talbots stock analysis 2008

1. Brian Neary
FNGB 7430
Dr. George
Financial Analysis Paper

2. INDEX
Sections:
1. Mission Statement- objective & strategy (pg.2)
2. Economic Analysis (pgs.3-4)
3. Industry Analysis- (pgs. 5-6)
4. Company Analysis- (pgs.7-9)
8. Financials Appendix- (pgs.10-13)
9. Bibliography (pg.14)
10. Endnotes (pg.15)

3. Investment Objective
The primary objective of the following stock investment analysis of TALBOTS Inc. is to offer a qualified
opinion of the security, to therefore complement a well-diversified Equity Portfolio. The intention of the
analysis endeavors to achieve long term capital appreciation, stable returns, and sustainable growth based
upon the stock’s intrinsic value, and its related parameters:
• Market capitalization less than $1 billion.
• Firm must pay dividends or distribute cash to shareholders.
• Firm must have a single product line or closely related product lines.
• Firm must have been operating as a public company for a minimum of 10 years.
Principal Strategy
There are several inherent risks with investment in U.S. stock assets. The first regards performance risk.
In general, stock values will fluctuate in response to the specific activities of a company, as well as to general
market conditions. Since shares are not bank deposits, they aren’t guaranteed or insured by the FDIC, SIPC,
or any other government agency for default. Therefore, it may not be feasible to enforce a judgment against
the issuers of the securities, possibly resulting in a total loss of the investment.
Second, investment in securities involves market risk. Quite often securities may be illiquid, so they may
exhibit price volatility and an inability to execute timely divesture. There may also be differences in clearance
and settlement procedures effecting accurate settlements, and resulting in unforeseen losses. Currency risk
is prevalent along with the typical risks associated with foreign securities. If the value of a local currency falls
relative to the U.S. dollar, then the U.S. dollar value of the foreign security will decrease.
Third, securities also have risks related to global economic and political developments. Several include
expropriations, confiscatory taxation, exchange control regulation, limitations on foreign ownership or the
transfer of assets, as well as situations of regional social instability.
Fourth, securities may be subject to regulatory risk. In general, overseas security exchanges and broker-
dealers have less oversight by compliance entities than the U.S. markets. Foreign requirements may vary for
providing publicly available information. In the case of un-sponsored or unregistered depositary receipts the
primary issuers are under no obligation to distribute shareholder communications, or to convey any voting
rights for the deposited securities. Moreover, U.S. accounting regulations, auditing, and financial reporting
standards may be subject to change.
Lastly, there is no guarantee that any stock will ever achieve its investment objectives. The purchaser
accepts the speculative risk of the stock when taking a position. The company’s performance depends upon
whether or not the company’s internal management team is successful in applying the investment strategies.
However, it is the investment analyst’s responsibility to render a fair and accurate assessment, with given
public information.

4. Economic Analysis
The first section encompasses a macro-economic overview of the specialty retail industry. There are
approximately 400,000 specialty retail stores currently operating within the United States and Canada.
Aggregate annual sales revenues for the industry, as of FY 2007, amount to over $350 billion dollars. The
current marketplace includes: shoes & clothing with $125 billion in revenues, electronics & appliances with
$85 billion, jewelry with $25 billion, sporting goods $25 billion, books $15 billion, and various other product
offerings like toys, music, luggage, and pet supplies comprising the remaining $75 billion.1
The following chart represents the specialty retail cumulative market share:
Toys, music, pet supplies
21% Shoes & clothing
37%
Books
4%
Sporting goods
7%
Jewelry Electronics
7% 24%
The determinants of demand are driven exclusively by the consumer. Therefore, specialty retail goods
revenues are primarily affected by gains (losses) in consumer income. To a lesser extent, changes in taste, the
pricing of related substitute goods, and the overall number of buyers in the market have an impact demand.
The largest competitors, thru pricing power, are able to provide lower price points by making inventory
purchases in greater quantities. The smaller retailers compete thru differentiation. This is achieved by
variability in merchandise, higher quality expectations, relationship building, brand recognition, or providing
an exemplary customer service experience.
U.S. retail trade & industry sales, based upon economic data, represent approximately 6.4% of overall
GDP (or $886 billion dollars). Therefore, the specialty retailers contribute an impressive 39.5% to the total
figure. Also, there are 15 million workers employed either full or part-time within the industry. This
represents over 10% of the entire workforce.2 As trade continues to globalize, loss of efficiencies and domestic
wage pressures are resulting in more overseas capital investment. So, as industry transfers offshore and the
general labor-force shifts from a manufacturing to service-oriented economy, this upward trend will likely
continue.
As far as demographic data is concerned, retail sales figures are evenly dispersed throughout the country.
Likewise, the specialty retail dynamic is interwoven throughout all strata of society. Depending upon the
individual business model, strategy is tailored to the appropriate location based upon recorded data of

