Encore International Case Study

Overview

Encore, an international casual wear company rocketed to $300 million in sales during 2012 after only 10 years in business. Jordan Ellis, the company founder is looking to establish long term expansion into the European and Latin American markets (Gitman & Zutter, 2012). There was unprecedented growth, which no one could have predicted that the company would have with shops in the New York area within every six blocks. Analysts predicted that the company could not keep up the pace and that with the fierce competition in the fashion industry, Encore would have little to no growth. Jordan Ellis disagreed and felt that the company could retain or keep a constant annual growth rate and dividends per share of 6 and 8 percent over the next 2 years, with 6 percent based on his planned expansion (StudyMode.com, June 2012). Mr. Ellis also expected the risk of his firm to increase from 8.8 to 10 percent, and at that time, 6 percent was the current risk free rate. Marc Scott, Encore’s junior financial analyst, has been assigned by the CFO to evaluate the firm’s current stock price and consider the conservative prediction of the securities analysts and the aggressive prediction of Jordan Ellis (Gitman & Zutter, 2012).

Earnings per Share $6.25

Price per Share of Common Stock $40,000

Book Value of Common Stock Equity $60,000,000

Total Common Shares Outstanding 2,500,000

Common Stock Dividend per Share $4.00

Analysis

Based on the information above the firms current book value per share is 24 dollars. Marc was able to get this figure by using the accounting formula (Book value= value of common stock equity divided by Total common shares outstanding) $60,000,000 / $2,500,000 = 24. The current firms P/E ratio is also needed to help determine future growth within the company. The level of this ratio indicates the