Dcf Valuation

BA 540 Corporate Finance

Case #2Corporate Objective Function and Governance

Introduction

In this article, we analyzed the compensation and governance structure of Guess Company, as well as two of its competitors in same industry:Abercrombie & Fitch and Gap Inc. regarding how these two compensation and governance structures align the managers’ incentives to the company’s primary objective and its shareholders. .

Analysis

Primary objective

As a apparel company, Guess Company designs, markets, and distributes America lifestyle collections of fashion apparel and accessories for men, women, and children, that reflect the American lifestyle and European fashion sensibilities. And today Guess Company has expanded in over 80 countries around the world.The primary objective of Guess Company is to increase its retail presence, expand internationally and build a global infrastructure platform. Holding the belief that its diversified business model is one of its strongest assets and is the key to driving future growth of the brand.

As two competitors of Guess Company in the same industry, Abercrombie & Fitch (A&F) and Gap Inc. also operate as apparel retailersof casual apparel for men, women, and kids, sellsvarious kinds of products, including personal care products, and accessories through its subsidiaries.

We found that as apparel stores, these three companies are all expanding internationally;they all have several divisions selling different kinds of goods. However, the Guess Company has more retail stores in worldwide, while Gap Inc. just started its footprint in Asia and A&F even does not have any store in China.Since they are in the different developing stage, they should have some different strategies in compensation and governance.

Compensation Structure

In these three companies we analyzed, executive compensation structure consists of a base salary, an annual cash incentive opportunity and a long-term equity incentive opportunity. Andnon-employee...