Preview

Strong Tie Ltd Case

Satisfactory Essays
Open Document
Open Document
403 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Strong Tie Ltd Case
Joseph Alvarez
2/11/13
Cases
Monday 7-10pm

Strong Tie Ltd. Case

From the first scenario, I can conclude that Strong Tie Ltd is in terrible financial shape because of three straight years of negative CATO between 2010-2012. I used the growth rate calculated between the years 2006 to 2007 and the total was 7.72%. It increased by 1% for every year thereafter. But with an increasing working capital and variable costs, the increase in sales growth is not enough for Strong Tie to produce enough free cash flow to withstand its increasing costs.

CATO | | -3319.73 | -3884.50 | -4551.92 | Gross debt | 1145.00 | 4064.73 | 7549.23 | 11701.15 | t | 0.30 | | | | v | 0.82 | | | | w | 0.35 | | | | c | 1.17 | | | | F | 3130.00 | | | | GROWTH | 7.72% | 8.72% | 9.72% | 10.72% | INFLATOR | 2.00% | 2.00% | 2.00% | 2.00% |

In the second scenario, I adjusted the growth rate down to 5% and for it to remain constant throughout the remaining three years. As we can see, the negative CATO went down significantly but Strong Tie is still not producing any free cash flow and it is putting the company in danger of liquidating if it cannot find a way of reducing its costs. Banks will stop lending this company and any company for that matter if it is illiquid.

CATO | | -2182.63 | -2282.44 | -2386.63 | Gross debt | 1145.00 | 2927.63 | 4810.07 | 6796.69 | t | 0.30 | | | | v | 0.82 | 0.82 | | | w | 0.35 | 0.35 | | | c | 1.17 | 1.17 | | | F | 3130.00 | | | | GROWTH | 5.00% | 5.00% | 5.00% | 5.00% | INFLATOR | 2.00% | 2.00% | 2.00% | 2.00% |

For the third scenario, I maintained the same constant growth rate of 5% that I used in the second scenario. However, this time I included prepaid expenses from 2007 when calculating “v”. The variable cost increased by 1 cent, which led the negative CATO to increase also. Again Strong Tie is not producing any free cash flow therefore making it insolvent and impossible to survive in
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Good Essays

    Cologne Haefren Baum Case
    • 924 Words
    • 4 Pages

    Cologne Haefren Baum Case

    Although the sales of the company have declined significantly their cost of goods sold has remained high, especially between 1994 and 1995 the company had a decline in sales and an increase in cost of goods sold. This is evidence the company is having problems passing costs to its consumers. The company is not very asset intensive and its decrease in total asset turnover can be due to their decrease in sales, however their rather low total asset turnover which is also decreasing from 2.1 to 1.5 shows their assets are not being used very efficiently. As a result of their sales decrease their Fixed Asset turnover also decreased from 7.0 to 5.4. The decrease in sales and increase in competition also means more shelf time for their inventory which has increased from 103 to 129, which makes Haefren Baum’s price cutting strategy questionable. The company is already experiencing a loss of revenue due to their lower prices; however this is not stimulating the number of different sales because the inventory is sitting in the…

    • 924 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    New Scott Equipment Organization
    • 639 Words
    • 3 Pages

    New Scott Equipment Organization

    Scott Equipment Organization is investigating the use of various combinations of short-term and long-term debt in financing its assets. The organization has decided to employ $25 million in current assets, along with $40 million in fixed assets, in its operations next year. Anticipated sales and Earnings Before Interest and Taxes (EBIT) for next year are $60 million and $6 million, respectively. The organization 's income tax rate is 40%; stockholders ' equity will be used to finance $40 million of its assets, with the remainder being financed by short-term and long-term debt. Scott 's is considering implementing _one_ of the following financing policies:…

