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Understanding Valuation: Insights from Andrew DePalma on Business Decision-Making

This module, led by Andrew DePalma, explores the critical role of valuation in driving business decisions aimed at maximizing shareholder value. It delves into valuation steps, such as analyzing a company's operating environment and assessing expected future payoffs through Porter’s Value-Chain Model. Key industry insights are provided, focusing on apparel stores like Abercrombie and American Eagle, along with an analysis of financials, trends, and competitive forces shaping the industry. A SWOT analysis highlights strengths, weaknesses, opportunities, and threats.

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Understanding Valuation: Insights from Andrew DePalma on Business Decision-Making

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Presentation Transcript

  1. Module 1 Andrew DePalma

  2. Why Valuation? • Driving force behind every business decision • Goal to “ maximize shareholder value”

  3. Valuation Steps • Knowledge of the company’s operating environment • Identifying information about a company’s enterprise operating activities • Analysis • Estimate expected future payoffs

  4. Porter’s Value-Chain Model • Primary activities: • Inbound logistics • Operations • Outbound logistics • Marketing and sales • Servicing

  5. Porter’s Value-Chain Model • Support activities: • Company infrastructure • Human resource management • Technology/product development • Procurement

  6. Porter’s 5 Forces Industry competition Bargaining power of buyers Bargaining power of suppliers Threat of substitution Threat of entry

  7. Apparel Stores • Abercrombie (ANF) • American Eagle (AEO) • The Gap Inc. (GPX) • Aeropostle (ARO)

  8. Industry Financials • Revenue: $97.8bn • Profit: $7.4bn

  9. Key Drivers • Consumer Confidence Index • Cotton Prices • Per capita disposable income

  10. Industy Trends • Purchases driven by price • Competition from department stores and specialty stores • Mature industry

  11. A&F • Founded in 1892 under the name David T. Abercrombie Co in New York City • The name was changed after Ezra Fitch wanted to buy into the store

  12. A&F SWOT Analysis • Strengths- diversification of the company and strong presence of e-commerce business • Weaknesses- overdependence on U.S. markets and 3rd party manufacturers • Opportunities- growth of online shopping, international sales, and growth of apparel industry • Threats- competitors, labor costs, and fluctuations of exchange rates

  13. A&F Porter’s 5 Forces • Wal-Mart and Target can be potential competitors • Bargaining Power of the buyers is high because of consumer preference • Bargaining Power of the suppliers is low • The Gap Inc. is leading against A&F and American Eagle but are facing some of the same issues as A&F

  14. Works Cited • IBISWorld – Family Clothing Stores in the US

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