Interco 

Case Study Solution

Posted by John Berg on Feb-16-2018 

Introduction

Interco Case Study is included in the Harvard Business Review Case Study.
Therefore, it is necessary to touch HBR fundamentals before starting the Interco
case analysis. HBR will help you assess which piece of information is relevant.
Harvard Business review will also help you solve your case. Thus, HBR
fundamentals assist in easily comprehending the case study description and
brainstorming the Interco case analysis. Also, a major benefit of HBR is that it
widens your approach. HBR also brings new ideas into the picture which would help
you in your Interco case analysis. 

To write an effective Harvard Business Case Solution, a deep Interco case analysis
is essential. A proper analysis requires deep investigative reading. You should have
a strong grasp of the concepts discussed and be able to identify the central problem
in the given HBR case study. It is very important to read the HBR case study
thoroughly as at times identifying the key problem becomes challenging. Thus by
underlining every single detail which you think relevant, you will be quickly able to
solve the HBR case study as is addressed in Harvard Business Case Solution.

Problem Identification

The first step in solving the HBR Case Study is to identify the problem. A problem
can be regarded as a difference between the actual situation and the desired
situation. This means that to identify a problem, you must know where it is intended
to be. To do a Interco case study analysis and a financial analysis, you need to have
a clear understanding of where the problem currently is about the perceived
problem. 

For effective and efficient problem identification,

 A multi-source and multi-method approach should be adopted.

  The problem identified should be thoroughly reviewed and evaluated before
continuing with the case study solution.
 The problem should be backed by sufficient evidence to make sure a wrong
problem isn't being worked upon.

Scale Your Grade Expectation Bar HIGH!

Our perfectly written content guarantees exceptional academic performance. You

can prepare your own version without putting any extra effort at all. 

HIRE US
 No Plagiarism
 Quality Assurance
 Specialized Writers
 On Time Delivery
Problem identification, if done well, will form a strong foundation for your Interco
Case Study. Effective problem identification is clear, objective, and specific. An
ambiguous problem will result in vague solutions being discovered. It is also well-
informed and timely. It should be noted that the right amount of time should be spent
on this part. Spending too much time will leave lesser time for the rest of the
process.

Interco Case Analysis

Once you have completed the first step which was problem identification, you move
on to developing a case study answers. This is the second step which will include
evaluation and analysis of the given company. For this step, tools like SWOT
analysis, Porter's five forces analysis for Interco, etc. can be used. Porter’s five
forces analysis for Interco analyses a company’s substitutes, buyer and supplier
power, rivalry, etc.

To do an effective HBR case study analysis, you need to explore the following
areas: 

1. Company history: 

The Interco case study consists of the history of the company given at the start.
Reading it thoroughly will provide you with an understanding of the company's aims
and objectives. You will keep these in mind as any Harvard Business Case Solutions
you provide will need to be aligned with these. 

2. Company growth trends:

This will help you obtain an understanding of the company's current stage in the
business cycle and will give you an idea of what the scope of the solution should be.

3. Company culture:

Work culture in a company tells a lot about the workforce itself. You can understand
this by going through the instances involving employees that the HBR case study
provides. This will be helpful in understanding if the proposed case study solution will
be accepted by the workforce and whether it will consist of the prevailing culture in
the company.

Interco Financial Analysis

The third step of solving the Interco Case Study is Interco Financial Analysis. You
can go about it in a similar way as is done for a finance and accounting case study.
For solving any Interco case, Financial Analysis is of extreme importance. You
should place extra focus on conducting Interco financial analysis as it is an integral
part of the Interco Case Study Solution. It will help you evaluate the position of
Interco regarding stability, profitability and liquidity accurately. On the basis of this,
you will be able to recommend an appropriate plan of action. To conduct a Interco
financial analysis in excel,

 Past year financial statements need to be extracted.

 Liquidity and profitability ratios to be calculated from the current financial
statements.
 Ratios are compared with the past year Interco calculations
 Company’s financial position is evaluated.

Another way how you can do the Interco financial analysis is through financial
modelling. Financial Analysis through financial modelling is done by:
  Using the current financial statement to produce forecasted financial
statements.
 A set of assumptions are made to grow revenue and expenses.
 Value of the company is derived.

Financial Analysis is critical in many aspects:

 Decision Making and Strategy Devising to achieve targeted goals- to

determine the future course of action.
 Getting credit from suppliers depending on the leverage position- creditors will
be confident to supply on credit if less company debt.
 Influence on Investment Decisions- buying and selling of stock by investors.

Thus, it is a snapshot of the company and helps analysts assess whether the
company's performance has improved or deteriorated. It also gives an insight about
its expected performance in future- whether it will be going concern or not. Interco
Financial analysis can, therefore, give you a broader image of the company.

Interco NPV

Interco's calculations of ratios only are not sufficient to gauge the company
performance for investment decisions. Instead, investment appraisal methods should
also be considered. Interco NPV calculation is a very important one as NPV helps
determine whether the investment will lead to a positive value or a negative value. It
is the best tool for decision making.

