Intermediate Finance: Case 1 - Case Study

754 words - 4 pages

Case 1
1. The impact on institutional investors is an interesting one. Institutions rely on dividends for their returns as they are usually exposed to companies with more robust track records and consistent dividends. They would be concerned that their dividend percentage would be lower if the EPS estimates were lower. In the long run, institutional investors will understand the lowered EPS after a significant acquisition and be willing to hold onto the stock for LT Capital Gains and continued dividends.
2. There are many stakeholders to Cindy's information in this situation. The most obvious is the company, La Posta, whose financial outlook, from an investor point of view, can be heavily influenced by analyst predictions. The employees and managers at La Posta and Taco Amigo could be worried about their company's performance or being laid off due to missing EPS goals. Investors are another sector of shareholders. They rely on analyst info to decide whether to be long or short on a company. Dillon Sutton would also be a significant stakeholder as they have an ongoing relationship with La Posta. They expect to be the IB for the follow-on offering, and their compensation relies on bringing in new businesses and creating fees. The shareholders and owners of La Posta are also stakeholders, depending on predictions to decide whether to buy or sell more or how to run the business in the owner's situation. Competitors can be stakeholders looking to take over the stock if it's lagging through aggressive measures or looking to capitalize. At the same time, La Posta is more focused on its acquisition and lagging EPS. Lenders and Financiers can be stakeholders as they could be concerned about their coverage ratios if the net income or EBITDA decreases too much (which doesn't seem to be the case here).
3. When you work as an analyst, it is your job to provide the most accurate information possible to the public, the company, and its investors/sponsors, through a plethora of due diligence work. Analysts have a fiduciary responsibility not to change the numbers in reports for the benefit of the IB nor the detriment of any of the firms they advise. Institutional investors rely on this information to make massive investment decisions of thousands...

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