UV8015

Rev. Feb. 2, 2021

Bob’s Baloney

Upon entering the executive conference room in early 2020, Amanda Spangler had to pinch herself to be
sure that she was really in an executive meeting at headquarters. After completing an MBA degree, Spangler
had landed her dream job as a lead manager at one of the premier brands in the American food industry, Bob’s
Baloney (Bob’s).

Spangler’s first months on the job had been all that she had hoped. She had wrestled with important
business decisions, experienced the genius of some favorite foody legends, witnessed the drama of marketing
a true premium brand, and even hobnobbed with several celebrities. It had been truly amazing. But her biggest
surprise was what was going on right then in the conference room. It was clear that things were not well at
Bob’s.

The Company

Since its founding in Philadelphia in the 1920s, Bob’s had grown to dominate the world market for
ultrapremium bologna. Bob’s market share of the high-end market was greater than 50%, and was particularly
strong among high-end restaurants where it was the de facto bologna brand used by elite chefs. World-
renowned French chef Bruno Saucisson had recently waxed poetic in his expressions of esteem for the Bob’s
product.

Il n’y a qu’une seule brande que j’utilise à Metropolitan 5 pour mon plat signature—Cordon Baloney. Bien sûr, c’est
Bob’s. C’est le seul bologna qui parle profondement aux palats les plus raffinés.

[There’s only one brand that I use at Metropolitan 5 for my signature dish—Cordon Baloney. Of course, that’s Bob’s.
It’s the only bologna that speaks deeply to the most refined palates.]

From the finest restaurants to school cafeterias and summer camps, Bob’s Baloney was highly regarded by
customers in nearly every demographic profile.

Still, the esteem Bob’s drew was not isolated to its customers. The company had a long history of
community service awards, including a distinguished record as perennial winner in a national poll for best meat-
processing employer. The company was well known as an influential international advocate for animal rights.
Suppliers competed aggressively to do business with Bob’s, claiming it was an honor have their by-products
acknowledged with a distinction of quality. The company’s merchandise (e.g., t-shirts) had long been popular
among young people and corroborated the high regard the brand maintained. Bob’s Baloney was widely
regarded as a national treasure.

This fictional case was prepared by Michael Schill, Sponsors Professor of Business Administration. It was written as a basis for class discussion rather
than to illustrate effective or ineffective handling of an administrative situation. Copyright  2020 by the University of Virginia Darden School
Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to sales@dardenbusinesspublishing.com. No part of this publication may be
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This document is authorized for use only in Remi Jean Emile Stellian's Finanzas Corporativas y Finanzas II (Remi Jean Emile Stellian) 2024-1 at Pontificia Universidad Javeriana from Jan
2024 to Jul 2024.
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The company had been launched by Bob Klobase in the mid-1920s after his family had immigrated to the
United States from Slovenia. Klobase had a long family heritage in the bologna industry, so it was a natural
business for him to build—but Klobase had outdone his family heritage. From the beginning, he had crafted
bologna at the very highest level. Those in meat production circles often observed that to Klobase, the phrase
“Holy Baloney” was not just an interjection but an abiding product aspiration.

The current management team continued to maintain the same commitment to quality that had always
existed in the business. Company buyers were uncompromising in their demands from suppliers for quality
source ingredients, including the finest spice blends and cures, nonmeat fillers, and nuggets of free-range,
humanely vivisected, organic beef. Inventory levels were managed carefully to ensure freshness while
maintaining sufficient product to quickly meet customer needs. Despite the demanding nature of Bob’s
customer clientele, it was very rare for the company to receive negative customer feedback. In fact, customer
delight had seemingly been uncontained since the company’s 2017 investment in a completely redesigned Green
Hills production facility. The new facility housed a host of cutting-edge food production achievements that
permeated the entire production process. Bob’s was pushing the frontiers of meat grinding, smoking, slicing,
and packaging. The result was a better product produced in a better way. The Bob’s brand continued to be
supported by a uniquely creative marketing team. The team was well known for its well-executed advertising
campaigns. If anything, brand-building investments at Bob’s were on the rise.

The Meeting

Due to Bob’s reputation as the poster child for corporate success, Spangler was astonished at the negative
tone at today’s meeting. Bob’s CEO Prateek Gupta, sweat accumulating on his forehead, had gotten straight to
the point. Diaz Internacional, the Argentine food conglomerate and owner of 30% of the equity shares in Bob’s,
had recently made public its great displeasure with the current management team. In a highly visible
announcement, Veronica Mino, managing director of Diaz, had openly decried Bob’s management:

Claro, todos dicen que el equipo de Bob ha construido una compañía fantástica, pero por amor de chorizo, ¿ya no importa
el desempeño financiero? ¿No debe una marca poderosa ganar dinero? Si el equipo de Bob no puede generar un rendimiento
adequada, es tan bueno que una salchicha muerta.

[Sure, everyone says that the team at Bob’s has built a fantastic company, but for the love of chorizo, doesn’t financial
performance matter anymore? Shouldn’t a powerhouse brand make money? If Bob’s team can’t generate a decent return,
I say they’re as good as dead bologna.]

Mino’s message had come across loud and clear, and Spangler was witnessing a management team panic
that was astounding.

Spread on the table was a copy of the recent financial statements for Bob’s (see Exhibit 1). As the drama
unfolded around her, Spangler picked up the financial statements and used them to calculate some financial
ratios and get a sense of the company’s financial health (see Exhibit 2). To structure her analysis, she relied on
a clever algebraic decomposition of ROE she had learned in a prior finance course (see Exhibit 3). She had
never expected to be the one leading an evaluation of financial performance. But now that she was looking at
the ratios, she knew she had something to say. She quickly scratched some additional notes and, feeling brave,
she raised her hand.

