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The Heels Shoe Company sells a line of athletic shoes for children and young adults including cleats and other specialty footwear used for various types of sports. The company is privately owned and is considering the sale of a portion of its shares to the public. The company owners are currently in discussions with an investment banker who has offered to manage the sale of shares to the public. The critical point of their discussion is the price that Heels might expect to receive upon the sale of its shares. The investment banker has suggested that this price can be estimated by looking at the P/E multiples of other publicly traded firms that are in the same general business as the Heels Shoe Company and multiplying their average P/E ratio by Heels expected EPS for the coming year. Last year the Heels Shoe Company had earnings of $1.65 per share for the 12-month period ended in March, 2009. Heels CFO estimates that company earnings for 2010 will be $1.83 a share. The investment banker suggested that estimation of an appropriate P/E ratio involves looking at the P/E multiples for similar companies. As a preliminary step they suggested that Heels management team consider the P/E multiples of three companies: Deckers Outdoor Corp. (DECK), Nike (NKE), and Timberland Co. (TBL). The current P/E ratios for these firms are as follows: What is your estimate of the price of Heels shares based on the above Comparable P/E ratios? Dr. Erasmus F. [email protected]

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