), 15% is a justified steady state growth rate. The resulting Enterprise Value is 81.02mil and the value of Equity 47.59mil. The corresponding per share figure is 2.13 pence which can then be compared to future actual share prices. References chx.com/content/Trading_Inform ation/Listing_standards.html ht tp://www.nasdaq.com/about/list ing_information.stm cftech.com/BrainBank/FINANCE/U SStockExchs.html http://en.wiki pedia.org/wiki/Stock_exchange http://uk.finance.yahoo.com/q/ks?s=OR.PA reuters.com/finance/stocks/financialHighlights?symbol=OREP.PA 1. â€Å"Soap Stars†, The Business FT Weekend Magazine, 08.06.02 2. www.lush.co.uk 3. From a Lush shopping bag and website (www.lush.co.uk) 4. Lush mission statement 5. Marketing: Lush Gets a Makeover, Rotterdam School of Management, Erasmus Graduate School of Business, available on-line at www.brianlhill.com/projects/ExperienceMarketing_Lush.pdf 6. Reported by Sarah McCartney, Editor of Lush Times 9 Mary Linehan, Lush Press Office 10. â€Å"Living the Lush life† by Marge C. Enriquez, Lifestyle, 10.12.01