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Week1FIN4424_WK1_CASE_ANALYSIS_TUTORIAL.pptx
FIN4424 Case Studies in Finance
Keiser University
FROM CASE TO CONCLUSION
How to Turn Financial Information into a Defensible Business Decision
PROBLEM
EVIDENCE
ANALYSIS
ALTERNATIVES
RECOMMENDATION
DEFENSE
PELLICAN MANUFACTURING • CASE FILE 001
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Pellican Manufacturing • Jacksonville, Florida
Dr. Mark Dennis, CFP®
NARRATION
Welcome to Finance Case Skills.
In this course, I've already encouraged you to read a case more than once, identify the underlying problem, examine the evidence, use appropriate financial tools, and look beyond the textbook when you need additional information.
But knowing that you should analyze a case and actually knowing how to turn a pile of information into a defensible recommendation are two different things.
A finance case isn't a scavenger hunt. Somewhere in those pages there isn't necessarily a sentence containing the correct answer.
Your job is to build an answer.
We're going to use a fictional company called Pellican Manufacturing to walk through that process.
And we'll use the same basic framework throughout:
Problem. Evidence. Analysis. Alternatives. Recommendation. Defense.
Let's meet Gloria.
PELLICAN MANUFACTURING • CASE FILE 001
Gloria Has a Problem
PELLICAN MANUFACTURING
Publicly traded Specialty marine equipment Jacksonville, Florida
P
est. 24 years ago
$40M CASH
MARINER COMPONENTS
Private marine-components manufacturer Complementary products • shared customers
Should Pellican pay $40 million for Mariner?
Not enough information yet. Good.
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NARRATION
Gloria Pellican is the founder and CEO of Pellican Manufacturing, a publicly traded manufacturer of specialty marine equipment.
Gloria has an opportunity.
A smaller competitor, Mariner Components, is for sale. The companies serve similar markets, their products complement one another, and Gloria believes combining the businesses could create some meaningful operating efficiencies.
The owners of Mariner want forty million dollars in cash.
Gloria takes the proposal to her board and asks what sounds like a perfectly reasonable question:
Should Pellican pay forty million dollars to acquire Mariner?
So, what do you think?
Should Gloria write the check?
Hopefully your answer right now is something along the lines of...
"How the hell should I know?"
Good.
I haven't given you nearly enough information to answer the question.
And recognizing that is the beginning of the analysis.
STEP 1 • DEFINE THE PROBLEM
What Are We Actually Deciding?
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Is Mariner a good company?
Will revenue grow?
Can Pellican afford it?
Will savings materialize?
What else could $40M do?
THE DECISION
Is acquiring Mariner for $40 million reasonably expected to create value for Pellican’s shareholders?
Good company ≠ good investment at any price.
NARRATION
Before we open Excel, calculate a ratio, or start punching numbers into a financial calculator, we need to determine exactly what problem we're trying to solve.
Is Mariner a good company?
Will its revenue grow?
Can Pellican afford the acquisition?
Can the companies actually achieve the expected cost savings?
What else could Pellican do with forty million dollars?
Those are all useful questions.
But none of them, by itself, captures the decision.
A better statement of the problem might be:
Is acquiring Mariner for forty million dollars reasonably expected to create value for Pellican's shareholders?
Notice the distinction.
We're not asking whether Mariner is a good company.
A wonderful company can be a terrible investment at the wrong price. And a mediocre company can sometimes be an attractive investment at the right price.
In a case analysis, defining the actual decision helps determine what evidence matters and what analytical tools we need.
STEP 2 • TRIAGE THE INFORMATION
Facts, Forecasts & Assumptions
FACTS
Asking price: $40M
Largest customer: 18%
Cash transaction
FORECASTS
Year-1 FCFF: $3.0M
FCFF growth: 4%
Expected synergies
ASSUMPTIONS
WACC: 10%
Terminal growth: 2.5%
Benefits arrive on schedule
$85,000 executive conference-room renovation
TRUE ≠ RELEVANT
Cases contain information. Analysts determine relevance.
