in Dashboard X in Course: Act172 x in ACT 184: Assig x f Facebook * *Case 2 (1).doc> x Case_2__1_.doc x 42nd DISTRICT x 2 4th TOPIC X (443) TAGAPA( X 25:00 - Time to X M Inbox (144) -n x in Course: Accoux 1 File | /Users/mency_0818/Downloads/Case_2_1_.docx.pdf Update : Case_2_1_.docx.pdf 1 / 5 - 100% + Bob's Baloney This case is meant to provide an introductory experience in financial performance evaluation. It offers opportunities for the instructor to develop any of the following teaching objectives: Consider the importance of financial performance in the overall evaluation of business performance Introduce financial ratios and financial analysis in the context of a simple and 2 approachable business. Feature the use of the DuPont return decomposition in identifying the source of abnormal performance. Case Questions 1. Why do you believe that the management team at Diaz is so displeased with management performance at Bob's? 3 2. What evidence of underperformance do you see in your analysis of the financial statements and ratios for Bob's? Is this suggestive that the management team is doing poorly? (Hint: start a financial analysis with a look at return on assets (ROA) and then decompose ROA into two components: profit margin and asset turnover). 3. What should Spangler say to the committee? - - - - Case_2_1_.docx.pdf Case_2_1_.docx.pdf Show Allin Dashboard X in Course: Act172 x in ACT 184: Assig x f Facebook * * Case 2 (1).doc> x Case_2__1_.doc x 4 2nd DISTRICT x 2 4th TOPIC X (443) TAGAPA( X 5 25:00 - Time to X M Inbox (144) - n x in Course: Accoux 1 File | /Users/mency_0818/Downloads/Case_2_1_.docx.pdf Update : Case_2_1_.docx.pdf 2 /5 100% + ww.coursehero.com/file/63928320/Case-2-1docx/ Bob's Baloney Upon entering the executive conference room in early 2021, Amanda Spangler had to pinch herself to be sure that she was really in an executive meeting at headquarters. After completing an MBA degree, Spangler had landed her dream job as a lead manager at one of the premier brands in the American food industry, Bob's Baloney (Bob's). Spangler's first months on the job had been all that she had hoped. She had wrestled with important business decisions, experienced the genius of some favorite foody legends, witnessed the drama of marketing a true premium brand, and even hobnobbed with several celebrities. It had been truly amazing. But her biggest surprise was what was going on right then in the conference room. It was clear that things 2 were not well at Bob's. The Company Since its founding in Philadelphia in the 1920s, Bob's had grown to dominate the world market for ultrapremium bologna. Bob's market share of the high-end market was greater than 50%, and was particularly strong among high-end restaurants where it was the de facto bologna brand used by elite chefs. World- renowned French chef Bruno Saucisson had recently waxed poetic in his expressions of esteem for the Bob's product. Il n'y a qu'une seule brande que j'utilise a Metropolitan 5 pour mon plat signature-Cordon Baloney. Bien sur, c'est 3 Bob's. C'est le seul bologna qui parle profondement aux palats les plus raffine [ There's only one brand that I use at Metropolitan 5 for my signature dish-Cordon Baloney. Of course, that's Bob's. It's the only bologna that speaks deeply to the most refined palates.] The esteem Bob's drew was not isolated to its customers. It also had a long history of community awards, including being a perennial winner in polls for best meat-processing employer. The company was also well known as a strong corporate advocate for animal rights, which still did not discourage suppliers from competing aggressively to do business with Bob's. Its merchandise (e.g., t-shirts) was popular among young people because Bob's was known as a company that cared deeply about its community. Bob Klobase had launched the company in the mid-1920s after his family had immigrated to the United States from Slovenia. Klobase had a long family heritage in the bologna industry, so it was a natural business for him to build-but Klobase had outdone his family heritage. From the beginning, he had created bologna - - - - Case_2_1_.docx.pdf Case_2_1_.docx.pdf Show Allin Dashboard X in Course: Act172 x in ACT 184: Assig x f Facebook * * Case 2 (1).doc> x Case_2__1_.doc x 42nd DISTRICT x 2 4th TOPIC X (443) TAGAPA( X 5 25:00 - Time to X M Inbox (144) - n x in Course: Accoux 1 File | /Users/mency_0818/Downloads/Case_2_1_.docx.pdf Update : Case_2_1_.docx.pdf 3 / 5 100% "https://www.coursehero.com/file/63928320/Case-2-Idocx Page 2 at the very highest level. Those in meat production circles often observed that to Klobase, "Holy Baloney" was not just an interjection but an abiding product aspiration. The current management team continued to maintain the same commitment to quality. Company buyers were uncompromising in their demands from suppliers for quality source ingredients, including the spice blends and cures, the nonmeat fillers, and particularly the nuggets of free-range, humanely vivisected, organic beef. Inventory levels were managed carefully to ensure freshness while maintaining sufficient product to quickly meet customer needs. Despite the demanding nature of Bob's premium customer clientele, it was very rare for the company to receive negative customer feedback. In fact, customer delight had seemingly been uncontained since the company's 2018 