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2. Value Creation and Home Depot

1. Value Destruction - Example 1: Schlotzsky's Deli, Inc.

Schlotzsky's Deli is a sandwich shop franchiser with franchises across the US. It saw much growth in the early '90's but has destroyed much of its value over the last five years. Net profit margins have fallen almost 7.5%. Long term debt is up from $3.1 million to $29.2 million and return on assets has fallen from 7.8% to 3.2%. Sales growth has been slowing in recent years, though the latest figure is still healthy at 13%.

Despite healthy though slowing sales, Schlotzsky's fall in value seems to be mainly a financial problem with the company, as non-financial measures are good. Income per employee is slightly above the industry average, while revenue per employee sits well above the average.

One problem area with Schlotzsky's value based management may be it's fairly recent expansion into corporate owned stores. The company opened three large stores in Texas, Schlotzsky's Deli Market Places, which test new sandwiches for the franchisees and sell homemade bread. This expansion may explain the large increase in long term debt over the last five years, and may be the key driver responsible for the company's value destruction.

Cavalier Homes makes manufactured homes throughout the South and in the Midwest. Its key market is low to middle-priced housing in these areas. This company too, has suffered a great deal of value destruction in the past few years.

Net profit margins have fallen from a respectable 13.3% to today's miserable level of just .4%. Return on assets is down from 13.3% to 7.9%. Again, heavy borrowing may be the cause of Cavalier's value trouble. Long term debt has risen from $4.3 million to $10.2 million in just five years. All of these negative factors coincide with sales growth that has turned negative in the last two years.

There is, in fact, no sign that Cavalier follows a value based management philosophy. Both income p...

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2. Value Creation and Home Depot. (1969, December 31). In LotsofEssays.com. Retrieved 11:41, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1706991.html