Cal-Maine Foods Inc., the largest egg producer in the world, has historically operated with low debt. Cal-Maine reported in its 2021 third fiscal quarter no debt on its balance sheet, making this company one of the few debt-free publicly traded agribusinesses in the United States. This case analyzes Cal-Maine’s capital structure, which represents a rare case for exploring and challenging the notion of optimal capital structure in theory and practice. Understanding the rationale behind a debt-free firm’s policy is puzzling because financial theory predicts that adding debt up to a certain level—the optimal capital structure—creates economic value for equity holders. According to surveyed chief financial officers, there is also evidence that practitioners use an optimal capital structure framework for financial management decisions. By applying a framework allowing for both qualitative and quantitative analysis, this case reviews the benefits and costs of debt in the capital structure, as applied to Cal-Maine. The case asks students to evaluate potential recapitalization policies in which Cal-Maine adds debt to its capital structure and uses debt proceeds plus excess cash to repurchase shares at the prevailing price as of the end of May 2021. The target audience is graduate business and agribusiness students, although the case could be used in an elective advanced undergraduate finance course.

Bruner, R. 2004. Applied Mergers and Acquisitions. Rochester NY: Wiley Finance. https://papers.ssrn.com/abstract=306750.

Cal-Maine Foods. 2020a. “Form 10-K Reported on July 20, 2020 by Cal-Maine Foods, Inc. to the Securities and Exchange Commission.” The US Securities and Exchange Commission, July. http://www.calmainefoods.com/investors/sec-filings/.

Cal-Maine Foods. 2020b. “Investor Presentation Cal-Maine Foods.” Cal-Maine Foods’ Website, Investors Section, August. https://www.calmainefoods.com/media/1173/investor_presentation_nov-2020.pdf.

Cal-Maine Foods. 2021a. “Form 10-K Reported on February 27, 2021 by Cal-Maine Foods, Inc. to the Securities and Exchange Commission.” The US Securities and Exchange Commission, February. http://www.calmainefoods.com/investors/sec-filings/.

Cal-Maine Foods. 2021b. “Cal-Maine Foods Inc.: Growth Strategy & Acquisitions.” Cal-Maine Foods’ Website, Investors Section, May 29. https://www.calmainefoods.com/investors/growth-strategy-acquisitions/.

Graham, J.R., and C. Harvey. 2001. “The Theory and Practice of Corporate Finance: Evidence from the Field.” Journal of Financial Economics 60(2001):187–243.

IBISWorld. 2021. “Farm Fresh: Revenue Is Projected to Rise in Line with per Capita Egg Consumption and Egg Prices.” 11231. IBISWorld Industry Report. http://tinyurl.com/yb5aa6do.

Kester, G., and S. Hoover. 2005. “FRICTO Analysis: A Framework for Making Capital Structure and Financing Decisions.” Journal of Financial Education 31:61–68.

King, D. 2020a. “CFO of Cal-Maine Addresses Egg Market during COVID-19.” Egg Industry, no. May 2020:10–13.

King, D. 2020b. “Covid-19 Impacts Cage-Free Transition, Egg Industry (May 6, 2020).” WATTPoulty.com. https://www.wattagnet.com/articles/40252-video-covid-19-impacts-cage-free-transition-egg-industry.

Markets Insider. 2017. “Cage-Free Egg Pledges Yielding to Market Reality Cage-Free Egg Pledges Yielding to Market Reality.” https://markets.businessinsider.com/news/stocks/cage-free-egg-pledges-yielding-to-market-reality-1011562632.

New Constructs. 2021a. “Cal-Maine Foods Inc. (CALM).” Business Insights: Essentials, no. 1–6, April.

New Constructs. 2021b. “Cal-Maine Foods Inc.: Credit Rating.” Business Insights: Essentials, no. 1–6, April.

O’Keefe, T. 2020. “Ranking the Largest US Egg-Producing Companies in 2020.” Egg Industry 125 (2):6–13.

O’Keefe, T. 2021a. “2021 Survey: Cage-Free Conversions Slowing Down.” Poultry International 60 (3):10–13.

O’Keefe, T. 2021b. “Ranking the Largest US Egg-Producing Companies in 2021.” Poultry International 60(3):16–21.

Reuters. 2021. “Cal-Maine Foods Inc. (CALM). Reuters Investment Profile.” Business Insights: Essentials, no. 1–12, April.

SADIF. 2021. “Is There Long-Term Value in Cal-Maine Foods Inc.?” Business Insights: Essentials, no. 1–12, January.

Sihler, W.W. 1971. “Framework for Final Decisions.” Harvard Business Review.

Standard and Poor’s. 2021. “Standard and Poor’s Net Advantage.” Standard and Poor’s Capital IQ. S&P Global Market Intelligence, May. www.capitaliq.com.

Trejo-Pech, C., and S. White. 2020. “Capital Budgeting Analysis of a Vertically Integrated Egg Firm: Conventional and Cage-Free Egg Production.” Applied Economics Teaching Resources 2(4):34–46.

Trejo-Pech, C., and S. White. 2021. “Cal-Maine Foods, Inc.: Stock Price Estimation in the Midst of Pandemic.” International Food and Agribusiness Management Review, 24(5):887-900. https://doi.org/10.22434/IFAMR2020.0182.

ValuEngine. 2021. “ValuEngine Rating and Forecast Report for CALM.” Business Insights: Essentials, no. 1–11, March.

Wong, V. 2017. “Egg Makers Are Freaked Out by the Cage-Free Future.” CNBC, March 22. https://www.cnbc.com/2017/03/22/egg-makers-are-freaked-out-by-the-cage-free-future.html.

WRDS. 2021. “Wharton Research Data Services (WRDS). The Global Standard for Business Research.” Wharton Research Data Services. CRSP Module, May. https://wrds-www.wharton.upenn.edu/.