Emily Pinchbeck, Financial Analyst at Novak Toolworks
David C. Ketcham, Bryant College
Elizabeth J. Yobaccio, Bryant College
This is the first in a series of cases presented from the perspective of a recent
business graduate in her first job as financial analyst at Novak Toolworks.
Emily’s very first assignment is to use financial statement analysis to shed some
light on relatively poor stock performance. Drama is added to this
straightforward assignment because of the common management practice at
Novak of using initial assignments as tests to determine potential career path at
the company. This case offers a unique perspective, that of a novice. This is
designed to make the assignment more easily related to by students in their first
finance course, potentially enhancing retention of key insights.
Emily Pinchbeck, Financial Analyst at Novak Toolworks (Part A)
The first day on the job wasn't turning out the way Emily had imagined. For Emily,
today really was the first day of the rest of her life. After years of studying and hard work, she
now had two things she had wanted more than anything in her life: a college diploma that said
"Emily Pinchbeck, Summa Cum Laude," and a career - not just a job, but a career.
Landing the job at Novak Toolworks hadn't been easy. The competition was fierce; there
were lots of good finance graduates and with the softening economy, jobs weren't quite as
plentiful as in the past. And, Emily had been ambivalent about the company during much of the
interview process. Most of the positions offered through Career Services had been in the
financial services arena, and to be frank, Emily didn't want to go that route. She had in her mind
a clear vision of what she wanted: a traditional (at least for men) career path in the
manufacturing sector. She'd hoped that positions would be available at places like GE or IBM,
and had almost missed the opportunity to interview at Novak because of her snobbery. She'd
never even heard of Novak Toolworks; thank heavens her academic advisor had "clued her in" to
Emily did a bit of research before the interview, and suddenly, Novak seemed more
attractive. Novak Toolworks was a manufacturer of quality hand tools such as hammers and
wrenches, as well as electric and pneumatic hand tools used in construction and remodeling.
Most carpenters and mechanics owned at least some Novak tools. In fact, most homeowners and
apartment dwellers owned a few. The company's products seemed to be found everywhere tools
were sold. The company was headquartered in central Connecticut, had been around for 160
years, had over 100 manufacturing and distribution facilities worldwide, and employed over
15,000. While hand tools weren't the only products Novak made (the company also
manufactured doors and locksets), more than 80% of the company's sales came from that line of
At each step of the interview process, Emily figured she'd lost out. After all, while she
knew finance, she didn't know much about hand tools. And, tool manufacturing seemed to be a
macho kind of business. She was pleasantly surprised to get a second interview, and her visit to
corporate headquarters, which started off as nothing more than a day away from school (and a
practice run for the really important interviews), was fascinating. The CFO, Mike Hutchinson,
seemed young (at least by CFO standards), energetic, and interested in Emily's opinions and
career aspirations. The man who would be her immediate supervisor, Myron Murphy, seemed to
be a quiet, paternal type who had an in-house reputation for taking in new college hires and
putting them on the fast-track to upper management. On the drive back to college after the
interview, Emily suddenly realized how much she wanted the job. The offer came two weeks
later, and the money ($45,000 plus signing bonus and moving expenses) was far less important
to Emily than the opportunity to get started with the rest of her life. She simply knew she was
going to love her new job as financial analyst. The company really seemed to want her; they
even gave her until December 13th to start work, so she could travel after graduation. As Mike
Hutchinson said, “Being more aware of the world around you will make you a more valuable
resource to the company.” And with a twinkle he added: “Make sure you pay attention to how
they use hand tools in Europe. Maybe you’ll be able to write the trip off.”
So, today was the first day. Emily didn't expect to do much real work; after all, in
college, you never really did much on the first day of class. She brought in a small box of
knickknacks to personalize her cubicle. There were four analysts (counting her) working under
Myron. They shared a relatively large common room divided by partitions - not really an office,
because you couldn't close the door. Myron had the only real office in the area, which was next
to the conference room. Her coworkers, Spencer Brigham (from Yale), Melissa Daves (RPI) and
Alex Van Horne (UConn) welcomed her with open arms and helped her find HR, so she could
fill out paperwork.