This document is authorized for use only in Remi Jean Emile Stellian's Finanzas Corporativas y Finanzas II (Remi Jean Emile Stellian) 2024-1 at Pontificia Universidad Javeriana from Jan
2024 to Jul 2024.
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Exhibit 1
Bob’s Baloney
Financial Statements for Bob’s Baloney (in millions of US dollars)

2015 2016 2017 2018 2019

Revenue 190.5 185.6 209.8 248.3 271.8
Cost of Goods Sold 136.9 135.8 156.8 189.3 212.1
Gross Profit 53.6 49.8 53.0 59.0 59.7
Selling and General Expenses 18.8 28.8 38.3 47.5 47.0
Operating Profit 34.8 21.0 14.7 11.5 12.7
Net Interest Expense 0.9 0.5 7.0 6.1 5.6
Pretax Profit 33.9 20.5 7.7 5.4 7.1
Taxes 7.8 5.0 1.9 1.4 1.7
Net Profit 26.1 15.6 5.9 4.0 5.4

Cash and Cash Equivalents 10.5 9.8 10.5 10.4 8.5

Accounts Receivable 10.0 9.7 10.1 13.8 15.0
Inventory 6.7 7.7 8.4 10.9 12.0
Other Current Assets 3.6 3.2 4.6 6.9 7.7
Current Assets 30.8 30.4 33.6 42.0 43.2
Net Property, Plant, and Equipment 92.0 89.9 264.4 275.5 289.0
Other Fixed Assets 47.1 47.6 48.9 46.6 49.7
Total Assets 169.9 167.9 346.9 364.1 381.9

Accounts Payable 12.2 13.4 15.4 14.4 12.3

Wages Payable 12.4 14.4 13.8 13.7 15.0
Other Payables 8.1 7.8 5.6 6.6 8.3
Current Liabilities 32.7 35.6 34.8 34.7 35.6
Debt 29.5 9.1 183.0 196.3 207.8
Shareholders’ Equity 107.7 123.3 129.1 133.1 138.5
Total Liabilities and Shareholders’ Equity 169.9 167.9 346.9 364.1 381.9

Source: Created by author.

This document is authorized for use only in Remi Jean Emile Stellian's Finanzas Corporativas y Finanzas II (Remi Jean Emile Stellian) 2024-1 at Pontificia Universidad Javeriana from Jan
2024 to Jul 2024.
 Page 4 UV8015

Exhibit 2
Bob’s Baloney
Spangler’s Financial Analysis of Bob’s Baloney

2015 2016 2017 2018 2019

Growth and Returns

Revenue Growth [percentage change in revenue] 5.5% -2.6% 13.0% 18.4% 9.5%
Return on Assets [net profit / total assets] 15.4% 9.3% 1.7% 1.1% 1.4%
Return on Net Assets [NOPAT / net assets] 19.0% 11.9% 3.5% 2.6% 2.8%
Return on Equity [net profit / shareholders’ equity] 24.2% 12.6% 4.5% 3.0% 3.9%

Margins
Gross Margin [gross profit / revenue] 28.1% 26.8% 25.3% 23.8% 22.0%
SG&A Percentage [SG&A expenditures / revenue] 9.9% 15.5% 18.3% 19.1% 17.3%
Operating Margin [operating profit / revenue] 18.3% 11.3% 7.0% 4.6% 4.7%
Net Profit Margin [net profit / revenue] 13.7% 8.4% 2.8% 1.6% 2.0%

Asset Efficiency
Asset Turnover [revenue / total assets] 1.1 1.1 0.6 0.7 0.7
PPE Turnover [revenue / net PP&E] 2.1 2.1 0.8 0.9 0.9
NWC Turnover [revenue / net working capital] NA NA NA 34.0 35.8
AR Days (DSO) [accounts receivable / revenue × 365] 19.2 19.1 17.6 20.3 20.1
Inv Days (DIO) [inventory / COGS × 365] 17.9 20.7 19.6 21.0 20.7
AP Days (DPO) [accounts payable / COGS × 365] 32.5 36.0 35.8 27.8 21.2

Leverage
Debt / Total Capital [debt / (debt + shareholders’ equity)] 22% 7% 59% 60% 60%

Summary Accounts (in millions of US dollars)

NOPAT (t = 25%) [operating profit × (1 − tax rate)] 26 16 11 9 10
Net Working Capital [current assets − current liabilities] (2) (5) (1) 7 8
Net Assets [net working capital + net fixed assets] 137 132 312 329 346

Note: NOPAT is net operating profit after tax; SG&A is selling, general, and administrative expenses; PP&E is net property, plant, and equipment;
NWC is net working capital; AR is accounts receivable; Inv is inventory; COGS is cost of goods sold; AP is accounts payable; DSO is days sales
outstanding; DIO is days inventory outstanding; and DPO is day payables outstanding.

Source: Created by author.

This document is authorized for use only in Remi Jean Emile Stellian's Finanzas Corporativas y Finanzas II (Remi Jean Emile Stellian) 2024-1 at Pontificia Universidad Javeriana from Jan
2024 to Jul 2024.
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Exhibit 3
Bob’s Baloney
Spangler’s Decomposition of ROE

𝑃𝑟𝑜𝑓𝑖𝑡𝑠 𝑃𝑟𝑜𝑓𝑖𝑡𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐴𝑠𝑠𝑒𝑡𝑠

𝑅𝑂𝐸 = = × ×
𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐴𝑠𝑠𝑒𝑡𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

This document is authorized for use only in Remi Jean Emile Stellian's Finanzas Corporativas y Finanzas II (Remi Jean Emile Stellian) 2024-1 at Pontificia Universidad Javeriana from Jan
2024 to Jul 2024.