5. disposable income, age, gender, and preferences. The specialty retail industry is far more concerned with the
cycle of consumer spending throughout the year. Timing of merchandise inventories, purchases, and sales
initiatives are tantamount to achieving sales objectives.
The following chart diagrams the expectations for consumer spending and its schedule of potential cash flows
for the current year FY 2008:
There are several intangible risks that may affect these macro-economic forecasts. First, from a geo-
political standpoint, there are several possibilities that may alter future earnings. Legislation and trade
agreements can have long term consequences for an industry. A move toward protectionism/nationalism may
impact the importation of low priced goods. Also, a hike in interest rates or other fiscal policy initiatives may
hurt the consumer by straining purchasing power thru a weakened currency. Furthermore, unfavorable
legislation concerning import tariffs may injure trade relations and result in price appreciation.
Secondly, a further downturn in the economy will affect the consumer’s disposable income. Corporate
layoffs, restructuring, and downsizing impair purchasing power. Corporate credit to purchase inventories
may dry up. Unemployment may rear its ugly head. Most feared of all, the bite of inflation, whether in
commodities like oil or food prices, will negatively influence consumer spending habits by shaking confidence.
Thirdly, social/cultural factors can shape forecasts. A shift in priorities and consumption habits may
affect demand. This could produce a fundamental change in mindset of the average person, resulting from a
backlash against materialism, environmental consciousness, a revival of the saving mentality, or the move
away from a dependence upon asset-backed credit. Perhaps, even altruism will unfavorably impinge upon
revenues, with more people deciding to empower future generations.
Lastly, a glut in international supply due to the overgrowth within competitive landscape can drastically
cut retail sales margins. It is doubtful that the specialty retail industry will ever achieve perfect competition,
as the opportunity for choice and differentiation far outweighs supply. Rather, the concern is being
inundated with too much variety. A marketplace oversaturated with diversity can cause consumer paralysis,
erode brand loyalty, and overwhelm the buying public with overbearing marketing campaigns.

