Preview

Case Study-Case Study Drivers of Industry Financial Structure

Good Essays
Open Document
Open Document
1060 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Case Study-Case Study Drivers of Industry Financial Structure
Case Study Drivers of Industry Financial Structure

Executive Summary

KR+H is a manufactory company in cabinet industry and it had devised a unique operating strategy of producing high quality custom cabinets at a low cost. Because the investments will reduce costs and increase the working efficiency in manufacturing process. And the analysis will show that adding investment is valuable and profitable. Based on KR+H’s past financial performance and the cost of investment, KR+H would need additional financing to fund the proposed capital investment. The internal financing could be very difficult for KR+H based on it had a deficit in 1992. And internal financing may also slow down the investments because KR+H has to retain its profit. Also rising the price is not a very good option in a long-term perspective. Because it could retard their growth and therefore did not represent a viable path to a long-term profitability. So we suggest that KR+H should finance the proposed capital by relying on external financing from a bank or an outside investor.

Context

KR+H is a manufactory company that designs,fabricates and installs high quality, uniquely designed cabinetry. Now it had devised a unique operating strategy of producing high quality custom cabinets at a low cost. KR+H believes that the use of computer-controlled equipment allowed the firm to significantly reduce their labor cost and other production cost while increasing the efficiency of the manufacturing process.In order to support the development if their innovative operating system, KR+H need to clearly define the scope and speed of growth for their business. However, the partners do not have internal funds to finance the investment and their access to external capital markets is limited. Therefore KR+H needs a better operating and financial strategy to managing rapidly growth and its capital.

I think the article “Seize advantage in a



References: Robert C. Higgins(2012), Analysis for financial management David Rhodes and Daniel Stelter(2009), Seize advantage in a downturn

You May Also Find These Documents Helpful

  • Satisfactory Essays

    The Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars).…

    • 253 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Atlas Metal Company

    • 1487 Words
    • 6 Pages

    The purpose of this report is to help a financial special assistant, Linda, to analyze the financial position of Atlas Metals Company and deciding its capital budgeting and capital structure. Firstly, I explain why firm should use Net Present Value (NPV) methods for capital budgeting rather than Return on Investment (ROI) method and Payback Period method. Secondly, I calculate the Weighted Average Cost of Capital (WACC) which will be used as discount rate while calculating NPV. Then, I decide which rapid prototyping system company should invest as well as I compare the each expansion projects’ IRR with WACC to decide which projects should be invested and which should not. After deciding projects which should be accepted, I draw Investment Opportunity Schedule (IOS) and Marginal Cost of Capital (MCC) graphs to decide where the company should finance accepted projects.…

    • 1487 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Drawing from their diverse backgrounds, the partners of KRH had devised a unique operating strategy of producing high-quality custom cabinets at low cost. The low manufacturing costs were achieved through the introduction of automation to the traditionaly labor-intensive manufacturing process for custom cabinets. The use of computer-controlled equipment allowed K.RH to reduce its labor and other production costs significantly while increasing the efficiency of the manufacturing process. In turn, this enabled the company to offer its customers a wider variety of custom cabinet designs at competitive prices.…

    • 5285 Words
    • 22 Pages
    Good Essays
  • Satisfactory Essays

    In order to create an initiative for growth, an analysis of the company 's short term and long term financing needs are assessed to determine strategies for the company to manage working capital. The suggested initiative to increase XYZ Company, Inc. revenue over the next five years is by acquiring assets through a merger with UVW Company to produce more of product X. Companies must be able to manage growth either through the acquisition of assets or through the capital budgeting process. Through the acquisition of assets, external financing will be required. Growing quickly will allow XYZ Company to gain a larger market share and reinforce its viable position in the marketplace. Expanding too rapidly can have consequences. If the company has too much debt-financing and cash flows are reduced the company will risk being unable to repay its debts. Management must ensure the business can grow, what funding may be needed, and determine the sustainable growth rate.…

    • 575 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Guillermo Furniture is a midgrade, high-end sofa manufacturing company owned by Guillermo Navallez. Due to an increase in competition Guillermo Furniture has suffered a loss in its yearly sales. Owner Guillermo Navallez is considering changes within the company to make it more competitive and to increase company sales. He is evaluating two different methods of change; one would involve the purchase of expensive hi-tech equipment and the other would change the primary function of the business to distribution with manufacturing be done on high end products alone. Guillermo would like to review capital budgeting techniques to help project which road he should take to revitalize his business if any.…

    • 614 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The current annual sales of the company are roughly $1.2 million. This is a 25% increase from the previous year. The goal of this company is to reach $3 million in annual sales within the next 3 years. The CEO has decided to expand the product line to include an additional product. The product expansion consists of manufacturing cedar dollhouses using shingle scrap materials. A product expansion will result in additional revenue and gross profit to help reach the goal of $3 million in annual sales but there are many factors that need to be considered before moving forward with the expansion. The issues that will be addressed are current economy and industry issues, company cash flow statement, product cost, and potential investments to accelerate profit.…

