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Group 18
Abhra Majumdar 2010063
Anjali Motwani 2010067
Bhakti Khanwalkar 2010071
Deenbandhu Mishra 2010075
Harmandeep Multani 2010079
 CASE FACTS
 Company has almost debt-free balance sheet
and growing cash reserves(40% of net worth in
1981)
 Over 1500 heavily marketed brands in four
lines of business : prescription drugs,
packaged drugs, food products, houseware &
household products
 More than $4 billion sales in 1981
 CORPORATE CULTURE
 AHP strongly believed in the no-debt policy
 AHP was also known for its lack of corporate
communicability (reticence).
 Another component is their managerial philosophy
was frugality and tight financial control.
 AHP’s corporate philosophy also believed in
centralizing complete authority in the chief
executive
 An important component of AHP’s culture was
conservatism and risk aversion
 Primary mission was to make money for its
stockholders and to maximise profits by minimising
costs
 AHP’S PERFORMANCE TRACK
 AHP had increased sales , earnings and dividends
for 29 consecutive years
 Consistent growth between 10% -15% annually
 AHP’s return on equity had risen from 25% in 1960
to 30% in 1980
 Financing growth internally while paying out 60%
of annual earning as dividends
 Price/Earning ratio had fallen by about 60%
 CAPITAL STRUCTURE POLICY
 Three alternative capital structures to
achieve higher debt ratio
 30% debt
 50% debt
 70% debt
 Assumption : AHP issued debt and used the
proceeds plus &233million of excess cash to
repurchase stock in early 1981 at the then
prevailing stock price of $30/share
OUR RECOMMENDATIONS
PROS OF RECOMMENDED DEBT-EQUITY
RATIO