6. Industry Analysis
The competitive landscape of the specialty retail industry is biased toward perfect competition. There are
generally low barriers of entry, no proprietary technologies, low exit costs, low economies of scope/scale, and
relatively straightforward margins. However, the defining factor is differentiation. Unlike homogenous
products like barbershops or pizza parlors, the business model can be shaped by differentiation,
segmentation and building upon consumer tastes & preferences. As for business objectives, specialty
retailers compete across several market segments or demographics within a specific product classification.
Specialty retailers, unlike department stores or Mega-retailers like Wal-mart, encompass a singular or
limited product focus. However, they offer a much larger selection of items within each designated
merchandise category. The business model most resembles the independent operator/franchise structure.
The archetypal specialty retailer operates a single store, with annual revenue under $1 million dollars. Some
of the more notable big-box specialty retailers are Ann Taylor, Liz Claiborne, Tommy Hilfiger, Polo Ralph
Lauren, Gap, Best Buy, Sports Authority, Barnes & Noble, Zales, Virgin Music, Apple, and Toys "R" Us. Yet,
despite the presence these large chains, the market remains highly fragmented. Barnes & Noble, for
example, has 900+ brick-an-mortar locations as well as an online relationship with Amazon, but maintains
only 15% of total market share within the book segment.
Accordingly, these independent Strategic business units (sbu’s) acquire physical locations, hire, train, and
supervise store personnel, purchase wholesale products, manage inventory, and marketing initiatives.
Funding and credit initiatives may be provided by the head corporate office. They may operate stand-alone
stores, leased space in shopping centers, or in the case of Ralph Lauren and Bloomingdale’s, lease space in
department stores. Retailers with more than one store often operate one or several distribution centers that
receive all merchandise from directly from manufacturers. Otherwise, purchase and delivery contracts are
independently arranged.
The most important scope of operations for many specialty retailers is merchandise timing, particularly in
fashion-driven markets like women’s clothing and computer games. The company I am analyzing, Talbots, is
a mid-premium men’s & women’s specialty clothier. In order to maximize profits, merchandise decisions
must be made months ahead of the actual receipt of the product in stores, especially coinciding with seasonal
wardrobe changes.
Many products are consigned at trade shows. The fashion world, in particular, has diverse sources of
information about new products, and all are driven by innovative design concepts and trend analysis.
Product purchasing terms vary widely by market. In the retail book market, virtually all unsold book
purchases can be returned to publishers at full credit. However, in the clothing industry, returns of unsold
items to the manufacturer are uncommon as all sales are final.
Inventory management is closely tied to merchandising. An accurate inventory information system will
identify the popular items, and weed out the poor sellers. Again, in the apparel segment, seasonal product
adjustments and inventory management are essential to profitability. This factor is necessitated by the
crowded space of the market, as it has a higher than average concentration of specialty retail competitors. As

7. the product life cycle in retail apparel is literally “seasonal” high turnover is greatly desired. With this in
mind, innovation & technology have little importance to clothing and apparel opposed to well-defined product
trends. The greatest downside risk is missing a trend and purchasing an unpopular clothing line.
Barriers to entry are relatively low in the clothing segment, and can be rather high in the computer and
electronics segment, often having to purchase several million dollars worth of inventory. Growth prospects
vary across the product spectrum. Computers and electronics are dependent upon technology innovations.
The Apple iphone, Blu-Ray DVD, flat panel LCD TVs, and various improvements to existing products keep the
cycles short. Toys, book, sporting goods, and jewelry are relatively standardized and dependant upon
seasonal demand. Clothing and apparel have both seasonal and trend characteristics.
Industry Growth is clearly tied to disposable income and relative prosperity. The current downturn in the
U.S. economy is being reflected in declining sales, reduced foot traffic in stores, and a slump in online
transactions.3 Being the largest consumer nation in the world, and consequently the largest debtor nation,
when domestic consumption declines, the rest of the global community follows. “As the U.S. goes, so goes the
world.” The Michigan Consumer Confidence survey, shown below, reflects the downward trend of sentiment:
Our largest trading partners are beginning to feel the effects of the U.S. economic woes. Manufacturing
orders are slowing. Also, the downturn in the financial industry is making credit hard to come by, for
retailers looking to finance inventory during the upcoming holiday season. The only wildcard is the wholesale
manufacturing industry supplying the domestic specialty retailers. With the majority of partners being
overseas (China, S.E. Asia, India etc.) the lack of wage pressure enables the suppliers to keep costs down, and
prices low. Therefore, they can pass these benefits onto their customers, and retain satisfactory profit levels.
The remaining threat is continually climbing commodity, fuel and raw material charges that are negatively
impacting COGS, with no measurable relief on the horizon.
However, as global inflation expands, and price pressures creep into developing economies, the business
risks increase. Wage pressure, unionization, labor laws, modernized legislative policies & political reform will
eventually weigh upon the emerging markets. Also, cutthroat competition may re-ignite tariffs and subsidies,
and other unfair commercial policies. So, to conclude, growth prospects in the specialty retail industry
remain tenuous at best, particularly for companies heavily reliant upon the emerging market labor force.

