Alliance Concrete Essay

543 Words3 Pages
The economy in which the read-mix industry operates may have a potential slowdown. Despite Alliance’s success and potential growth, the company is facing with a difficult decision to choose between renegotiating debt obligations, postponing long overdue capital improvement, or reducing the dividend payment to National. Being a ready-mix concrete company, Alliance’s obligation is to have their product deliver to the customers on time. However, the main issue of Alliance Concrete is the negligent to upgrade their old equipment which cost the company $2.6 million and two-week shutdown. Thus, Alliance needs to focus on improving operating efficiencies by investing in capital improvement. Capital Improvement • Spend $2 million on expenditures before the start of the year so the risk of break down is less than 50%. • Since forecasting the balance sheet for 2006 shows Alliance EFN’s is about $14 million, the company can borrow an additional $14 million from the bank to make the balance sheet balance. • With the $2 million on expenditures spent in 2005 plus the additional $14 million borrow from the bank for 2006, the company can be able to fulfill the $16 million planned on capital expenditure. Capital improvement can save the company on unexpected cost and long-term shut down. Moreover, since Alliance’s customers are sensitive to delivery times, improvement on capital can save Alliance from losing loyal customers as well as their reputation. Other necessary solutions: Renegotiate with the bank In order for Alliance Concrete to finance the additional money for capital investment, they need to present these forecast data to the bank: • The forecast of 2006 leverage ratios: o Debt to prior year EBITDA of 2.67 which is less than the prior year of 2.80 shows that Alliance’s additional finance will not exceed three times the prior year’s EBITDA. o Interest coverage

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