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NARRATION
Now let's give ourselves some information.
Mariner's owners want forty million dollars. That's a fact about the proposed transaction.
Mariner's largest customer represents about eighteen percent of annual revenue. Also a fact, and potentially an important one.
Pellican management expects Mariner to generate about three million dollars of free cash flow to the firm during the first year after the acquisition.
Be careful.
That's not a fact.
That's a forecast.
Management expects those cash flows to grow about four percent annually for the next several years. Another forecast.
Pellican's CFO believes a ten percent weighted average cost of capital is appropriate, and management believes two-and-a-half percent is a reasonable long-term growth rate.
Those are assumptions.
They may be perfectly reasonable assumptions. But they still need to be defended.
Oh, and Mariner recently spent eighty-five thousand dollars renovating its executive conference room.
That's also a fact.
It even has a dollar sign attached to it.
And for the decision we're trying to make, it is almost completely useless.
Cases contain information. Analysts determine relevance.
Don't confuse the presence of a number with the importance of a number.
RESEARCH SHOULD TEST A CLAIM, NOT DECORATE A PAPER
Look Beyond the Case
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CLAIM
4% growth is reasonable
→
QUESTION
What evidence tests it?
→
SOURCE
Choose the source that fits
→
EVIDENCE
Support or challenge the assumption
SOURCE FIT MATTERS
CFA Institute valuation methods
Damodaran / NYU valuation & M&A
FRED economic data
SEC EDGAR primary filings
Peer-reviewed / industry empirical evidence
Don’t find a source because your professor requires one. Find evidence because a claim needs support.
NARRATION
Now let's consider that four-percent growth forecast.
Is four percent reasonable?
We can't answer that simply because Pellican management put four percent into a spreadsheet.
This is where you need to look beyond the case.
What has growth looked like across the industry?
What are competitors reporting?
What economic conditions could affect demand?
What does credible research tell us about acquisition performance and the realization of expected synergies?
And if we're uncertain about the valuation method itself, what do professional and academic sources tell us?
This is where resources such as CFA Institute, Professor Aswath Damodaran's valuation work at NYU, Federal Reserve economic data through FRED, SEC filings, peer-reviewed research, and credible industry sources become useful.
And notice what we're doing.
We're not looking for a source because Professor Dennis wants references.
We're looking for evidence because management just handed us an assumption that could materially change our valuation.
That's what research is for.
Make a claim. Ask what evidence would support or challenge it. Then go find credible evidence.
Life doesn't come with a textbook. Learn to look around.
STEP 3 • ANALYSIS
Choose the Tool That Fits the Problem
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Future cash flows
→
DCF
Relative pricing
→
Comparable companies
Financial condition
→
Statements + ratios
Uncertain assumptions
→
Sensitivity / scenarios
For Gloria’s immediate question, DCF is a starting point — not the whole answer.
NARRATION
Once we understand the problem and have identified the evidence we need, we can choose our analytical tools.
Notice the order.
The problem determines the tool. The tool does not determine the problem.
If we're estimating the value of expected future cash flows, discounted cash-flow analysis may be appropriate.
If we're comparing how similar companies are priced, we might use comparable-company analysis.
If we're evaluating financial condition, we may examine financial statements and ratios.
And when our conclusion depends heavily on uncertain assumptions, sensitivity or scenario analysis can help us understand what could change the answer.
For Gloria's immediate question, a discounted cash-flow model gives us a useful starting point.
Not the whole answer.
A starting point.
All right.
We've behaved ourselves long enough.
We can finally let Excel out of its cage.
BASE-CASE DCF
"$42 Million. Buy It!"