8. Company Analysis
The company I have chosen for this analysis is Talbots. The business model for Talbots functions as a
mid-premium clothing specialty retailer & direct marketer of women’s apparel, shoes, and accessories. The
company operates in two segments: Retail Stores and Direct Marketing. The brand operates stores in the
United States and Canada. In addition, they have two online stores at www.talbots.com or www.jjill.com.
Talbots offers a collection of classic sportswear, casual wear, dresses, coats, sweaters, accessories and shoes,
consisting almost exclusively of its own branded merchandise. Categories include misses, petites, woman
and woman petite sizes. The J. Jill brand, a recent acquisition, is also a multi-channel specialty retailer of
women’s apparel. The company was founded in 1947, and is based in Hingham, Massachusetts. There are
currently over 16,000 employed associates. Its key business demographic is the 35+ year old female.
The company’s retail stores segment encompasses locations in 47 states, Canada, and the United Kingdom
under the Talbots and J. Jill brand names. There are a total of 1,421 stores, with 1,150 stores under the
Talbots brand & 271 stores under the J. Jill brand. Corporate HQ operates 862 locations, with 595 locations
under Talbots and 267 locations under the J. Jill. Approximately 75%-80% of the floor area of all retail stores
is devoted to selling space (including fitting rooms), with the remainder being allocated to stockroom and
administrative purposes. Talbots has 47% of its store locations in specialty centers, 37% in malls, 7% in
village locations, 5% as freestanding store locations, 2% in outlet locations, and 2% in urban locations. 4
The company’s direct marketing segment has been a cornerstone for the business. The first direct mailing
was in 1948, with 3,000 fliers distributed. During FY 2008, Talbots’ direct marketing business segment
represented 19% of total company sales, with the Internet channel comprising 56% of its total direct
marketing sales. There were 126 million catalogs distributed last year. The company issued 25 separate
Talbots mailings across the product spectrum, with a circulation of approximately 48 million. Also, it issued
15 separate J. Jill brand catalogs with a circulation of approximately 78 million. 5
The combined annualized revenues for the company were $ 2.289 billion dollars in FY 2007. Talbots has a
market cap of $781 million dollars, with 55.52 million shares outstanding. The dividend is 52 cents per
share, with an approximate yield of 3.7%. Sales increased $51 million or 2.5% y.o.y. However, EPS dropped
to -$3.56 p/share from .59 cents a share in FY 2006. This was due to a net loss recorded from “goodwill
impairment” and its associated charges related to the J. Jill acquisition. The impairment was a direct result
of the fair value of net assets (intangible assets, trademark, and tangibles) being reported at higher than the
assessed carrying value. So, a re-valuation was made, and a $149.6 million one time write-down charge was
necessary to reflect the actual market value of the assets.
Regarding growth, the company has added 298 stores since 2005, and revenues have increased 26.5% in
the same time frame. Profitability has had mixed results. Cash provided by operating activities has increased
by $91 million. However, net working capital has been decreasing. The added burdens of accounts payable,
increased debt liabilities, and capital expenditures have strained EPS. Also, cost of sales, inventory
purchases, and occupancy charges have increased 6% y.o.y, affecting operating income. Long term debt
obligations payable now total $418 million; with $95 million due in 12 months, $261 million maturing in 1-3
years, and $62 million due in 3-5 yrs. This debt is from the J. Jill acquisition on July 27th, 2006. 6

