Coleco Industries Case Analysis

844 Words4 Pages
Coleco Industries Candace Blanton Financial Decision Making Dan Osterhout Case Questions Andy Heikes 1. Assess the product-market strategy and financial strategy Coleco pursued through 1987. Compare Coleco’s strategy with that of Tonka in early 1987. Coleco compared to Tonka was in a total opposite market and financial strategy position. Coleco had an excessive amount of debt outstanding (460 million) as well as a $189.9 million on lines of credit. Their lines of credit were being borrowed against their receivables. The company was hoping to come up with a product as they had twice in the past (ColecoVision and Cabbage Patch Kids) to bring them back from the brink of failure. Tonka on the other hand was very liquid and based its success on nonvolatile sales of toy trucks. They had very low debit and had a focus of simply expanding their growth by increasing their international sales. 2. What went wrong for Coleco? Late 1987 when they were projecting minimal losses Coleco took a larger than expected hit with the October 19th stock market crash which hurt the Christmas sales. This combined with the inadequate amount of working capital added to their woes. How did they respond? Coleco was borrowing as much as they could but at a 9.5% interest rate. This was only compounded by the multiple million dollar credit agreements that were set to expire in the first half of the year in 1988. This led to Coleco shareholders increasing the number of authorized preferred shares from 300,000 to 12 million. 3. What type of risk do you see in the Coleco case? If Coleco didn’t come up a product to save them financially the risk of liquidating, possible merger, issuing more equity or restructuring. Explain your reasoning for the types of risk you identify. Liquidating would be messy because of how many creditors had their hand in the cookie jar.

More about Coleco Industries Case Analysis

Open Document