There are many benefits of using NPV:

 It takes into account the future value of money, thereby giving reliable results.
 It considers the cost of capital in its calculations.
 It gives the return in dollar terms simplifying decision making.

The formula that you will use to calculate Interco NPV will be as follows:

Present Value of Future Cash Flows minus Initial Investment

Present Value of Future cash flows will be calculated as follows:

PV of CF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

where CF = cash flows

r = cost of capital
n = total number of years.

Cash flows can be uniform or multiple. You can discount them by Interco WACC as
the discount rate to arrive at the present value figure. You can then use the resulting
figure to make your investment decision. The decision criteria would be as follows:

 If Present Value of Cash Flows is greater than Initial Investment, you can
accept the project.
 If Present Value of Cash Flows is less than Initial Investment, you can reject
the project.

Thus, calculation of Interco NPV will give you an insight into the value generated if
you invest in Interco. It is a very reliable tool to assess the feasibility of an investment
as it helps determine whether the cash flows generated will help yield a positive
return or not. 

However, it would be better if you take various aspects under consideration. Thus,
apart from Interco’s NPV, you should also consider other capital budgeting
techniques like Interco’s IRR to evaluate and fine-tune your investment decisions.

Interco DCF

Once you are done with calculating the Interco NPV for your finance and accounting
case study, you can proceed to the next step, which involves calculating the Interco
DCF. Discounted cash flow (DCF) is a Interco valuation method used to estimate the
value of an investment based on its future cash flows. For a better presentation of
your finance case solution, it is recommended to use Interco excel for the DCF
analysis.

To calculate the Interco DCF analysis, the following steps are required:
 1. Calculate the expected future cash inflows and outflows.
2. Set-off inflows and outflows to obtain the net cash flows.
3. Find the present value of expected future net cash flows using a discount rate,
which is usually the weighted-average cost of capital (WACC).
4. Evaluate the potential investment:
o If the value calculated through Interco DCF is higher than the current
cost of the investment, the opportunity should be considered
o If the current cost of the investment is higher than the value calculated
through DCF, the opportunity should be rejected

Interco DCF can also be calculated using the following formula: 

DCF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

In the formula:

 CF= Cash flows

 R= discount rate (WACC)

Interco WACC

When making different Interco's calculations, Interco WACC calculation is of great

significance. WACC calculation is done by the capital composition of the company.
The formula will be as follows:

Weighted Average Cost of Capital = % of Debt * Cost of Debt * (1- tax rate) + % of
equity * Cost of Equity

You can compute the debt and equity percentage from the balance sheet figures.
For the cost of equity, you can use the CAPM model. Cost of debt is usually given.
However, if it isn't mentioned, you can calculate it through market weighted average
debt. Interco’s WACC will indicate the rate the company should earn to pay its
capital suppliers. Interco WACC can be analysed in two ways:

 From the company's perspective, it can be analysed as the cost to be paid to

the capital providers also known as Cost of Capital
  From an investor' perspective, if the expected return on the investment
exceeds Interco WACC, the investor will go ahead with the investment as a
positive value would be generated.

Looking for help with Case Solution on Interco Case Study Solution?

START ORDER NOW

Interco IRR

After calculating the Interco WACC, it is necessary to calculate the Interco IRR as
well, as WACC alone does not say much about the company’s overall situation.
Interco IRR will add meaning to the finance solution that you are working on. The
internal rate of return is a tool used in investment appraisal to calculate the
profitability of prospective investments. IRR calculations are dependent on the same
formula as Interco NPV. 

There are two ways to calculate the Interco IRR. 

1. By using a Interco Excel Spreadsheet: There are in-built formulae for

calculating IRR.
2. By using trial-and-error: For this, the following formula will be used: 

IRR= R + [NPVa / (NPVa - NPVb) x (Rb - Ra)]

In this formula:

 Ra= lower discount rate chosen

 Rb= higher discount rate chosen 
 NPVa= NPV at Ra
 NPVb= NPV at Rb 

Interco IRR impacts your finance case solution in the following ways:

 If IRR>WACC, accept the alternative 

 If IRR<WACC, reject the alternative 
Interco Excel Spreadsheet

All your Interco calculations should be done in a Interco xls Spreadsheet. A Interco
excel spreadsheet is the best way to present your finance case solution. The Interco
Calculations should be presented in Interco excel in such a way that the analysis and
results can be distinguished to the viewers. The point of Interco excel is to present
large amounts of data in clear and consumable ways. Presenting your data is also
going to make sure that you don't have misinterpretations of the data.