9. SG&A has jumped 126% from FY 2006, as the acquisition, and expansion efforts have dramatically
increased. COGS have also risen 34% from FY 2006, as operations have expanded. Capital expenditures for
the year were $84 million. The trend is moving lower as a significant portion of cash flows are being
redirected to long-term debt payments, payments on working capital lines of credit, and dividend payments.
From this analysis, the negative affects to cash flow will continue until the long term debt issues are retired in
2012. The overall stock price performance has been on a slide, thus reflecting the downturn in consumer
cyclical purchasing power. Closing price is $14.07, off from a high of $50.57, and an IPO of $11.00 p/share. 7
The following chart represents the percentage price performance increase (decrease) of Talbots since inception
as compared to overall returns for the market & related economic indicators:
-TLB- -S&P 500 Index- -Russell 2000- -Consumer Discretionary- -US Dollar Index- -Discount Rate-
Data as of August 1, 2008.
The firm’s capital structure (the composition of its liabilities) is 59% equity-financed and 41% debt-
financed. The debt to equity ratio is .69, with financial leverage higher than the industry standard. There is
$543.6 million of total debt outstanding with an average interest rate of 3.6%, or LIBOR +.35 basis points.
This has impacted Return on Assets (-12.5% FY 2007) which is lower than the rate of interest on the debt,
from exposure to the real estate market. The effective tax rate is 37.5%. Net interest expense is a hefty $24.5
million, opposed to $3.1 million in 2005. The Cash Distribution and Dividend policy is tied to earnings,
operations, financial conditions, capital & cash requirements, as well as the business forecast. Prior payouts
have been averaged 3%. However, as most dividend decisions made by the board were in times of low long-
term debt, the future of the dividend may be in doubt. The 5 yr Price Earnings Ratio (43.8 high, 10.1 low)
was 3 times the industry average (13.4 high & 4.1 low) respectively. 8
In regard to forecasting future sales, the 3-5 year expectation should be a modest 2.6% based upon retail
ex-post industry data provided by the National Retail Federation, and the Bureau of Economic Analysis.
Therefore, excluding the one-time impairment charge, Net Income should average $28 million per year, for the
3-5 year period, with an EPS average estimate of .50 cents p/share. However, the figures could be diluted by
increases in occupancy rates, and general operating costs. Free cash flows will continue to be negatively
impacted by debt & interest payments, but may be somewhat offset in a reduction of investment in PP&E, and
a potential cut to the dividend.

10. The intrinsic value of the stock can be determined from several methodologies. The model employed will
compute the ensuing intrinsic value accordingly. Methods include cash distribution, earnings, residual value,
and free cash flows. The calculations will assume a risk free rate of 3.20% from the 5 yr treasury, a Beta of -
.85, k= rate of return, g= 3% growth, and a 5 year time horizon. The formulas used for the following results
are located within the endnotes*.
ROE: -0.4152 (-188.841/454.799)
WACC: 2.124 [(781.166/1325.26)*3.169] + [(543.6/1325.26)*(1-.375)]
ROR: 3.70% (.50/14.07) + .0261
P/E: 71.42 [.50/(.037 - .03)]
Div Disc5: $11.73 [14.07*(1.037)5
PV0:= $ 7.65 [(.52*1.03)/(3.7%-3%)]
Residual Val of firm: $ 5.82 [3.39 + (-1.37-2.124) / [2.124 – 9.03 * 3.39(5-1)]
Intrinsic Val p/s $ 8.77 (323.1-781.16)/52.2
Clearly, from the variance in valuations using the different pricing methods, the market value of the
company is overestimated, relative to the available financial data. From these numbers one can infer that the
$14.07 has priced in a 10.25% risk premium to the average rate. Therefore, as the stock seems “rich” relative
to fundamentals, a further downward correction seems likely.
Lastly, Talbots Inc. has no corporate bond issues outstanding, as the bulk of its debt is in the form of a
term loan, obtained thru private financing. Therefore, S&P or Moody’s do not maintain a standing financial
rating. However, the present S&P quality ranking for Talbots is B, which would roughly translate to 2nd tier
credit quality rating. 9
The Bottom Line
To conclude this analysis, I would like to offer my estimation upon the overall value of Talbots Inc. Based
upon the fundamental data, the company will most likely remain within a trading range of $12-$14 dollars
per share, for the foreseeable future. With a substantial debt repayment due, the free cash flows will be
affected, and cash disbursals may be cut. Also, the U.S. economic picture is still predisposed toward further
turbulence within sub-prime debt, asset-backed securities, Alt A loans, and the inability for municipalities to
procure debt instruments. With credit drying up, interest rates set to rise, more potential volatility in
commodities, and the possibility of state and local tax hikes to make up for liquidity shortfalls, the consumer
will be strapped for cash.
Therefore, the downturn in retail will probably continue. I would be a buyer after the largest debt pay out
is disbursed in 24 months. If I currently were a holder of the shares and a growth player, I would sell based
upon poor earnings prospects. However, if I was a long term value player, I would hold the stock until it
became apparent the dividend would be cut. Then, the impetus would be to sell. Again, as the company’s
exposure is based entirely upon the U.S. retail market and is driven by disposable income, the risks outweigh
the reward.

