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Rosetta stone: Pricing the 2009 IPO Case Solution & Answer

Rosetta stone: Pricing the 2009 IPO

Recommended Share Price(Question No.7)

We have calculated the price per share by using two different approaches i.e. the DCF approach and the EBITDA multiples approach. It is important to go for the share price that proves to be the most effective for the decision making process of the company. Now based on the thorough analysis that is done in the report, it is suggested that Rosetta should go on with the share price of 47.7 that is calculated out of DCF approach. Because the DCF approach helps to evaluate the accurate figure for the share value as it considers that discount factor and discount rates, i.e. in simple terms its considers the risk of future cash inflows, which in this case is necessary because of the risk that the investors may not invest because of the market unsustainability due to world’s recession, and that factor must be considered for the calculation of per share value.

Post money value per share (Question No. 8)

The post-money calculation is done to estimate the value of the company after the capital investment or debt financing, which is then added to the company’s balance sheet. The post- money value equals the pre-money value plus the additional equity from the new investors. Considering the underpriced offering adjusted with the 7 % gross proceeds discount of the under writer the post-money price per share of the company is estimated to be $41.85. This value was calculated by multiplying the value per share price with the7 % discount and then subtracting it from the share value.

Note: refer to Exhibit 7 for calculations

Cost as a percentage of after-market value (Question No. 9)

Considering the value estimated value of the aftermarket price per share, the total IPO cost as a percentage of aftermarket price per share is determined by subtracting it from issuer’s net. Besides that, the IPO‘s cost as a % of post market price per share is calculated by dividing the total cost/share issued with issuer net. The price per share used for this calculation is of 45 dollars because of its considerations regarding the company’s future performance. For the calculations of pre-money price per share the total number of shares outstanding could be multiplied with total price per shares. That way the pre-money value of the company is calculated to be $32400000.

Note: refer to Exhibit 8 for calculations

Critical Analysis

SWOT Analysis

SWOT analysis is the helpful strategic tactic which helps the Rosetta stone to increase its productivity by understanding the weakness and threats of the corporation.

Strengths

The Rosetta stone has the strong cash flows which increase the value of the corporation in the market. The distribution network of the company is also strong, which increases the customers of the corporation. The corporation has also the strength of return from capital expenditure. The company has the strong brand portfolio which increases the brand equity, brand recognition of the corporation in all the operated markets.

Weakness

In the most integrated firms, the different working culture is a weakness. The profitability and the contribution margin of the corporation are below the average value of the company. Improvements need to be made to the technology of the stone.

Opportunities

The lowering in the transportation cost is the great opportunity for the Rosetta Corporation because the company can have a huge amount of money which they can use in future growth operations. More customers come from the online channels. The company can expand the product portfolio by introducing new markets.

Threats

The company has the threat of lawsuits in some countries. The corporation has also the threat of increasing costs and the rate of competition is also high.

The new entrants are also entered the market and target potential customers. The growth in the strengths of local distributers is also the threat for corporation.

VRIO Analysis

The VRIO analysis is a tool that is used for the internal analysis of the organizations regarding its capacities and identification of resources which are their competitive advantages. Doing this analysis the categorization of resources based on their matching attributes could also be done.

(See Appendix 2)

Porter Five Forces Analysis

Threat of new entrants

The Rosetta Corporation has the low threat of new entrants because the company delivers hundreds of branded products with high-quality features which satisfy the customers. The Rosetta Corporation has a strong business model which complete focus on the customer’s satisfaction.

Threat of new substitutes

The company has also less threat of substitutes because the Rosetta Corporation already offers updated and branded new products to the market which beat the new products of other competitors.

Bargaining power of customers

The bargaining power of customers for Rosetta Corporation is high because the users are high and they bargain strongly for reducing the prices with increasing quality. Customers also want discount in each interval. Switching cost is also high.

Bargaining Power of suppliers

The bargaining power of suppliers is also high. The suppliers of the Rosetta Corporation are many brands. They all have their own pricing. Strategies they finished good they provide to the Rosetta Corporation have higher rates.

Competitive rivalry

The competition is moderate because the Rosetta Corporation maintains its market share and brand equity with a higher customer base. But the Rosetta Corporation must maintain its quality and introduce an advance innovation in the market which helps in achieving competitive advantage.

(See Appendix 3)

Pestle Analysis

Pestle analysis is also very important for understanding the macro factors which affect the business of Rosette Corporation.

Political Factors

The corporation is to doing business in international level, so the effect of political factors is high on the business of Rosetta Corporation. For the Corporation of Rosetta, the prime rule of the government is to make soft wares safe which increase the knowledge and safety of the customers.

Economic Factors

The economic factors all affect the business of Rosetta Corporation in a positive and negative manner. Currently, the increase in inflation, unemployment and tax rates affect negatively to the business because the purchasing power of the customer is depends on these all factors and the tickets became more expensive.

Social Factors

The social factors of the company has positive effect on the business. Because socially, the services of the Rosetta Corporation are high in demand and most of the customers are satisfied with the customers. The Corporation adapts the culture of every country where they expand the business and this thing increases the market value of the Rosetta Corporation.

Technological factors

The technological factors are also in the favor of the Rosetta Corporation because this company deals with the software engineering and the technology is important for the corporation. The corporation must improve more to its technology to gain the competitive advantage and increase the market share.

Environmental Factors

. The company understands the environmental factors of every market and then starts its operation in the new market. It is favorable for the Rosetta Corporation.

Legal Factors

The legal factors are also in favor with the Rosetta Corporation because they follow all the legal factors of health and safety of employees, government policies of workplace and the laws of employment, copy writers, patents are also safe of Rosetta Corporation in every market because the intellectual property of the company is most valuable and the corporation invest a lot of money on standards and benchmarks.

(See Appendix 4)

Conclusion and Recommendations

The IPO of the company would surely help to company to get out of it financial crises. The capital would be raised from the investments out of the shareholders. However the IPO process is considered to be a very lengthy process as it takes about 6-7 months for its conduction and it needs a lot of work dedication. The company’s operations may get disturbed because of its. Therefore it is recommended that if the company goes for the IPO it must not shifts is focus from the regular operations of the company. Also the price per share of $45 calculated from DCF approach should be used….

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