80.2K

Verified Solution

Link Copied!

Guidance Sheet In early 2012, a portfolio manager of Johnson \& Associates, Mark Johnson, was reviewing his holdings, including his position in AutoZone. A prominent shareholder, Edward Lampert, had begun liquidating his position in AutoZone, and Johnson was concerned that Lampert's reduced position could lead the company to stop using share repurchases as a method of distributing cash flows to shareholders. The case lists a number of alternative uses for the cash flows and asks students to assume Johnson's role as an analyst and assess the likely impact of those alternatives on AutoZone's stock price. AutoZone has performed well in terms of profitability and stock price appreciation over the previous 15 years. In concert with that performance, the company has also reported high return on invested capital (ROIC) results. The central question for students to resolve is whether share repurchases influenced stock price performance or if the correlation was spurious (i.e., there is an association but no causal link between stock price performance and share repurchase activity). Learning Objectives - Identify a high-performing company for which stock-price appreciation is consistent with other financial performance metrics such as EPS growth and ROIC. - Introduce share repurchases as a strategy for distributing operating cash flow. - Examine the impact share repurchases have on shares outstanding, earnings per share, and the book value of equity. - Illustrate that ROIC is not affected by repurchases. - Examine alternatives to repurchasing shares including financial uses (cash dividend and debt repayment) and operating uses (investing in organic and inorganic growth). - Explore the hypotheses that share repurchases create real value or serve as a financial signaling tool that increases share price. Questions: 1. What are the key issues for AutoZone.How has AutoZone's stock price performed over the previous five years? What other financial measures can you cite that are consistent with the stock price performance? Case Study Rubric - Financial Policy CRTHEION EXPLAINED Dagmosis 8 Explanation of her isues - There was a well-forased diagnosis of key ianues and problems that demooutrated a pood eraip of the coepany's atuation and inues. The kry ituors/problemis related atpects and scepe war dearly esplained - Ellective Executive Sammary Amilysis and Evaluation of isues - Analyair of finanital performance with relivant iapportive details. - SVnithesic analysic, and evaluabons wure dearly presented and mipported in a literate and elfective manner. Recemmendatiens on Effective Solutiens or Stratedes - Seecilic recomisendations abdfor plani of actine previded. - Rrecominenditions abd condusions wrre presemted and supported in a latr ite and effective makeer. Pesearch, Wrieieg Mechanics, geyle and fermatting relevant and the thefful research into the prent aifuation of the company and documentx all gourons of information

Answer & Explanation Solved by verified expert

See Answer