By the time she got done with HR, the morning was shot. So far, this was just like the
first day of school. Forms to fill out: tax forms, health insurance forms, life insurance forms,
information about 401-K plans, pensions, ESOPs, TDI, SSI, more acronyms than Emily thought
were humanly possible. After four hours of this, Emily had six pages of notes, writer's cramp
from filling out forms, and a greater appreciation for HRM than she got from any of her
mana gement classes. She got back to her cubicle just in time to join her colleagues in her first
trip to the corporate cafeteria.
"This one's on us." Alex said, "Have whatever you want; most of it's inedible anyway."
Emily had a salad and soda. She'd yet to find a place that could screw up lettuce and bottled
soda. Melissa had yogurt and tea. Alex had rice and steamed broccoli. Emily wondered if he
were vegetarian. Spenser sat down with a heaping plate of mashed potatoes, overcooked peas
and what appeared to be a slab of grayish-orange cake with chocolate frosting on it. “What’s
that?” “Meat loaf and gravy” he replied. “My favorite.”
How do you like it so far?” Melissa asked.
“Well, I haven’t really done anything. What’s Myron like to work for? I think he’s the
first Myron I’ve ever heard of.”
“What about Myron Scholes, who was co-developer of the option pricing model?”
Spenser said through a mouthful of mashed potatoes.
“Or Myron Gordon, inventor of the Gordon constant growth model?” Melissa said.
“My grandmother used to go on about Myron Florin who played the accordion on
Lawrence Welk’s show. Wasn’t there an old comedian named Myron Cohen?” Spenser asked.
“I thought he was a Canadian folk singer” said Alex. “or is that Leonard Cohen?”
Emily realized this wasn’t your normal group of people. They seemed affectionate and
weirdly competitive in their conversation.
Melissa paused and looked around. “To actually answer your question, Myron’s okay.
He’ll put you through your paces at times. Occasionally, he’ll gives you things to do that seem
unimportant or beneath you, but he does so for a purpose. He wants to see what you’ve got.
Have you gotten ‘the test’ yet?”
“I haven’t even talked to him yet. I spent the morning at HR. What’s ‘the test’?” Emily
could hear the quotation marks when Melissa spoke.
“On your first couple of days on the job, he’ll give you an assignment. It will be
something that sounds easy, but really, it’s not. How you do on it determines whether or not you
have a future here.”
Emily picked at her salad nervously. “Seems kind of high-stakes.”
“It is. What makes it so tricky is there’s no right or wrong answer. That’s one of the
points of ‘the test’ – it helps you realize that there’s no right or wrong answers, but there’s a right
or wrong way to think about things. The right way has depth and logic…” said Melissa.
“Myron once said to me ‘finance is less about formulas and more about flashes of insight
than you’re led to believe in school. Any idiot can look up a formula in a book. Any half-wit
can plug in numbers. Anyone with a third-grade education can use a calculator to come up with
the result. Some people can even interpret the answer. But only the best can tell you what the
number really means, and why it is what it is.” Spenser finished the meat loaf, looking none the
worse for the experience.
“What happens if you fail at ‘the test’?” Emily was beginning to get a bit alarmed.
“The last guy who failed is down in assembly putting handles on Phillips head screw
drivers.” Alex said.
“Don’t tell her that!” said Melissa. “The funny thing is, you won’t know if you pass or
fail for a while. The people who did well move up in the organization. The people who didn’t
just seem to move around. Like Tim Brewer, whose place you took. When he was promoted to
Senior Analyst, Myron said ‘I knew he had potential from the first assignment I gave him.’
That’s when we knew he had passed ‘the test’.”