investment in a completely redesigned production facility. The new facility housed a host of cutting-edge food production achievements that permeated the entire production process, including grinding, smoking, slicing, and 2 packaging. Finally, the Bob's brand was supported by a creative marketing team. The team was highly regarded for its well-executed advertising campaigns. If anything, brand-building investments at Bob's were on the rise The Meeting Given that Bob's was a poster child for corporate success, Spangler was astonished at the negative tone of the meeting. Bob's CEO Prateek Gupta, sweat accumulating on his forehead, had gotten straight to the point. Diaz, the Argentine food conglomerate and owner of 30% of the equity shares in Bob's, had 3 recently made public its great displeasure with the current management team. Veronica Mino, the chair of Diaz, had openly decried Bob's management: Claro, todos dicen que el equipo de Bob ha construido una compania fantastica, pero por amor de chorizo, tya no importa el desempeno financiero? No debe una marca poderosa ganar dinero? Si el equipo no puede generar un rendimiento adequada, es tan bueno que una salchicha muerta. [Sure, everyone says that the team at Bob's has built a fantastic company, but for the love of chorizo, doesn't financial performance matter anymore? Shouldn't a powerhouse brand make money? If the team can't generate a decent return, they're as good as dead bologna.] Mino's message had come across loud and clear, and Spangler was witnessing a management team panic that astonished her. Before her on the table was a copy of the financial statements for Bob's (see Exhibit 1). As the drama unfolded around her, Spangler used the financial statements to calculate some financial ratios to get a sense of Bob's financial health (see Exhibit 2). While she had never expected to - - - - be the one leading an evaluation of financial performance, now that she was looking at the ratios, she knew she had something to say. She quickly scratched some additional notes and, feeling brave, she raised her hand. Case_2_1_.docx.pdf Case_2_1_.docx.pdf Show AllX in Course: Act172 x Case_2__1_.doc x 4 2nd DISTRICT x 2 4th TOPIC X (443) TAGAPA( X 25:00 - Time to X M Inbox (144) -n x in Course: Accoux in Dashboard in ACT 184: Assig x f Facebook * *Case 2 (1).doc> x Update : 1 File | /Users/mency_0818/Downloads/Case_2_1_.docx.pdf 4 /5 - 100% +|8 Case_2_1_.docx.pdf Exhibit 1 Bob's Baloney Financial Statement for Bob's Baloney (in millions of US dollars) 2016 2017 2018 2019 2020 Revenue 191 186 210 248 272 Cost of Goods Sold 137 136 157 189 212 Gross Profit 54 50 59 60 Selling and General Expenses 19 29 47 Operating Profit 21 13 Net Interest Expense Pretax Profit 34 Taxes _ 8 Net Profit 26 2 Cash and Cash Equivalents Accounts Receivable Inventory Other Current Assets BABBLEES Current Assets Net Property, Plant, and Equipment Other Fixed Assets Total Assets 170 3 Accounts Payable 12 13 12 Wages Payable 12 14 15 Other Payables _8 8 Current Liabilities 33 36 36 30 9 208 Debt Shareholders' Equity 108 123 129 133 139 Total Liabilities and Shareholders' Equity 170 168 347 364 382 - - - - Show All Case_2_1_.docx.pdf Case_2_1_.docx.pdfin Dashboard X in Course: Act172 x in ACT 184: Assig x f Facebook * *Case 2 (1).doc> x Case_2__1_.doc x 42nd DISTRICT x 2 4th TOPIC X (443) TAGAPA( X 5 25:00 - Time t X M Inbox (144) - n x in Course: Accoux 1 File | /Users/mency_0818/Downloads/Case_2_1_.docx.pdf Update : Case_2_1_.docx.pdf 5 / 5 - 100% +|H Exhibit 2 Bob's Baloney Spangler's Financial Analysis of Bob's Baloney 2016 2017 2018 2019 2020 Growth and Returns Revenue Growth percentage change in revenue] 5.5% -2.6% 13.0% 18.4% 9.5% Return on Assets (net profit / total assets] 15.49% 9.3% 1.7% 1.1% 1.4% Return on Net Assets [NOPAT / net assets 19.0% 11.9% 3.5% 2.6% 2.8% Return on Equity [net profit / shareholders' equity] 24.2% 12.6% 4.5% 3.0% 3.9% Margins Gross Margin [gross profit / revenue] 28.1% 26.8% 25.3% 23.8% 22.0% SG&A Percentage SG&A expenditures / revenue] 9.9% 15.5% 18.3% 19.1% 17.3% Operating Margin [operating profit / revenue] 18.3% 11.3% 7.0% 4.6% 4.7% Net Profit Margin [net profit / revenue] 13.7% 8.4% 2.8% 1.6% 2.0% Asset Efficiency Asset Turnover [revenue / total assets] I.1 1.1 0.6 0.7 0.7 3 PPE Turnover [revenue / net PP&E] 2.1 2.1 0.8 0.9 0.9 NWC Turnover [ revenue / net working capital] NA NA NA 34.0 35.8 AR Days (DSO) accounts receivable / revenue x 365] 19.2 19.1 17.6 20.3 20.1 Inv Days (DIO) [inventory / COGS x 365] 17.9 20.7 19.6 21.0 20.7 AP Days (DPO) accounts payable / COGS x 365] 32.5 36.0 35.8 21.2 Leverage HHHH Debt / Total Capital [debt / (debt + shareholders' equity)] 22% 59% 60% 60% Summary Accounts (in millions of US dollars) NOPAT (t = 25%) [operating profit x (1 - tax rate)] 26 16 11 10 Net Working Capital [current assets - current liabilities] (2) (5) (1) 8 Net Assets net working capital + net fixed assets] 137 132 312 329 346 Bar !!!11 Note: NOPAT is net operating profit after tax; SG&A is selling, general, and administrative expenses; PP&E is property, plant, and equipment; NWC is net working capital; AR is accounts receivable; Inv is inventory; COGS is cost of goods sold; AP is accounts payable; DSO is days sales nding: DIO is days inventory outstanding; and DPO is day payables outstanding. 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