KELLWOOD COMPANY: FINANCIAL ANALYSES
A trend analysis based on financial data for the 1992-1996 period indicates that sales of the Kellwood Company are growing at the rate of 12.5 percent per year. Trend analysis indicates that the company's net income is growing at the rate of 5.2 percent per year.
With population growth slowing to a one-percent annual rate for the 1997-2006 decade, the apparel industry must carefully monitor potential sources of growth. Individual apparel manufacturers such as Kellwood must be especially diligent in this effort if they are to maintain growth trends.
Births peaked in the United States in 1990 ("Age Waves" S14). Thus, the teenage market for apparel, the most lucrative, may be expected to trend downward beginning in 2000. Business and casual apparel sales to persons in the 30-to-40 year old age group, however, may be expected to continue to grow through 2015.
Kellwood Company, as a manufacturer clothing for women, juniors, mens, and boys clothing, and as a manufacturer of underwear for women and children is in a position to take advantage of the age demographics confronting the industry. Kellwood should attain a sales level of $2.6 billion by 2001.
The company's before-tax cost of capital in 1995 was 7.2 percent. The tax-adjusted overall cost of capital was 7.2 percent (1 - .385) = 4.4 percent.
The market prices for the company's common stock for the period 24 February 1997 through 4 April 1997 are presented in Appendix 1. The market value of the firm is $546.9 million. The firm's cost of capital at market was 3.3 percent.
The probable costs of alternative forms of financing are as follows:
The recommended policy for an acceptable require return on investment (ROI) for investment in a subsidiary is an ROI equal to the probable cost of financing based on the issuance of new common stock. Within the context of this policy, the minimum ROI for the proposed investment will b...