Financial Accounting Element
Financial Analysis
Case: Peng Plasma Solutions
PROFESSOR LENA C. BOOTH
Objectives
• The objectives of the Financial Analysis session are
to analyze Peng Plasma Solutions financial performance, and to see why properly managing funding needs is essential for a company to pursue its corporate strategies.
Professor Lena C Booth
2
Peng Plasma Solutions – Company Background
• A private metal cutting company in China, founded by Jerry Peng, together •
•
•
•
with Wai Seng Leng, a silent partner in 1988. Charlie Peng, Jerry’s son, took over in 2004. Four major categories of products: handheld cutting systems, mechanized cutting systems, consumables , and control products. The first two product lines accounted for about 84% of global sales. Sales and profits grew exponentially in the past 5 years, until global financial crisis hit. Even though sales recovered in 2010, the margin of sales was still not fully recovered. Peng was known for being “lean”, keeping its overhead, selling and administrative costs to be under 10% of sales. However, the rising wages and materials costs were problematic. Peng had not introduced a new product for the last 3 years.
3
Professor Lena C Booth
Mechanized cutting systems
Computer numeric control
Handheld cutting systems
Consumables
4
Professor Lena C Booth
5
Professor Lena C Booth
RMB Appreciation
RMB appreciation had made Peng Plasma less competitive in its pricing globally.
Professor Lena C Booth
6
What are Peng Plasma’s Issues? (1)
• How has Charlie Peng been doing in the last 3 years?
• •
Did he achieve his operating and financial goals? Has Charlie brought Peng Plasma’s performance up to that of comparable companies?
• Peng s dependence on short-term debt was an admitted
problem which required a solution.
• •
On the basis of what Peng was projecting for fiscal year 2011 sales, would the company have access to sufficient capital to
Case: Peng Plasma Solutions
PROFESSOR LENA C. BOOTH
Objectives
• The objectives of the Financial Analysis session are
to analyze Peng Plasma Solutions financial performance, and to see why properly managing funding needs is essential for a company to pursue its corporate strategies.
Professor Lena C Booth
2
Peng Plasma Solutions – Company Background
• A private metal cutting company in China, founded by Jerry Peng, together •
•
•
•
with Wai Seng Leng, a silent partner in 1988. Charlie Peng, Jerry’s son, took over in 2004. Four major categories of products: handheld cutting systems, mechanized cutting systems, consumables , and control products. The first two product lines accounted for about 84% of global sales. Sales and profits grew exponentially in the past 5 years, until global financial crisis hit. Even though sales recovered in 2010, the margin of sales was still not fully recovered. Peng was known for being “lean”, keeping its overhead, selling and administrative costs to be under 10% of sales. However, the rising wages and materials costs were problematic. Peng had not introduced a new product for the last 3 years.
3
Professor Lena C Booth
Mechanized cutting systems
Computer numeric control
Handheld cutting systems
Consumables
4
Professor Lena C Booth
5
Professor Lena C Booth
RMB Appreciation
RMB appreciation had made Peng Plasma less competitive in its pricing globally.
Professor Lena C Booth
6
What are Peng Plasma’s Issues? (1)
• How has Charlie Peng been doing in the last 3 years?
• •
Did he achieve his operating and financial goals? Has Charlie brought Peng Plasma’s performance up to that of comparable companies?
• Peng s dependence on short-term debt was an admitted
problem which required a solution.
• •
On the basis of what Peng was projecting for fiscal year 2011 sales, would the company have access to sufficient capital to