    • 1234 Words
    • 5 Pages
    Better Essays
  • Good Essays

    DeviceCo and Pharmador formed a joint venture called LeaseMed. It plans to lease large-scale medical equipment to U.S. hospitals. The venturers have no relationship with each other aside from LeaaseMed. Ownership as well as profits and losses are divided 55:45 to DeviceCo and Pharmador. Board approval is required by a majority vote for all ongoing business activities and new contract in excess of $50,000.…

    • 417 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Target Corporation (NYSE: TGT) is one of the top ten largest retailers in the U.S. by sales. In its most recent year in 2012, Target who has proclaimed itself as “cheap chic” produced over $70 billion in revenue through the sales of apparel, house wares, electronics and other products (Exhibit 5). At Target, corporate governance practices have been in place for more than 50 years, and continue to evolve to balance the interests of the Board, shareholders and management to maximize efforts. A majority of the 12-member Board is independent and selected based on success in their field and in relevance to their background in business and how well their skill…

    • 1928 Words
    • 8 Pages
    Better Essays
  • Good Essays

    Risk and Private Label

    • 893 Words
    • 4 Pages

    The company was approached by one of the significant retail partner with the proposal to increase HPL’s share in their private label manufacturing. The proposal requires an investment of $57,817 out of which $45 million is for the expansion of production capacity and $12,817 is increase in working capital. Customer is ready to commit for 3 year contract only and expect from HPL go/no go commitment within 30 days.…

    • 893 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Throughout the course of study in Finance 571 class curriculum, different aspects of the corporate finance were discussed in the class and learn. This paper will discuss the analysis of Sunflower Nutraceuticals’ (SNC) journey to increase their working capital and maximized growth in next 10 years that is until 2021. In addition to that paper will also explain following…

    • 1549 Words
    • 7 Pages
    Better Essays
  • Good Essays

    The process of identification begins by considering the obvious characteristics. For example, you know that a hotel would not have any significant inventory since it is a service activity. I used three major groupings: Service Industries, R&D Investments, and Consumer or Retail Based.…

    • 450 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Cmr Enterprises

    • 1322 Words
    • 6 Pages

    The budding entrepreneur Sam Marcus along with investor Mr. Walter saw the potential of dynamic growth in Mike’s cabinet making company and purchased a small 25 year old cabinet-making company from its founder 2 year earlier. The company competed in basically two segments, commercial and residential construction markets. Sam envisioned the company to grow to 70 Million in sales by 2007. Though commercial market offered the growth opportunity, the operating cycles were rigid because of bidding process which only has 32 % success ratio. On the other hand, the residential market was small but has the ‘got’ ratio of 70 %.…

    • 1322 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Cadbury Vrio

    • 840 Words
    • 4 Pages

    The Debt/Equity ratio of the company is as low as 0.02%. This ratio is negligible and it can be said that it is almost an all equity company. Because of such a capital structure of the company, it gives the signal of a safe investment. The risk associated with the company will be low and hence it will be able to raise additional debt as well as equity with reasonable ease. However, we suggest that the company can take the benefit of financial leverage by raising debt in case of future capital requirements. It is outstanding that the company has huge Reserves and Surplus and hence they can fund projects through Internal Equity.…

    • 840 Words
    • 4 Pages
    Powerful Essays
  • Good Essays

    1. In the mid 1800s the corporation emerged as a "legal person" by way of maneuvering in the legal system. For the next 100 years we saw the rise to dominance of the corporation. The corporation created unprecedented wealth but at what cost? The externalities of corporate operations are responsible for countless cases of illness, death, poverty, pollution, exploitation and lies. Voice your opinion on this.…

    • 680 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    The case we studied this time is CPK, which is a restaurant with creative menu, high quality of foods, nice dinning environment, good dinning atmosphere, convenient traffic location and etc. The case discussion this time was more focused on the numerical data instead of strategy analysis. Although it’s not so easy for me to catch up with all information that the present group show, I think it’s really interesting. The main problem we need to discuss is how to raise the declining CPK stock price which happened in 2007. There were several reasons that caused the price declining. One is the rising cost of everything, and second one is too many stock shares outstanding. As we can see from the Exhibit6, the stock price of CPK was almost higher than the average all the time. So maybe we can infer that the declining CPK price was not only caused by CPK itself, but also affected by the bad economy condition. Because there was no enough internal cash for CPK to repurchase outstanding shares, they needed to decide which leverage borrowing debt was the best choice. After calculating 10%, 20% and 30% D/A ratio with market value, we found them only about 3%, 5% and 10%. In other word, although CPK is afraid of the high risk that brought from high leverage, it’s useless for them once the repurchase didn’t work. In my opinion, CPK should choose the highest leverage which within the same rating range.…

    • 454 Words
    • 2 Pages
    Satisfactory Essays

Related Topics