    • 639 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    bcom230 r3 accounting memo
    • 384 Words
    • 2 Pages

    bcom230 r3 accounting memo

    Because we may be coming into inflationary economic times, it is possible we might recommended that the company continue to use LIFO so we can continue to reduce our federal and state corporate income taxes—this could provide the company with a better cash flow and profit margin. The question we need to research and discuss is whether we think this economic situation will continue so that our Cost of Good Sold (COGS) will be increasing over the short and long term and our inventories cost keep rising.…

    • 384 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    6315 ClarksonLumber WrittenAssignment
    • 398 Words
    • 2 Pages

    6315 ClarksonLumber WrittenAssignment

    4. Based on the data provided, estimate the sustainable growth rate for 1996 (i.e., the maximum growth rate that can be achieved with no additional equity financing), assuming the company maintains its debt/equity ratio, has no change in the ratio of sales to total assets, does not issue equity, and does not pay dividends. As you will recall from earlier finance courses, the formula is:…

    • 398 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Sal Ltd Case
    • 3725 Words
    • 15 Pages

    Sal Ltd Case

    Amber Inn & Suites is a 250 property hotel chain located in 10 western and Rocky Mountain States (Kerin & Peterson, 2010). The company was founded in 1979 and they operate 200 Amber Inn properties and 50 Amber Inn & Suites properties (Kerin & Peterson, 2010). They have 30,000 total rooms with an average of 120 rooms per property (Kerin & Peterson, 2010). The company has had five consecutive unprofitable years and the company wants to be profitable within two years. This case will provide a summary an analysis of Amber Inn’s options and an examination of their strengths, weaknesses, opportunities and threats.…

    • 3725 Words
    • 15 Pages
    Powerful Essays
    Read More
  • Good Essays

    5 Short Term Financial Mgmt
    • 807 Words
    • 4 Pages

    5 Short Term Financial Mgmt

    Based on our findings in Part A, the company will definitely need outside financing. There is a cash deficit in three months out of the year that was examined. The months that are deficits are March, April, and June 2004. If there is no outside financing brought into the company, the cash that is needed in order to cover the expenses that are incurred the month following each deficit will not be available. Without the cash being fed into the company through financing, there would be no way for the company to pay the expenses such as administration, materials, lease or income taxes. A company cannot stay continue to operate if there are more expenses than there is revenue. By acquiring outside financing, the company "buys" itself time to better its financial standing and gives them the cash to pay the expenses that are needed to keep the business afloat.…

    • 807 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    Scott Equipment Organization
    • 301 Words
    • 2 Pages

    Scott Equipment Organization

    Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ $10 million in current assets and $15 million in fixed assets in its operations next year, and EBIT for next year is $8 million. The organization’s income tax rate is 40%. Stockholders’ equity will be used to finance $15 million of assets, with the remainder financed by short- and long-term debt. The organization is considering implementing one of the policies below.…

    • 301 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    Fly by Night case
    • 694 Words
    • 3 Pages

    Fly by Night case

    These cash flow problems can be perceived by the fact that the company is not generating enough cash to pay neither their current liabilities nor their long-term liabilities. Their coverage ratio for year 14 was just 0.123 and their operating cash flow ratio for year 14 was 0.167. On top of…

    • 694 Words
    • 3 Pages
    Good Essays
    Read More
  • Powerful Essays

    Acct 1501 Pratice Exam Questions
    • 1403 Words
    • 8 Pages

    Acct 1501 Pratice Exam Questions

    QUESTION 2 Financial Statement Analysis (8 marks) BPS Ltd, a supplier of telecommunications equipment, retails its products through suburban outlets. Shown below are the calculations of some of its key financial ratios for 2011 and 2012. 2012 2011 Return on Equity 13% 12% Return on Assets 8% 9% Profit margin 20% 18% Asset turnover 0.40 0.50 Days in inventory 72 days 55 days Days in debtors 42 days 42 days Current ratio 1.6 1.5 Quick ratio 0.7 1.1 Debt-to-Equity ratio 1.4 1.0…

    • 1403 Words
    • 8 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Typography and Leslie Taylor Es2550
    • 280 Words
    • 2 Pages

