You work as an executive assistant to the CFO of VitaOto Inc, a large US conglomerate. The company has become well known in financial and investment circles for operating on value-based management principles and was a pioneer in the use of economic profit and EVA.
VitaOto has grown steadily over the last 40 years through a strategy of acquiring well-managed, non-cyclical businesses over a range of different industries and then operating them using a value-based management approach.
VitaOto's financial consultants have drawn the CFO's attention to Cranswick plc, a company that has been listed on the London Stock Exchange since 1985, as a potential future acquisition target. Your CFO has asked you to report on various matters concerning this company. Using internet and other research methodologies, you have been requested to undertake the following tasks:
Required:
1. Write a report that outlines Cranswick's current business and critically discusses its business strategy and how it monitors its financial performance.
2. Write an appendix to your report that briefly evaluates and comments on Cranswick's recent financial performance and financial position, over the last 3 years, (2014 - 2016).
3. Undertake a reasoned analysis to estimate Cranswick's current cost of equity capital on the basis of both the dividend valuation model and the capital asset pricing model, which is careful to identify the decisions that have to be made when these two models are being used in practice, and comment on your results.
4. Write a report that estimates the current economic profit of Cranswick and critically compares this figure against the company's current accounting profit.
Include in your report a discussion concerning the difficulties of measuring financial performance through the use of economic profit and whether EVA may provide a solution to these difficulties.