“So what is ‘the test’?”
“Everybody’s is different. I was asked to calculate divisional costs of capital for the tool
division and the doors and locks division.” Said Alex.
“Easy. I was asked to come up with a procedure for valuing imbedded options in a
capital budgeting project to determine how they might help or hurt the project” Said Melissa.
Spenser was strangely quiet, as if his ‘test’ was something personal.
Lunch was just about over. The day was shaping up far differently (and far more
ominously) than Emily had planned. “Will I get ‘the test’ today?”
“You might” said Spenser, “but I wouldn’t bet on it, what with today being a holiday and
“And what holiday is that, Spenser?” Melissa asked.
“Today’s the 102nd anniversary of the patenting of the golf tee,” said Spenser while
waving his arms. “I can’t even believe they make us work on such important days in business
history. George F. Grant must be spinning in his grave.”
“Who’s he?” Alex asked while cleaning up the table, “You mean Mary Tyler Moore’s
boss? I thought his name was Lou.”
“Follow closely, knothead. George F. Grant was the inventor of the golf tee. Didn’t you
learn anything at UConn?”
“I at least learned how to clean up after myself, which is apparently more than they teach
you in the Ivy Leagues. Why do they call it ‘Ivy Leagues’ anyway? Is it because yo ur
basketball teams couldn’t beat five houseplants?” Alex was proud of his UConn pedigree.
Spenser laughed and punched him in the arm. “Back to the salt mines.”
Emily was quiet on her walk back to the office. She thought she was done with tests
forever, but there was the possibility that she would get one today that was far more important
than anything she’d taken in the past, and she wasn’t really prepared – not that she could be.
Until she got the test, she wouldn’t know what to study anyway. When she got back to her
cubicle, she looked around; no Myron, and she breathed a bit easier. She sat down and started to
unpack her things. Pencils, paper, her trusty HP-10B calculator, the picture of her cat Roscoe.
IT had dropped off her new laptop, without any documentation. Emily booted it up to see if
Solitaire and Minesweeper were on it; no one was around to tell her what to do, and everyone
else was busy working. No games, but least the software she’d asked for was preloaded. She
heard a strange roaring noise behind her and turned to look.
It was Myron, making an entrance that Emily wouldn’t have expected in a million years.
Gone was the come-over he’d used to hide his balding pate, replaced with a short, and not
unattractive hair cut. But it was less his appearance that stunned Emily than his mode of
transportation – he was careening down the hallway on a Razor scooter. Two words entered
Emily’s mind – mid- life crisis. Was everyone who worked here peculiar? He hopped off at her
“Like it ? My son gave it to me – he’s always said I’m ‘hell on wheels’, so he gave me
the wheels to prove it. It’s great for getting around; I was just down in distribution and I can go
from one side of the facility to the other in less than two minutes! If ‘time is money,’ this thing
will save me a bunch! Getting settled in? Everybody treating you okay? How was lunch?”
Emily’s adrenaline was really pumping. This guy seemed to have the energy of a six
year old after three cups of coffee. She hadn’t gotten that impression about him at all from the
interviews. At least he wouldn’t be able to sneak up on anyone with that scooter. “Lunch was
okay, I wasn’t very hungry. Everybody seems nice so far. I’m just learning my way around.”
“Okay, good. I’ll give you a few more minutes to unpack, then stop into my office to see
me. We’ve got to find you something to do.” He rolled off and banged into his office door.
Spenser peered over the top of the cubicle and caught Emily’s attention. He ominously drew his
finger across his throat. “Here it comes…” he whispered.
Emily hadn’t brought that much to work, so it didn’t take long to finish unpacking. She
pushed things around a bit and pulled out her calculator. “Let’s see; I work 255 days a year so
today, I make $45,000/255 or $176.47, even if I fail the test.” She knew she couldn’t delay the
inevitable much longer. She got up and headed toward Myron’s office. “Good luck.” Melissa
The door was open. Myron saw her approach and beckoned her to enter. "Have a seat."
