# Dleon Case Analysis

890 Words4 Pages
a) The effect of expansion on: 1. Sales: Δ sales = sales (08) – sales (07) = 6034,000 – 3432,000 = \$2602, 000 (76%) The sales of D’LEON increased by 76% because the company increased its capacity of production and opened new selling offices to sell its products. 2. NOPAT: NOPAT (07) = EBIT (1-TAX rate) NOPAT (08) = -130,948 * 0.6 = 190,428 * 0.6 = -\$78,569 = \$114,256.8 Δ NOPAT = 114,256.8 – (78,569) = \$192,825.8 3. Net Working Capital: NWC (08) = 1,926,802 – (524,160 + 489,600) = \$913,042 NWC (07) = 1, 124,000 – (145,600 + 136,000)= \$842,400 NWC = \$913,042 – \$842,400 = \$70,642. Net Working capital increased by \$70,642. 4. Net income: Δ Net income = (160,176) – 87,960 = - \$248,136 There was a big drop, -\$248,136, in net income during 2008. b) Expansion’s Effect on FCF: FCF (08) = NOPAT – Δ OC = (78,569) – (70,642 +594990) = - \$744,201 The FCF, which reflects the huge investment in the fixed assets (increase of plants capacity, opening a new store). But, the company still has a problem because it is not generating enough cash to sustain its operations. c) Judging from its balance sheet, D’LEON is not paying its suppliers on time because the accounts payable increased by 260% while sales only increased by 76% However, the company could: * Risk of insolvency (the sales increased only by 76%) * Lose its credibility and deteriorate its reputation in the supply chain. * Suppliers can decide to cut off trade with D’LEON. * Negative effect on the vitality of the company and its capacity to develop and invest. * Risk of credit management and debt recovery (Bankruptcy) d) The NOPAT (08) is