11. Financial Appendix

14. Valuation Ratios
Company Industry Sector S&P 500
P/E Ratio (TTM) -- 17.9 6.68 19.75
P/E High - Last 5 Yrs. 43.8 13.4 26 23.21
P/E Low - Last 5 Yrs. 10.1 4.1 11 6.97
Beta -0.85 0.92 0.88 0.98
Price to Sales (TTM) 0.35 0.16 0.43 2.28
Price to Book (MRQ) 1.74 3.38 1.89 4.43
Price to Tangible Book (MRQ) 6.58 4.32 1.91 8.11
Price to Cash Flow (TTM) -- 0.91 2.00 10.92
Price to Free Cash Flow (TTM) 15.38 17.11 11.39 43.23
Dividends
Company Industry Sector S&P 500
Dividend Yield 3.70 0.05 0.04 2.53
Dividend Yield - 5 Year Avg. 1.93 1.21 1.35 1.84
Dividend 5 Year Growth Rate 8.24 16.28 23.58 11.82
Payout Ratio(TTM) -- 3.66 13.03 36.78
Growth Rates
Company Industry Sector S&P 500
Sales (MRQ) vs Qtr. 1 Yr. Ago -5.43 7.81 3.83 11.21
Sales (TTM) vs TTM 1 Yr. Ago -3.97 1.38 3.01 13.31
Sales - 5 Yr. Growth Rate 7.85 9.80 9.97 14.91
EPS (MRQ) vs Qtr. 1 Yr. Ago -68.43 61.50 1.86 43.28
EPS (TTM) vs TTM 1 Yr. Ago -2,187.88 -- -- --
EPS - 5 Yr. Growth Rate -- 10.18 15.98 19.19
Capital Spending - 5 Yr. Growth Rate -5.75 16.07 14.59 12.99
Financial Strength
Company Industry Sector S&P 500
Quick Ratio (MRQ) 0.71 1.51 1.19 0.89
Current Ratio (MRQ) 1.36 2.14 1.52 1.08
LT Debt to Equity (MRQ) 56.01 12.47 33.09 111.80
Total Debt to Equity (MRQ) 103.90 19.59 65.06 153.19
Interest Coverage (TTM) 1.46 0.90 0.19 19.67
Profitability Ratios
Company Industry Sector S&P 500
Gross Margin (TTM) 32.19 3.82 12.82 35.15
Gross Margin - 5 Yr. Avg. 34.88 41.51 26.57 36.15
EBITD Margin (TTM) -2.82 -- -- --
EBITD - 5 Yr. Avg. 8.88 12.98 12.34 19.16
Operating Margin (TTM) -8.71 1.33 3.34 --
Operating Margin - 5 Yr. Avg. 3.63 11.59 8.02 18.21
Pre-Tax Margin (TTM) -10.08 1.37 3.44 15.06
Pre-Tax Margin - 5 Yr. Avg. 2.94 11.73 8.36 17.97
Net Profit Margin (TTM) -8.52 1.01 1.99 11.05
Net Profit Margin - 5 Yr. Avg. 1.39 6.77 5.07 12.64
Effective Tax Rate - 5 Yr. Avg. 52.62 38.48 36.89 30.52
Management Effectiveness
Company Industry Sector S&P 500
Return on Assets (TTM) -12.01 1.90 2.27 6.74
Return on Assets - 5 Yr. Avg. 2.18 9.85 4.48 7.40
Return on Investment (TTM) -16.51 2.62 3.63 9.33
Return on Investment - 5 Yr. Avg. 2.78 14.45 6.75 9.89
Return on Equity (TTM) -35.20 3.38 6.25 18.02
Return on Equity - 5 Yr. Avg. 4.51 15.55 9.94 20.35
Efficiency
Company Industry Sector S&P 500
Revenue/Employee (TTM) 358,441 159,556 30,711,657 873,899
Receivable Turnover (TTM) 9.99 2.60 5.06 9.14
Inventory Turnover (TTM) 4.57 0.44 4.85 7.16
Asset Turnover (TTM) 1.41 0.15 0.49 0.66

