Johnstown Corporation

The essential problem facing the Johnstown Corporation, a small steel manufacturing firm in the United States, in early-1988, is a dual determination·(1) to generate external capital or sell the firm, or (2) if external capital is to be generated as opposed to selling the firm, the source of such capital·(a) the private placement of notes with warrants, (b) a public stock offering, or (c) the issuance of convertible instruments. The facts bearing on the case are analyzed in support of the objective of recommending decisions on the two issues involved in the case.

Analysis: Decision on Selling the Firm

The American steel industry is divided into two major groups·the integrated steelmakers and the general steelmakers (Katz, 1994a, p. 604). The integrated steelmakers use iron ore and coke in the production of carbon steel, while the general steelmakers use ferrous scrap in the production of carbon steel. In 1988, the integrated group accounted for two-thirds (66.7 percent) of American steel output with the remaining 33.3 percent being produced by the general steelmakers. Those percentages do not represent market shares for the two groups of producers, however, because foreign steelmakers held a 21 percent share of the American steel market in 1988. When the foreign producers' market share is considered, the integrated steelmakers held a market share approximating 53 percent, while the market share for the g

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o: 18.8:1. (5) Dividend yield: 2.6 percent. c. Inland Steel: (1) Net profit as a percent of sales: -0.6 percent. (2) Return on total capital: -1.8 percent. (3) Return on shareholders' equity: -5.1 percent. (4) Price/earnings ratio: negative earnings. (5) Dividend yield: no dividends declared. d. Stelco: (1) Net profit as a percent of sales: -2.3 percent. (2) Return on total capital: -3.4 percent. (3) Return on shareholders' equity: -6.1 percent. (4) Price/earnings ratio: negative earnings. (5) Dividend yield: no dividends declared. 2. General group: a. Nucor: (1) Net profit as a percent of sales: 6.6 percent. (2) Return on total capital: 14.5 percent. (3) Return on shareholders' equity: 17.0 percent. (4) Price/earnings ratio: 32.3:1. (5) Dividend yield: 0.3 percent. b. Commercial Metals: (1) Net profit as a percent of sales: 21.7 percent. (2) Return on total capital: 8.1 percent. (3) Return on shareholders' equity: 9.2 percent. (4)
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Approximate Word count = 3748
Approximate Pages = 15 (250 words per page)