Year-1 FCFF
$3.0M
Growth Y2–Y5
4.0%
WACC
10.0%
Terminal growth
2.5%
Enterprise Value = PV(FCFF) + PV(Terminal Value)
ESTIMATED VALUE
$42.01M
PURCHASE PRICE
$40.00M
APPARENT + $2.01M
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PROJECTED FCFF ($M)
Y1 3.000
Y2 3.120
Y3 3.245
Y4 3.375
Y5 3.510
NARRATION
Here's our base case.
Pellican expects three million dollars of free cash flow to the firm in Year One.
Management forecasts four-percent annual cash-flow growth during Years Two through Five.
We use a ten-percent weighted average cost of capital and assume long-term growth of two-and-a-half percent after Year Five.
Discount those expected cash flows back to the present, including the terminal value, and our estimated value for Mariner is approximately...
forty-two million dollars.
Mariner costs forty million.
Our model says it's worth forty-two.
Wonderful.
Somebody tell Gloria she's a financial genius. Buy the company. Break out the champagne.
Except...
What exactly have we proven?
We haven't discovered that Mariner is objectively worth forty-two million dollars.
We've estimated a value of about forty-two million if the cash-flow forecasts, growth expectations, discount rate, terminal-growth assumption, and other inputs are reasonably accurate.
That's a considerably different statement.
So before Gloria reaches for the corporate checkbook, let's abuse the model a little.
BASE-CASE DCF
"$42 Million. Buy It!"
Year-1 FCFF
$3.0M
Growth Y2–Y5
4.0%
WACC
10.0%
Terminal growth
2.5%
Enterprise Value = PV(FCFF) + PV(Terminal Value)
ESTIMATED VALUE
$42.01M
PURCHASE PRICE
$40.00M
APPARENT + $2.01M
HOWEVER…
Value is conditional on the assumptions being reasonable.
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PROJECTED FCFF ($M)
Y1 3.000
Y2 3.120
Y3 3.245
Y4 3.375
Y5 3.510
VALUE IS CONDITIONAL ON THE ASSUMPTIONS BEING REASONABLE
NARRATION
However...
What exactly have we proven?
We haven't discovered that Mariner is objectively worth forty-two million dollars.
We've estimated a value of about forty-two million if the cash-flow forecasts, growth expectations, discount rate, terminal-growth assumption, and other inputs are reasonably accurate.
That's a considerably different statement.
So before Gloria reaches for the corporate checkbook, let’s stress test the model a little.
SENSITIVITY • THE MONEY SLIDE
What If We're Wrong?
CHANGE #1 • REQUIRED RETURN
10% WACC
$42.01M
→
11% WACC
$37.03M
−$4.98M
CHANGE #2 • TERMINAL GROWTH
2.5% growth
$42.01M
→
2.0% growth
$40.01M
≈ price
Terminal Value
FCFF₆ ÷ (WACC − g)
g = perpetual growth rate
ALSO TEST:
Synergy timing • $300K of Year-1 FCFF • 18% customer concentration
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SENSITIVITY SNAPSHOT: ESTIMATED VALUE ($M)
5-Yr Growth
9% WACC
10% WACC
11% WACC
2%
45.39
39.35
34.73
4%
48.52
42.01
37.03
6%
51.84
44.82
39.45
Terminal g = 2.5%. Base case highlighted.
NARRATION
Our base case used a ten-percent weighted average cost of capital and produced a value of approximately forty-two million dollars.
What happens if Mariner is a little riskier than we thought?
Change the required return from ten percent to eleven percent.
Estimated value falls to about thirty-seven million dollars.
Same company. Same factory. Same customers. Same forty-million-dollar asking price.
We changed one assumption.
Let's try another.
Put the discount rate back at ten percent, but reduce our long-term growth assumption from two-and-a-half percent to two percent.
Estimated value falls to roughly forty million dollars.
There goes virtually our entire apparent advantage.
And remember that approximately three hundred thousand dollars of our projected Year-One free cash flow already depends upon anticipated benefits from combining the companies.