To make your Interco calculations sheet more meaningful, you should:

1. Think about the order of the Interco xls worksheets in your finance case
solution
2. Use more Interco xls worksheets and tables as will divide the data that you
are looking at in sections.
3. Choose clarity overlooks
4. Keep your timeline consistent 
5. Organise the information flow
6. Clarify your sources

The following tips and bits should be kept in mind while preparing your finance case
solution in a Interco xls spreadsheet:

1. Avoid using fixed numbers in formulae

2. Avoid hiding data
3. Useless and meaningful colours, such as highlighting negative numbers in red
4. Label column and rows
5. Correct your alignment
6. Keep formulae readable 
7. Strategically freeze header column and row

Interco Ratio analysis

After you have your Interco calculations in a Interco xls spreadsheet, you can move
on to the next step which is ratio analysis. Ratio analysis is an analysis of information
in the form of figures contained in the financial statements of a company. It will help
you evaluate various aspects of a company's operating and financial performance
which can be done in Interco Excel.

To conduct a ratio analysis that covers all financial aspects, divide the analysis as
follows:

1. Liquidity Ratios: Liquidity ratios gauge a company's ability to pay off its

short-term debt. These include the current ratio, quick ratio, and working
capital ratio.
2. Solvency ratios: Solvency ratios match a company's debt levels with its
assets, equity, and earnings. These include the debt-equity ratio, debt-assets
ratio, and interest coverage ratio.
3. Profitability Ratios: These show how effectively a company can generate
profits through its operations. Profit margin, return on assets, return on equity,
return on capital employed, and gross margin ratio is examples of profitability
ratios.
4. Efficiency ratios: Efficiency ratios analyse how efficiently a company uses its
assets and liabilities to boost sales and increase profits.
5. Coverage Ratios: These ratios measure a company's ability to make the
interest payments and other obligations associated with its debts. Examples
include times interest earned ratio and debt-service coverage ratio.
6. Market Prospect Ratios: These include dividend yield, P/E ratio, earnings
per share, and dividend payout ratio.

Interco Valuation

Interco Valuation is a very fundamental requirement if you want to work out your
Harvard Business Case Solution. Interco Valuation includes a critical analysis of the
company's capital structure – the composition of debt and equity in it, and the fair
value of its assets. Common approaches to Interco valuation include

 FCFF
 FCFE
  DDM
 Comparable
o DDM is an appropriate method if dividends are being paid to
shareholders and the dividends paid are in line with the earnings of the
company.
o FCFF is used when the company has a combination of debt and equity
financing.
o FCFE, on the other hand, shows the cash flow available to equity
holders only.

These three methods explained above are very commonly used to calculate the
value of the firm. Investment decisions are undertaken by the value derived.

Interco calculations for projected cash flows and growth rates are taken under
consideration to come up with the value of firm and value of equity. These figures
are used to determine the net worth of the business. Net worth is a very important
concept when solving any finance and accounting case study as it gives a deep
insight into the company's potential to perform in future.

Alternative Solutions

After doing your case study analysis, you move to the next step, which is identifying
alternative solutions. These will be other possibilities of Harvard Business case
solutions that you can choose from. For this, you must look at the Interco case
analysis in different ways and find a new perspective that you haven't thought of
before.

Once you have listed or mapped alternatives, be open to their possibilities. Work on
those that:

 need additional information

 are new solutions
 can be combined or eliminated
After listing possible options, evaluate them without prejudice, and check if enough
resources are available for implementation and if the company workforce would
accept it.

For ease of deciding the best Interco case solution, you can rate them on numerous
aspects, such as:

 Feasibility
 Suitability
 Flexibility

Implementation

Once you have read the Interco HBR case study and have started working your way
towards Interco Case Solution, you need to be clear about different financial
concepts. Your Mondavi case answers should reflect your understanding of the
Interco Case Study.

You should be clear about the advantages, disadvantages and method of each
financial analysis technique. Knowing formulas is also very essential or else you will
mess up with your analysis. Therefore, you need to be mindful of the financial
analysis method you are implementing to write your Interco case study solution. It
should closely align with the business structure and the financials as mentioned in
the Interco case memo.

You can also refer to Interco Harvard case to have a better understanding and a
clearer picture so that you implement the best strategy. There are a number of
benefits if you keep a wide range of financial analysis tools at your fingertips.

 Your Interco HBR Case Solution would be quite accurate

 You will have an option to choose from different methods, thus helping you
choose the best strategy.

Recommendation and Action Plan

Once you have successfully worked out your financial analysis using the most
appropriate method and come up with Interco HBR Case Solution, you need to give
the final finishing by adding a recommendation and an action plan to be followed.
The recommendation can be based on the current financial analysis. When making a
recommendation,

 You need to make sure that it is not generic and it will help in increasing
company value
 It is in line with the case study analysis you have conducted
 The Interco calculations you have done support what you are recommending
 It should be clear, concise and free of complexities

Also, adding an action plan for your recommendation further strengthens your
Interco HBR case study argument. Thus, your action plan should be consistent with
the recommendation you are giving to support your Interco financial analysis. It is
essential to have all these three things correlated to have a better coherence in your
argument presented in your case study analysis and solution which will be a part of
Interco Case Answer