Strong Tie

Strong Tie Ltd. a family-owned manufacturing tool producer has managed to maintain stable sales numbers throughout recent years even while the Housing market as a whole was on a negative trend. While this should translate into higher profit margins, the exact opposite trend has occurred. The solution to Strong Tie’s financial problems is an increase in prices of goods and salary cuts. Beginning in 2006 where Strong Tie has Sales of 16.2 million, the company maintained healthy sales between the 16 and 17.5 million. However Operating Income decreased by 29% and then another 75% the following year. Two main factors led to this trend: COGS and Depreciation. After analyzing the way Strong Tie has managed their goods. Their Raw Material Turnover was close to par with benchmark numbers at 27 days which means they have been converting the raw materials into finished goods on exceptional timing. The days in Work in Progress was also progressing at a healthy rate going from 4.5 days in 2006 to nearly 1 day in 2008. In other words, they were able to finish goods at faster rates. With these two healthy rates, there should have been increasing profits, however one variable was stopping it from happening; Days in Finished Goods. Strong Tie’s most profitable year was 2006 where days in finished goods was 45 which was close to on par with the benchmark of 51. But by 2008, Strong Tie had finished goods flying off the shelves by 26 days. If customers are buying the products this fast, the prices of these goods are way too low which has resulted in a substantial loss of profit. Therefore the first recommendation would be to increase prices substantially. Depreciation on the other hand was expected to occur but the cost nearly doubled in 2006 from 396k to 720k in 2008 most likely from a major breakdown of equipment and repair costs. Depreciation costs may also have derived from Strong Tie investing on new automated feeders and packaging equipment. So while the balance sheet