HPL Case
Tianli Feng
Mengting Xia
Qiang Luo
Xian Li

1. How would you describe HPL and its position within the private label personal care industry?
HPL manufactures soap, shampoo, mouthwash, shaving cream, and sun scream for retailers in US and these products are sold under the brand label of a third party. The company is a major player in the $2.4 billion private label personal care industry, with a market share of a little more than 28%. HPL’s focus on manufacturing efficiency, expense management and customer service turned it into success. And it also builds a healthy relationship with major retailers. However, HPL’s conservative expansion strategy leads to a relative high capacity utilization rate (90%), constraining its ability to expand relationship with other potential retailers.
Based on its historical financial statements, HPL did really well in recent years. From 2003 to 2007, its net assets increased by $64 million, inventory turn-over days steadily decreased from 41.3 days to 35.6 days, net income increased by 33% and $9.6 million, net profit margin remained quite stable at about 5.7% and revenue growth has been outperforming the market. Additionally, cash inflow from operation steadily grew from $32.4 million to $37.7 million. Generally speaking, HPL did achieve healthy growth in recent 5 years.
2. Using assumptions made by Executive VP of Manufacturing, Robert Gates, estimate the project’s FCFs. Are Gates’ projections realistic? If not, what changes might you incorporate?
Firstly, we predict the working capital requirement of the new project and the change of working capital. In this case, we define working capital = Accounts Receivable + Inventory - Accounts Payable & Accrued Expenses.
Related equations used in this case:
Days Sales Outstanding = (Ending Bal of Receivables/Sales)*360
Days Sales Inventory = (Ending Bal of Inventory / COGS)*360
Days Payable Outstanding = (Ending Bal of AP/COGS)*360
NOPAT = Revenue – COGS -

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