D'Leon Essay

4182 Words17 Pages
D’ Leon, Inc. Executive Summary In 2007, D’Leon underwent a massive expansion project in an effort to become a nationally known snack foods company. The company proceeded into this expansion to aggressively and is now in financial confusion and financial trouble. D’Leon doubled its capacity immediately as well as using an expensive advertising campaign in addition to adding the new sales office. Even with all these ambitious goals and decisions it is unlikely that D’Leon could achieve the necessary limits needed to reach the anticipated financial projections. The company is currently experiencing losses and this is causing shareholders and suppliers to become wary of D’Leon. This report presents a financial ratio analysis of the firm to determine the impact of the expansion and provides the company recommendations as to how to proceed. D’Leon needs to increase its current ratio at 1.2 and quick ratio at 0.4 to at least the current industry average. This can be done by holding less inventory. This would also help improve the company’s inventory turnover ratio from 4.7 to the industry average of 6.1. The firm’s debt ratio anticipation of 44.17% is better than the market average and will allow the company to pay down its debt quicker than competitors and have more cash on hand. The extra cash on hand provides more liquidity and is attractive to potential investors. However, these numbers are based on high projections. If such numbers are not reached the company is considered underperforming and makes an unattractive appeal to investors. The DuPont formula is used to summarize the company’s financial conditions with the analysts’ projections for 2009. The firm’s profit margin of 3.60% is slightly above the industry average, and the debt ratio at 44.17% is lower. This suggests that the projections kept cost and interest at a minimum. While this is

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