Lumber Liquidators: A Case in Financial Statement Analysis and Valuation

ABSTRACT Lumber Liquidators (LL) is a comprehensive real-world case where students are asked to conduct financial statement analysis and valuation and make an investment decision in an atypical and highly uncertain context. The protagonist faces a buy-sell-hold decision using financial statement data, first in response to LL’s announcement of financial results, and then following a media exposé and a precipitous stock price decline. The case has two parts. In Case A, students construct common-size income statements and balance sheets, perform DuPont ratio analysis, understand the challenges in identifying comparable firms, and estimate the intrinsic value of LL’s stock using the P/E multiples approach. In Case B, students reassess LL’s intrinsic value, perform sensitivity analysis, and consider the ethical implications of investing in LL in light of the media allegations. The case is most appropriate for introductory accounting and finance courses at both undergraduate and graduate levels. JEL Classifications: M41; G30; M14; G32.