Financial Entrepreneurial - Assignment
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Added on 2019-12-04
Financial Entrepreneurial - Assignment
Added on 2019-12-04
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Financial Entrepreneurial InitiativesRosetta Stone: Pricing the 2009 IPO
Table of ContentsINTRODUCTION .....................................................................................................................................31 Key features of Rosetta Stone’s business model and explain its core business strategy ....................32. Advantages and disadvantages of Rosetta Stone undertaking an IPO...............................................41.Evaluate the use of Market-Multiples approach for Rosetta Stone in determining an exit value.......74 Calculation of suitable share price for Rosetta Stone’s IPO using Market-multiples approach andconsiderations would need to be made ..................................................................................................85. Reasonable rate of return on an investment in Rosetta Stone..........................................................126. Free Cash Flow model to Rosetta Stone to arrive at a valuation .....................................................137. Offer price for the IPO ....................................................................................................................16CONCLUSION .......................................................................................................................................17REFERENCES ........................................................................................................................................18
Rosetta StoneFinancial market are those in which financial securities, commodities and other fungible itemsare traded at various costs (Madura, 2014). The securities traded in financial markets includes stocks,bonds, commodities etc. Initial public offering is the crucial sources of raising funds from the marketthrough offering equity and preference shares even debentures to public (Chemmanur and Krishnan,2012). This is an initiative taken by an organization to public its stock however, is a long process toregister a company for IPO. The report herewith is based on a case scenario of an USA based global education technologySoftware Company, “Rosetta Stone” which deals with Language-Learning solutions products. As perthe case, business entity is moved further to the deal of going public in 2009. Therefore, thisinvestigation represents the advantages and disadvantages of Rosetta Stone to undertake an IPO.Including this, key features of Rosetta Stone’s business model and its core business strategy areexplained in this report. Furthermore, Market-Multiples approach for Rosetta Stone is used todetermine an exit value along with calculating reasonable rate of return on an investment and free CashFlow model is applied to arrive at a valuation.Key features of Rosetta Stone’s business model and explain its core business strategy Rosetta Stone is an USA based global education technology Software Company deals withdeveloping language, learning and brain-fitness software. The organization is significantly known forits innovative Language-Learning solutions products. Business model of Rosetta stone From the beginning, organization has started seeking more natural learning methods, therefore,business model of Rosetta Stone is to use commuter technology to simulate the way people learn theirnative languages. Along with this, business entity uses pictures and sounds to impart learning to theindividuals. The core area of business model is that how computer can be used to facilitate languagelearning. In 1992, Stoltzfus and Fairfield came with Fairfield language technology, further theemergence of CD-ROM technology has supported business of the cited company. The business modelof cited Company is specifically designed to distinguish the firm from other language companies and tocreate an environment conducive to learning language naturally. The business model of company wasflexible and focused towards innovation. Further, in the year 1999, the organization has released its firstretail language training software product. The organization is continuously using series of CD ROMswhich is emerged as an effective ways to impart new learning to the individuals. Business strategy of Rosetta Stone
Market share and growth of Rosetta stone is very high because it offers opportunity to thelearners to develop their understanding in relation to the different languages. Moreover, now studentsand other people have desire to develop knowledge about varied languages with the aim to enhancetheir potential. In addition to this, demand for such language learning is very high. Along with this,there is high growth potential for the firm in terms of increased profitability and large customer base.However, according to the cited case situation growth potential of such business sector decreased from91% to 52% during 2004 to 2008. Hence, by considering such aspect business unit needs to make focuson promotional aspect. This in turn helps Rosetta Stone in developing awareness among the potentiallearners. Further, case situation describes that expenses of the firm are increased with the very high pacesuch as 77% in comparison to the sales revenue growth (66%). In addition to this, R&D expenditure ofthe firm also increased by 72%. Thus, company needs to make focus on promotional strategies to enticesales. Along with this, business unit also needs to make competent strategies which help them in exertcontrol over the expenses. Hence, by considering all such aspects Rosetta Stone can exert control overthe expenses. The impressive financial growth with 53% increase in revenues has supported decisiondespite the global economic contraction. In this regard, by launching IPO Rosetta Stone can generatemoney for the purpose of growth and expansion.Advantages and disadvantages of Rosetta Stone undertaking an IPOAdvantages Disadvantage
The major advantage of IPO (initialpublic stock offering) for Rosetta is thatis can easily access to large amount ofcapital from external sources, on whichno interest charge would be charged, but,dividends are to be paid to investors interms of rewards against risk.Time involved in the process of goingpublic is one of the main drawbacks whichcrates problem in front of Rosetta stone. Along process associated with IPO processwhich includes prepare registrationstatements, consulting with investmentbankers, attorneys, and accountants, isgoing to affect the company's management(Reed and Rocholl, 2010).As an advantage of IPOs, the aforesaidcompany can increase public awarenessor can create a brand image which isfurther supportive in grabbing newopportunities and increasing customerbase (Chemmanur and He, 2011)The initial public offering can beextremely expensive which anotherdisadvantage is for the cited company. Theexpenses include the lead underwriter'scommission; spending on legal services,printing costs, and thepersonal marketingetc. The cost of dividend is going to be anissue associated with initial public offeringof Rosetta stone.The organization can easily obtain capitalfor future needs in terms of offeringequity and debt financing sources in thepublic which was a proper solution oflimited corporate investment as frompublic sources company can raise hugeamount which can be further invested intonew deals. In addition to that, disadvantages of IPOinvolve loss of confidentiality, flexibility,and control over the business as publiccompany has to release all operatingdetails to the public along with sensitiveinformation of business regarding futureplans (Chemmanur and He, 2011). Valuation of IP for Rosetta stone’s Valuation & offer pricePrice Valuation: $38048 Original price projection: $15-$17Offering price: $26 Issuing share: 6.25million share However, the cost of IPO in USA is The cost of IPO in USA is approximately $1 million whichincludes listing, printing and legal fees etc. The IPO process of US is quite typical which was going to be followed by Rosetta stone it itsgoes for initial public offerings. The process is completed in almost three months hence, is a longprocess, which is going to be a disadvantage for firm (Blum, 2011).
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