What if those savings arrive later than expected?
What if some never arrive?
What if that customer representing eighteen percent of Mariner's revenue decides it doesn't particularly enjoy being a Pellican customer?
None of this means the acquisition is bad.
It means the conclusion is sensitive to assumptions that deserve scrutiny.
And this is the point I want you to remember:
The spreadsheet produced a number. The analyst still has to produce the conclusion.
STEPS 4–6 • ALTERNATIVES → RECOMMENDATION → DEFENSE
Make the Call
BUY
Evidence supports assumptions and sufficient value exists.
NEGOTIATE
Strategic fit is attractive, but $40M leaves too little cushion.
WALK AWAY
Risk or assumptions make the acquisition unattractive.
A defensible recommendation:
“Based on the evidence, I recommend ___ because ___. The key uncertainty is ___. If ___ changes materially, I would reconsider.”
PROBLEM
EVIDENCE
ANALYSIS
ALTERNATIVES
RECOMMEND
DEFEND
The answer right now? MAYBE.
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NARRATION
So what should Gloria do?
Buy Mariner?
Negotiate a lower price?
Walk away?
Here's where some students become uncomfortable:
I'm not going to tell you.
Depending upon the evidence you uncover and the assumptions you can defend, more than one recommendation could be reasonable.
You might conclude that forty million is attractive because the expected cash flows and strategic benefits justify the price.
You might like the acquisition but argue that forty million leaves too little room for uncertainty, so Pellican should negotiate.
Or you might conclude that the risks, customer concentration, or overly optimistic assumptions make the acquisition unattractive.
The important question isn't whether your recommendation happens to match somebody else's answer.
It's whether you can defend it.
And that brings us back to our framework.
Define the problem.
Identify the relevant evidence.
Perform the appropriate analysis.
Consider reasonable alternatives.
Make a recommendation.
And defend it.
That's the difference between reporting numbers and performing financial analysis.
Gloria asked us whether she should spend forty million dollars.
Our answer right now?
Maybe.
But unlike eleven minutes ago, we now know what we would need to establish before making the call.
KEEP THIS SLIDE
Finance Case Analysis • Study Guide
1 PROBLEM
2 EVIDENCE
3 ANALYSIS
4 ALTERNATIVES
5 RECOMMEND
6 DEFEND
CASE QUESTIONS TO ASK
• What decision actually has to be made?
• Which information is fact, forecast, or assumption?
• What evidence would test the key assumptions?
• Which tool fits the problem?
• What could change the conclusion?
FORMULA REMINDERS
FCFF → discount at WACC → Enterprise Value
Terminal Value = FCFFₙ₊₁ ÷ (WACC − g)
DCF value = PV(explicit FCFF) + PV(terminal value)
Cases contain information. Analysts determine relevance.
The spreadsheet produced a number. The analyst still has to produce the conclusion.
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LOOK BEYOND THE CASE
References & Research Starting Points
CFA Institute. (2026). Free cash flow valuation. CFA Program Level II Equity Valuation.
Damodaran, A. (n.d.). Acquisition valuation. NYU Stern School of Business.
https://pages.stern.nyu.edu/~adamodar/pdfiles/AcqValn.pdf
Board of Governors of the Federal Reserve System (US). (n.d.). Market yield on U.S. Treasury securities at 10-year constant maturity [WGS10YR]. FRED, Federal Reserve Bank of St. Louis.
https://fred.stlouisfed.org/series/WGS10YR
U.S. Securities and Exchange Commission. (n.d.). Search filings: EDGAR.
https://www.sec.gov/search-filings
Use sources to test assumptions and support claims, not merely to satisfy a citation requirement.
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Research starting points, not a substitute for case-specific evidence.
Visuals: Port of Jacksonville, U.S. Army Corps of Engineers (public domain) • Pelican photograph © Mark Dennis.