    Typography and Leslie Taylor Es2550

    Yes, this firm will likely continue operating in the long run in similar fashion. Considering the above graph, it seems that as AVC is increasing which makes it seem that in the long run the firm could not operate in profit but this is untrue. It is a well known fact that AVC renders into FC (fixed costs) so this firm can carry on with profit…

    • 280 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    Competition Bikes Task 1
    • 5733 Words
    • 23 Pages

    Competition Bikes Task 1

    The horizontal analysis is a method used to analyze changes in the company’s financial health between years in values of dollars and percentages using data from the balance sheet and income statement. In the horizontal analysis a base year is set and then other years are compared to the base year. The horizontal analysis will be used to assess Competition Bikes actual financial operating performance based on the time period between years 6 through 8, with year 6 set as the base year. Starting with an analysis between year 6 and year 7, we look at the horizontal financial changes to determine actual performance by the percentages. Net sales in years 6 and 7 reflect a change of $1,495,000 at a 33% increase change. This change is positive which translates into higher sales which also mean the operating performance was good for the company and customers really liked the products. The cost of goods sold reflects a change of $1,048,000 at a 31% increase change. This percentage is financial strength for company again which means the customer liked the products. This percentage should remain lower than the net sales, and the percentage reflect an added strength for the company because this percentage is lower than net sales, so here the Competition Bikes has control over the cost of making the Bikes to increase revenue. In the same years (6 and 7) the horizontal comparison ratio for gross profits reflected a change of $447,000 which is a positive increase of 37.5%. Therefore, 37.5% of each dollar from sales was retained after the cost of…

    • 5733 Words
    • 23 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Assessing Financial Statements
    • 340 Words
    • 2 Pages

    Assessing Financial Statements

    The company that I have chosen to evaluate is Starbucks. Within the past three years Starbucks have maintained a net revenue in more than $9 billion dollars a year. In 2009 Starbucks net revenue was about $9.8 billion dollars and just in two years Starbucks has ended their 2011 year with a net revenue of $11.7 billion dollars making that this is the highest annual revenue. At Starbucks this was a 11 percent increase on a comparable 52-weeks basis. Over the past three years the operating margin has increased more than 9.1 percent in making the year of 2011 top out at a 14.8 percent at the end of the fiscal year. At Starbucks, this makes an increase in the operating income go from $562 million dollars to $1,728 million dollars, just in three years. Now, at the end of 2011the total annual assets at Starbucks would be $7.36 billion dollars and Starbucks total debt would be $2.97 billion dollars. With all of this information it tells me that Starbucks is in a good financial condition.…

    • 340 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    One Day Laundry
    • 731 Words
    • 3 Pages

    One Day Laundry

    1. Opportunity exists for the firm to enter into the franchising business. Which will basically allow them to keep on expending without having to take on more debt.…

    • 731 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Fly-by-Night Case
    • 567 Words
    • 3 Pages

    Fly-by-Night Case

    There were many signals shown in the financial statements and other exhibits in the case that represented poor cash flow through Year 14. The most obvious of them all is that the collectability of the accounts receivables was problematic. It seemed as if Fly-by-Night had a good system of collecting their sales on account from year 9 to year 10 as the accounts receivable number decreased during those years. However, the accounts receivable account increased by more than six times through years ten and fourteen. Because of this poor system of collecting accounts receivable, Fly-by-Night’s cash flow would suffer. The same can be said about the inventory account. Because the amount of inventory increased by almost five times through years twelve and fourteen, the cash would continue to decrease at the same rate.…

    • 567 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Marketing Managment
    • 585 Words
    • 3 Pages

    Marketing Managment

    The Star Wood company is currently in the following situation: (1) EBIT = $ 4.7 Million; (2) Tax Rate, T = 40%; (3) Value of Debt, D = $2 Million; (4) rd (Cost of Debt) = 10%; (5) rs (Cost of Equity) = 15%; (6) Shares of stock outstanding = 600,000 & Stock price, Po = $30.…

    • 585 Words
    • 3 Pages
    Good Essays
    Read More

Related Topics