Ef33232 Essay

319 Words2 Pages
EF4313 - Individual Case Questions: “Massey-Ferguson, Ltd. (1980)” You are responsible for handing in written answers to the following questions drawn from the Massey-Ferguson case. You can work with others on this assignment, but each individual must hand in their own set of answers. 1. Net sales for Massey-Ferguson actually increased between 1979 and 1980. Despite this, net income and income from continuing operations both dropped sharply in 1980. Which item on the income statement was most responsible for this drop in income? Net income dropped significantly from U.S. $37 millions in 1979 to -U.S.$225.2 millions in 1980 attributed to the two factors. The most crucial factor was the rise in cost of goods sold. In 1980, with the influx of North Sea oil, the pound appreciated strongly relative to currencies in which Massey sold its products. Lack of alignment between production sites and market also lead to currency losses. As engine production was heavily concentrated in the United Kingdom, strong British pound increased Massey’s cost of goods sold from U.S.$2381.8 millions in 1979 to U.S.$2568.5 millions in 1980 and hurt the profit margin. Another factor was high interest rate .From the income statement (Exhibit 2), it illustrated that the interest expense rose from U.S.$128.8 millions in 1979 to U.S.$229.9 millions in 1980 despite the improvement of net sales. The high interest rate of 1979 and 1980 had a negative impact on Massey’s sales performance. The cost of short-term debt and expense rose dramatically. High interest rate depressed the market and decreased the demand of farm and industrial machinery which shrank the company sales. 2. Why would the Canadian government have any interest in helping Massey-Ferguson refinance its debt? 3. Why would it be difficult for Massey-Ferguson to conduct an equity issue to pay down its
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