Blaine Kitchenware Financial Analysis

Blaine Kitchenware Inc. Looking at the Financial statements of Blaine Kitchenware Inc., in the balance sheet in particular in this case, I would say that BKI is a highly over-liquid and under-levered company. In the balance sheet, Exhibit 2, Cash and Cash equivalents and marketable securities was $66,557,000 and $164,309,000 respectively. With such high cash balance and marketable securities at hand, BKI is not only risking its own growth but also risk turning away investors who may consider investing in the company due to the lack of active investment for more value. As it was indicated in the main case, BKI had historically been a debt free equity firm which resonated with the principle of how the founders had initially envisioned its future. Given BKI historical equity composition, it is true that the company had not in most part, been utilizing the debt leverage. Even though, the company had use debt twice in the past, it was not enough as BKI had an opportunity to exploit tax benefit through adding debt. For example in exhibit 1- footnote, BKI future tax rate is projected to rise to statutory rate of 40% given its equity structure. BKI can avoid this expected high tax rate with the inclusion of debt in its capital structure. In my view, the current capital structure and payout policies for Blaine’s Kitchenware Inc. are not the most applicable for the firm long-term growth. I would say that BKI justification of not using debt in its capital structure was to avoid any risk. But the fact is that BKI management debt free strategy is not in any way helping BKI to maximizing its value. As it had always been the case with other well-performing Small Cap and Mid Cap companies, a reasonable level of debt in a given company capital structure helps lower the cost of capital partly, due to tax reduction. I would recommend that Dubinsky proposed a large share repurchase to the board. This share repurchase proposal should be presented to the founders’