Integrated Case 3-12
a. D'leon's expansion did increase sales, however the companies net income, NWC and after-tax operating income suffered greatly at well, this is probably due to the huge increase in spending.
b. The company's expansion also restricted free cash flow greatly.
c. Since the companies total liabilities almost tripled from 07-08 meaning one can assume they are indeed not paying their creditors/suppliers in a timely manner.
d. Unfortunately operating costs are exceeding the sales profits in 2008 for D'leon meaning that they are simply paying out more money than they are making off of their products which is never good for a company this results in substantial losses.
e. If all the credit agreements were extended from 30—60 days and sales remained constant, D'leon might be in a better shape financially assuming they are using the extra time to gather funds to pay off their debts on time.
f. Hypothetically I would see that as a feasible possibility if the company saw the increase in sales and maybe began overstocking their distribution outlets, overlooking the marginal utility of their product and assuming that if there are more to buy customers will spend more money. The lowered percentage return on their products can affect their accounts receivables and their creditor's faith in the company causing them to adjust their terms or withdraw their investments.
g. D'leon financed their expansion internally, however if they decided to seek outside investment on the venture they could have easily found a suitable investor who could also give a little insight as to how the company should execute their expansion.
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