Emily sat across the desk from him and watched as he leaned back in his chair.
"I'm supposed to give you some sort of pep talk, but to be frank, I'm not very good at that
thing. Let me explain how thing work here. Analysis is involved in eve rything here at Novak.
Right now, Spencer is evaluating lease financing for IT. We know more about computers than
they know about finance. Melissa is looking at funding options for the company's unfunded
pension liability. Alex is working on the cost effectiveness of test marketing. All have other
projects under way as well. The company also uses a matrix approach to management, so you'll
no doubt be stuck on a 'tiger team' or whatever we call them this week. I try to shield you from
as much of that as I can; to be blunt, most of these teams seem to be nothing more than excuses
to have meetings and eat doughnuts. The marketing people spend all their time talking about
'market penetration' and totally ignore the fact that there needs to be profit in it somewhere...
One of the things you'll learn quickly is that analysis is involved in everything. We've
preached to management for years that every decision has a financial dimension; now we have
upper level management who understands how important finance is. So upper management
listens to us. Some people think we have too much influence... I have something I want you to
do. Not too tough. Something to break you in."
Emily waited. She hadn't had a chance to get a word in edgewise and didn't think now
was the time to try.
"Do you know who Santyana is?" Myron asked.
"The guitarist?" Emily wondered if there was a prize for bring up the most obscure name
in a conversation. First lunch, now this.
"No, the philosopher. He's the one who said 'Those who do not remember the past were
condemned to repeat it.' Most people are familiar with it, though I think Kierkegaard's comment
that 'Life must be lived forward but can only be understood backwards' to be more appropriate to
Emily was beginning to wish she had paid attention in her liberal arts classes.
"Do you know what these are?" Myron pushed a handful of papers across his desk.
"Emily looked at them and said "They're financials. Novak's financials."
"To be absolutely precise, they're Novak's income statements and balance sheets for
1998, 1999, 2000, and 2001. The 2001 reports have just become available but I haven’t had a
chance to look at them closely yet. I want to know what you think."
Emily gave him a perplexed look.
"For the past few years, something interesting has been happening to the company.
While our sales and profitability are growing, our stock return, especially in the late 90's, lagged
rather substantially behind the market. I know we have a low beta (measure of systematic risk),
but even considering that, we did poorly, and institutional investors especially aren't happy.
During this period we even lagged behind one of our major competitors (Black and Decker), and
they have about the same risk as we do. In our spare time, we've been asked by management to
determine what the company is doing well and what it's doing poorly. I'd like you to conduct a
full-blown ratio analysis and see if you can glean any insights about past practices. You know.
Identify our strengths and weaknesses. I thought it might help to have someone fresh look at
things. Maybe you'll see something the rest of us missed. Also, check to see how our stock is
doing relative to the market and our competition. I haven’t had a spare moment to check lately."
Emily hadn't done a ratio analysis since her FM class. She was confused. Anybody
could do a ratio analysis. She mumbled, "This can't be the test."
"What test? What are you talking about?"
Emily recounted her lunchtime conversation. Myron laughed. "Don't believe everything
you hear outside this office. When I first started here, I got the bright idea that I should test new
employees, so I wrote an exam, problems and multiple choice to help me identify the up-and-
comers. I gave it to everyone on their first day. What I discovered was that tests like that don't
work. The world never is like a problem on an exam. I stopped giving the test years ago, but
everyone is convinced I still test them somehow. I hope that if I were going to give you a 'test,'
I'd come up with something more original than this!"
"Of course, everything you put your name on is a 'test' of one sort or another."
Emily couldn't resist thinking like a student. "When do you want this? And how long?"
"Let's say a week. And as long as you need it to be, but remember, I'm a busy man and I
don't feel like reading pages and pages and pages of pointless drivel. Just look at the usual stuff,