15. Bibliography
National Retail Federation
http://www.nrf.com/modules.php?name=Pages&sp_id=429
Bureau of Economic Analysis
http://www.bea.gov/national/index.htm#gdp
Hoovers Online
http://www.hoovers.com/talbots/--ID__16494--/free-co-factsheet.xhtml
Thomson Reuters
http://www.reuters.com/finance/stocks/overview?symbol=TLB.N
Standard & Poor’s
http://www.netadvantage.standardandpoors.com.avoserv.library.fordham.edu/NASApp/NetAdvantage/simpleSearchRun.do?ControlN
ame=HomePageSearch
The University of Michigan
http://www.src.isr.umich.edu/content.aspx?hid=4
The Talbots, Inc.
http://www.thetalbotsinc.com/ir/ir.asp

16. End Notes
1. Data provided by the Bureau of Economic Analysis: GDP and Retail Dispersion
2. Data provided by the National Retail Federation: FY 2007 results
3. Chart figures and Data taken from University of Michigan Consumer Confidence Survey
4. Dispersion and relative data taken from Talbots Inc. Annual Report
5. Sales distribution data from Hoover’s Company Report
6. Figures from Talbots Annual Report
7. Stock information provided by & comparative chart created in Thomson Reuters Analysis tools
8. Relevant figures taken from Talbots Financials
9. Talbots stock rating from S&P Financials
Formulas:
1.) Debt/Equity ratio= total Long Term Debt / total equity
2.) ROE = NI / common equity = (NI / net sales) * (net sales / common equity)
3.) WACC= [(total mkt value of equity / K) * cost of equity] + [(total debt / K) * cost of debt (1- taxes)]
Where K= total debt and leases + total market value of equity
Cost of equity= (market risk premium * Beta) + risk-free rate
4.) Req ROR= TVM * (Risk Free Rate) + inflation premium + risk premium, Beta is systematic/market risk
5.) ROR= EPS1/P0 + Inflation Premium; therefore . . . . . (Required ROR = WACC)
6.) Intrinsic Val P/E= D1 / (k-g) where k=ROR
7.) DCF- Stock = SUM [CF t / (1+k) ^t], where k equals required rate of return, t = time
8.) PVFCF to Equity= NI + Dep Exp – Cap Ex – chg in Working Cap – Debt repaid + new debt
9.) Net operating assets: Total assets excl. cash & cash equivalents, less current liabilities excl. short-term loans and bank overdrafts.
10.) Residual Val of the firm= NOA+ (ROIC – WACC) / WACC – g * NOA (t-1) (constant)
11.) Intrinsic Val P/share= Val of firm – market value assets – market value preferred + excess assets / shares
12.) IV0 = Book Val 0 + sum [EPSt – k * BV(t-1)] / (1+k) ^ t + (terminal value)BV(residual) * {IV(T) / BV(T) -1] / (1+k) ^ t +
BV t-1*(ROE T- k) / (1+k) ^ t (where T= non-constant growth horizon)