Shato-marium university and creative technology

Submitted to:Robaiyat shaimonLecturerDepartment of Business AdministrationShanto-marium university and creative technology

Submitted by:S.m.rahamat miahRobinBaserLikhonMehedirobiulSection-B, 25th batch,5th semesterBachelor Business AdministrationShanto-marium university and creative technology

April 6, 2014

Subject: Report on "Case Analysis of Hope-In Food Store, Incorporate."

Dear Sir, 

At the threshold of submitting this report on “Case Analysis of Hope-In Food Store, Incorporate”. We are feeling immense pleasure to prepare this report as a partial requirement of Fundamentals of investment course.  We would like to mention that, we tried our best to prepare this report to our greater extent through reading, consulting, discussing among the members of our group to make it a comprehensive one. But due to the limitation of knowledge there might be some unforeseen mistake and incompleteness in our paper. We hope that you will overlook them with kind consideration that we are still learners and will give us the necessary suggestions that you always give for the improvement of our quality in future. We again express our gratitude to you to give us the opportunity of analyzing this case.

We would like to place this Paper for your evaluation & recommendations.

Thanking you.

Sincerely Yours

Unisoul group Section-B, 25th Batch,5th semesterBachelor of Business and Administration

ACKNOWLEDGEMENT

As per requirements of the Bachelor of Business and Administration (BBA) program our honourable course teacher Mr. Robaiyat shaimon has assigned a report in the course curriculum. Our assigned report is "Case Analysis of Hope-In Food Store, Incorporate ". We express our sincere gratitude to our honourable course teacher Mr. Robaiyat shaimon lecturer of the Department of Business Administration, Shanto-marium university and creative technology. for his guidance, advice and assistance in preparing the assigned case. We are really grateful to our course instructor for his unstinted support, timely and sophisticated direction and finally endless morale in learning the knowledge through preparing this report. This analysis helped us a lot in understanding how to determine the appropriate offer price for the new stock. It has also enhanced our analytical and decision making ability. Finally, thanks are also due to our group members who have done their job enthusiastically and perfectly.

Origin of report

This report (Case Analysis of Hope-In Food Store, Incorporate) is assigned by our honourable course teacher Mr. Robaiyat shaimon as a partial fulfillment of the course FIN-302 "Fundamentals of Investment". The report is the elaboration of determine the appropriate offer price for the new stock decision among our group members. It was a mater of group discussion and understanding. Assignment submission and presentation is the requirement for Bachelor of Business Administration (BBA) degree. We think that this case analysis will enhance our conceptual knowledge about offer share price and now we are confident enough to determine the appropriate offer price for the new stock.

Scope

The scope of this report is limited within the Hope-In Food Store, Incorporate to determine initial public offering (IPO) and the securities industry of United States.  

Objectives    1. To be able to use theoretical knowledge into practically to determine the offer price for the new stock.

2. To develop our skill in using analytical tools and techniques for determine the offer price.    3. To develop our interpersonal views and concept through sharing among every member of the group that is reflected in this report.

Limitations

Although efforts made to make the report was as comprehensive as possible, nevertheless, the following limitations are identified at the time of preparing the report:      1. We worked under a limited time passage.    2. A lot of information regarding industry, economy, and company are required.     3. We have put our optimum effort to formulize the available information    4. Many analytical techniques and tools are needed to apply to get appropriate result but due to our lack of practical knowledge our analysis may not be a highly efficient one.                                Subjective:

Company Background

Hop-In Food, incorporated on June 23, 1966 started in Roanoke as a single store selling a broad line of foodstuff and convenience items.

Since 1966, sales had grown at a 55% annual rate, and by the end of 1966, the company operated 84 stores in two states.

Hop- In Food had grown primarily through the acquisition of established stores rather than by the

internal expansion, of the 84 stores operating at the end of 1977, 58 had been acquired.

The company pursued this policy of growth by acquisition because experience had proven both the cost and risk of operating a new store to be generate than those of purchasing an established one.

SWOT Analysis

Strength:

a) New store site were selected on the basis of residence density the extent of street and highway access and the proximity of competing stores.b) Financial statements had prepared according to generally Accepted Accounting Principles and annual reports had been published each fiscal year.

Weakness:

a) At the end of 1976, the company purchased the assets and for this the company used a portion of short term debt.b)The Lack of an established dividend policy.c)Price Hop-In food’s auditors were not one of the big firms.

Opportunity:

a) Rebalancing financial leverage position through the new issue.b) New Issue would strengthen company’s bargaining power with lendersc) Publicly traded stocks would be a more effective tool for use in acquisitions.

Threat:

a) Competitors with greater size, economies of scale in purchasing, and national advertising.b)Sales of grocery and other staple items declined because the competition within the retail food industry was increased.c)Failure to determine right stock price the company’s goodwill may damage and that affect distribution network for future new issue.

Problem Statement

Hop-In Stores, Incorporated is facing supernormal growth in sales which requires a new financing strategy. And the company is interested to go for public offering.

So, the main concern is to determine the appropriate offer price for the new stock.

Economy Analysis

General feeling about the nation’s economy was optimistic.

Forecasts suggested that interest & bond coupon rates would fall.

Declining interest rates would draw investor’s fund away from Fixed Income Security market into the Equity Security market.

Assumptions

•    Industry consists of only the mentioned companies in the case.•    Risk free rate is 6%•    Beta of the company is 1.5 •    Marginal Tax Rate considered•    Company has only Common equity•    Retention Ratio, Rate of Return and Cost of capital are fixed•    Terminal growth rate is 4%•    Weighted sales growth is considered•    Gross margin and all op erating expense increases as a percentage of sales revenue

GE MATRIX:

 

PORTER’S FIVE factors:

Objective :

Per Group Average of Price/Earning Ratio (Trend) 

Price/Earning 1972 1973 1974 19751976

(10/29/76) Average

Southland 25 15.5 9.5 10.5 14.5 15

Munford 14 7 4.5 4 6 7.1

Dillon 21.5 15 12 12.5 13 14.8

Sunshine Junior 24.5 11.5 5 7.5 6 10.9National Convenience Store 22.5 10 5 6.5 7 10.2

Circle K 35 22.5 7.5 6.5 5 15.3

Industry Average  12.21667

0

5

10

15

20

25

30

35

1972 1974 1976

Price/Earning

Dillon

Sunshine Junior

National Convenience Store

Circle K

Industry Average 

Ratio analysis:

Current ratio: current asset/current liabilities =1864038/2245255 =0.830

Quick ratio: current asset-inventories/current liabilities =1864038-1495518/2245255 =0.164

Cash ratio: cash/current liabilities =106154/2245255 =0.047

Total debt ratio: total assets-total equity/total asset =4187718-1253785/4187718 =0.701

ratio amount

current ratio 0.83quick ratio 0.164cash ratio 0.047total asset ratio 0.701

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0.4

0.5

0.6

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0.8

0.9

ratio currentratio

quick ratio cash ratio total assetratio

Series1

Series2

CONCLUTION : Minimum acceptable share price by investment banker was $10.6 per share and Hop In Food determined that the share price would be $150.50. So, Investment bank Scott and String fellow will be benefited by underwriting Hope-In Food shares. On the other side, expecting market price growth is 10% to 20%. So, this is high time for share issue in the market and investment bank will be gainer by underwriting the company’s share because the company’s growth position and financing position is better.