Compass Maritime Services, LLC: Valuing Ships
Posted: 19 Sep 2010
Date Written: September 13, 2010
Tom Roberts, founding partner of Compass Maritime Services, a New Jersey-based firm specializing in the sale and purchase of ships (“S&P brokers” in the industry parlance), valuation, shipping research, and consulting, was approached in May 2008, by a client who wanted to purchase a capesize bulk carrier. Roberts asked Basil Karatzas, the firm’s Director of Projects and Finance, to find a suitable ship and value it. Karatzas identified the Bet Performer, an 11-year old bulk carrier, and his challenge is to use the available data to determine an appropriate offer price for the client.
The case provides data on recent ship sales including sale price and a variety of ship features (e.g., age, size, and current charter rates). Students can use either comparable ship analysis or regression analysis to determine an appropriate price for the ship. The case also provides information about the global shipping industry and charter rates which have risen dramatically in recent years.
This case is designed to accomplish four pedagogical objectives: 1) Teach basic valuation analysis using comparable transactions. 2) Teach basic regression analysis (both simple and multiple regression). 3) Illustrate how regression analysis can be used to help make an important investment decision (used capesize ships cost from $50-$160 million). 4) Illustrate the importance of integrating managerial judgment with analytic tools when making important investment decisions.
This case is appropriate for a wide variety of courses including introductory finance and quantitative methods courses in a business school, or introductory econometrics and statistics courses in a college or university. To assist students with analyzing and preparing the case, there is an Excel workbook (“HBS Courseware”) available from HBS Publishing or the authors.
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