Oxford Learning Centres Inc.: The Childtime Alternative Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Question1.) Is this a good time for Whitehead to sell a significant stake of OLC to Childtime?

Whitehead had been previously approached by Noble Education Dynamics for the purchase of shares in OLC, but due to the fact that Whitehead did not find the offer of a price based on earnings multiple of 5 times of its EBITDA during the year 1997. However, in order to evaluate that whether this time the sale of OLC shares to Childtime would be beneficial for OLC or not, we need to evaluate the current performance of the OLC operations. We have number of ratios that we can use in order to evaluate the current and past performance of OLC which are discussed below.

Liquidity

The liquidity ratio of the of OLC is continuously reducing over the last four year period, however, the current ratio of OLC was 8.79 during the year 1994 which means OLC had $8.79 of current assets to pay each $1 of current liability. Meanwhile, the current ratio has declined to on 1.81 in the year 1997, which shows that OLC might in liquidity crises and might fail to pay off its current liabilities when they fall due. Further their cash ratios have also declined to 0.82 in the year 1997.

Revenue Growth

Additionally, the growth in franchise revenues had been at 106% during the year 1995, however, the growth rate has declined to 97% during the year 1997. Meanwhile, the revenue from corporate center had previously been declining, but during the year 1997 growth in corporate center revenues has dramatically been increased to 34%. However, since the majority of its revenues come from the franchises which have been declining over the last four years, hence, if the trend continues OLC profitability might be affected in the long run.

Profitability

Meanwhile, the franchise revenues had generated 34% of operating margins during the year 1994 which have increased to 36%, which a very moderate growth rate, which means that OLC had not been able to reduce its operating expenses in the franchise centers. Further, the operating margins of corporate center have also declined from 41% in 1994 to 33% in 1997. Meanwhile, the net profit margins of the entire operations have also declined during 1995, but during the last three year result, net profit margins have increased from 13% in 1995 to 19% in 1997.

Returns Generated

Meanwhile, the OLC has faced a decline in its return on equity investment during the year 1995, but it managed to recover from that situation and started generating a higher return on equity investment. However, the OLC has generated returns on equity of 283% during 1997, in comparison to 78% returns on equity during the year 1995. Additionally, the return on total assets have also faced the similar situation during the last four years and during the year 1997 OLC has generated a 142 % return on total invested assets.

Therefore, based on the evaluation of OLC’s current and future performance it can be established that, since the performance of the OLC has consistently been improving during the last three years. However, there are some concerns over the liquidity position of OLC, but it is a normal course of business that a growing business needs more funds in order to finance the expansion of its operations. Meanwhile, selling the significant share of OLC seems to be irrational, because the performance of the company is improving and its revenues are also improving during the last three years results. Therefore, this does not seem to be a good time for selling the significant share of OLC, because the sale of significant share will reduce the control of Whitehead over the operational and strategic decisions of OLC. However, instead of selling a significant portion of OLC Whitehead should look for an IPO, because other companies in the same industry have recently completed the successful IPO.

Question2.) As a potential investor, what is your assessment of the prospects of the OLC and its future developments?

OLC is the second largest company that provides supplemental education in Canada, through establishing franchises, which gives it a unique position in Canada. Meanwhile, OLC has developed a unique cognitive learning program that enables the students to learn the techniques of learning and grasping the idea of their course material. However, Dr. Nick Whitehead, who is the president and as well as the CEO of Oxford Learning Center, wants to grow by developing business partnerships with other education providers, specifically in North American market....................

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Canadian company Oxford centers (OLC) entered into a licensing agreement with the American Childtime learning centers (Childtime), which will work Childtime OLC additional educational programs at their facilities. In less than six months, Childtime has decided to make an offer to purchase OLC. Director General of OLC must decide how to approach the upcoming negotiations. The case describes the addition of the North American education industry, evaluation considerations and private negotiations buying firm. Details are for comparable companies such as Sylvan Learning Systems and enterprise solutions family. Case the possibility to apply a number of assessment methods, including discounted cash flows, and some based on comparable companies and transactions. "Hide
by Craig Dunbar Source: Richard Ivey School of Business Foundation 14 pages. Publication Date: October 19, 1998. Prod. #: 98N013-PDF-ENG