Dressen Case Study

#1) I believe one major factor was how appealing Dressen had become during 1995, as opposed to previous years. It appeared that new management had turned the company around. Management stated Dressen was looking good for future growth during the end of 1995. I think management felt it was the opportune time to sell. They wanted to sell Dressen while they were making money and being successful, as opposed to hemorrhaging money from Westinghouse. Dressen was Westinghouse’s star performer in the Q3 of 1995. Sales increased 10% over the year-prior quarter. EBIT reached 12% of sales as well. Their growth strategy as well as technology and work processes lead management to believe that there was even greater growth potential. Dressen was now headed in the right direction. Management was trying to strike while the iron was hot.

Another factor was the cash acquisition of CBS in August 1995 for $5.4 billion. The large purchase price had strained an already weakened balance sheet. There was also a $2 billion bridge loan that was due in February 1996.

Businesses are meant to earn economic profit and mitigate the cost associated with them. Without effective and timely cost strategy, a business cannot climb the stairs of economic prosperity. Organizations have to be aware of how much cost they are incurring over a certain period of time, as most of the time, high operational costs can devastate the entire financial structure of an entity.

Apart from the cost, it is also important for a company to be consistent in their earnings momentum because it is something that shareholders, as well as analysts, are looking for in a company. There are certain ratios that can be taken into account to analyze why Westinghouse would want to sell Dressen. Mentioned below are some calculations that justify why Westinghouse was intending to sell Dressen at the end of the fiscal year 1995:

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  | 1991 | 1992 | 1993 | 1994 | 1995 |

Net Sales | 671 | 577 | 508 | 563 | 621 |...