CASE STUDY

CANTOR
CASE HISTORY:
Cantor Group (Cantor) is a listed company with two subsidiaries, both involved in food and
drink retailing in the small country of Deeland. Its mission is 'to maximise shareholder value
through supplying good value food and drink in appealing environments for our customers'.
Cantor Cafes (Cafes) is the original operating company for the group and is a chain of 115 cafes
specialising in different coffee drinks but also serving some simple food dishes.
Cafes has been running successfully for 15 years and has reached the limit of its expansion as
the cafe market is now considered to be saturated with competition. Further growth will occur
only as the opportunity to obtain profitable, new sites is presented, although such
opportunities are not expected to be significant over the next few years.
ISSUES AT HAND:
This case reflects primarily on past gains at present. It does not have any future cash flows,
positive added value, share price or distributions – all of which can give the equity interest a
hint.
The analysis also does not calculate shareholder interest explicitly. One of the major
shareholders of Cantor has already addressed this argument, which proposed that the key
indicator of the success of the business be the implementation of economic value added (EVA).
(Later in this report, we will return to this point).
One risk that annual income should be seen as the principal indicator of success is that it may
contribute to short-term results.

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FACTS AND FIGURES:

Compared to the EVA estimate, NOPAT 's revenue benefit for the year was significantly greater
than the operating expense – thereby contributing $4.82 million to the equity interest for the
year.
The EVA calculated is however just an example, and it contains a number of simplifying
assumptions that need more detail if we begin using EVA as one of our main performance
measures.
ALTERNATIVES:
Value-based management (VBM's) theory is that a company's worth is calculated by its
decreased cash flows and the profit is only generated if the venture money results in returns
the outweigh the cost of the equity.
Consequently, unlike the current performance evaluation method of Cantor which focuses on
income, VBM should foster the focus on potential cash flows and value generation. Importantly,
despite the role of Cantor, VBM conducts decision-making about which practices. The interest
of the business ('drivers') is improved - and its owners generate profit.
The VBM strategy frequently harmonizes financial , organizational and administrative structures
in order to operate both to build worth together.

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RECOMMENDATIONS:
A variety of flaws appear in Cantor's current performance report – particularly when he does
not show how well the organization does in the three facets of its current task. This report
focuses rather on profitability than on shareholder value, but it could help to address this issue
if we were to move to a value-driven management approach and implement EVA as a
performance measure. Because of the various knowledge criteria, it will also be helpful to
generate independent reports for the Board and the Boards of the subsidiaries.

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