Case Study-Case Study Drivers of Industry Financial Structure

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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.

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