dissonetwo

D1: Etsy and the Long Haul

Instructions

When preparing for your discussion post on this case, it is recommended that you read through it several times. Read through it the first time to familiarize yourself with the case.

On the second reading, consider your assigned role in the situation, and let that guide your perspective. Look deeper at the details: facts, problems, organizational goals, objectives, policies, strategies. Next, consider the concepts, theories, tools and research you need to use to address the issues presented. Then, complete any research, analysis, calculations, or graphing to support your decisions and make recommendations.

This discussion addresses the following Module Outcomes:

Assess differences between accounting value or “book” value, and market value. (CO1)

Determine a firm’'s cash flow from its financial statements. (CO1)

In this week’s assigned reading, we learn that the goal of financial management in a for-profit business is to make decisions that increase the value of the stock or, more generally, increase the market value of the equity (‘shareholder value’). We also learn that book values on an accounting balance sheet can be very different from market values, and that a goal of financial management is to maximize the market value of the firm’s stock, not its book value, and that corporate finance has three main areas of concern:

Capital budgeting: What long-term investments should the firm take?

Capital structure: Where will the firm get the long-term financing to pay for its investments? In other words, what mixture of debt and equity should the firm use to fund operations?

Working capital management: How should the firm manage its everyday financial activities?

Background Information

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Discussion Prompt

For purposes of this discussion, you will assume that you have just been hired by Josephine, a business which connects home-based food vendors to community members seeking home-cooked meals, similarly to the manner in which Über connects drivers to people needing a ride, and Etsy connects buyers to home-based crafts manufacturers. You are new to Josephine, and have been hired as finance manager. You are responsible for Josephine’s initial public offering, and in your capacity as finance manager, you wish to investigate Etsy because it is a firm which has a strikingly similar business model to that of Josephine. You intend to suggest Etsy as a peer, as you move closer to Josephine’s offering. Assume that Etsy is relatively young in terms of length of operations as a publically-traded firm. This firm’s Cash Flow from Assets, Operating Cash Flow and Cash Flow to Stockholders have sometimes taken on negative values, and thus you understand that this firm may or may not offer a positive example of financial management, for a young and growing firm such as Josephine. You have thus scheduled a discussion on this matter with Josephine’s chief executive officer to analyze Etsy (Etsy, 2016).

Tasks

Present your findings to Josephine’s chief executive officer, speaking as Josephine’s finance director. Evaluate evidence found in Etsy’s basic financial statements that may be interpreted as reflecting managerial goals, features of the firm’s unique operational structure, and high growth:

Using the balance sheet identity (which implies that assets must be equal to liabilities plus owners’ equity),

Using the cash flow identity (which implies that cash flow from assets must equal cash flow to creditors plus cash flow to stockholders), and

Examining the need to distinguish between book and market values.

Post two additional replies to classmates, offering critical analyses and comments relating to their determinations and evaluations of Etsy’s operations and management. Please cite sources of additional research, and examine areas where you do and do not believe that your classmates’ statements make optimal use of assigned readings, or could otherwise include additional considerations.

Responses should comprise 200–600 words.

References

Ailworth, E. (2014). Ouster at the top in Market Basket family feud

 (Links to an external site.)

. Boston Globe.

Apap, A. and Masson, D. (2005). A survey of capital budgeting in publicly traded utility companies. Southwest Business and Economics Journal, 2004–2005.

Egan, M. (2015). Etsy now worth over $3 billion. Stock jumps 88% after IPO

 (Links to an external site.)

. CNN Money.

Etsy (2016). Annual report

 (Links to an external site.)

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Graham, J., Campbell, H. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60.

Josephine. (n.d.) Home cooked meals from your community

 (Links to an external site.)

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Kokemuller, N. (n.d.) The impact of negative retained earnings

 (Links to an external site.)

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Reich, R. (2014). Rebirth of shareholder capitalism

 (Links to an external site.)

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Schweiger, P. and Marcus, J. (2015). Etsy and the B Corp IPO: Sustainability meets Wall Street

 (Links to an external site.)

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Securities and Exchange Commission. (n.d.). 10-K

 (Links to an external site.)

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Securities and Exchange Commission. (2016). Etsy, Annual Report to Shareholders.

 (Links to an external site.)

Spieler, A. and Murray, A. (2008). Management controlled firms v. owner controlled firms: A historical perspective of ownership concentration in the US, East Asia and the EU. Journal of International Business and Law, 7(1), 50.

Sweeney, D. (2013). Are benefit corporations the new Limited Liability Company?

 (Links to an external site.)

 Huffington Post.

Verbeeten, F. (2006). Do organizations adopt sophisticated capital budgeting practices to deal with uncertainty in the investment decision: A research note. Management Accounting Research, 17(1), 106–120.

Weller, G. (2014). Arthur T. Demoulas' return to Market Basket after ouster unprecedented

 (Links to an external site.)

. Lowell Sun.

Yahoo. (n.d.). Yahoo finance

 (Links to an external site.)

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Consult the Discussion Posting Guide for information about writing your discussion posts. It is recommended that your write your post in a document first. Check your work and correct any spelling or grammatical errors. When you are ready to make your initial post, click on the "Reply". Then copy/paste the text into the message field, and click "Post Reply." 

To respond to a peer, click “Reply” beneath her or his post and continue as with an initial post.

Evaluation

This discussion will be graded using the discussion board rubric. Please review this rubric, located on the Rubrics page within the Start Here module of the course, prior to beginning your work to ensure your participation meets the criteria in place for this discussion. All discussions combined are worth 20% of your final course grade.