Accomplishing both of these would require an increase in long-term debt of about $1.8million dollars based on calculating Alliance’s external financing need. The investment of the $16million in capital expenditures should be given priority as the potential cost and loss of sales due to a failure of Alliance’s fixed assets would serve to erode the value of Alliance to its owner National as well as make Alliance a greater credit risk for the institutions who own its outstanding debt. An example of the type of financial harm that could be caused by a malfunction of Alliance’s plant and equipment was demonstrated in 2004 when Alliance experienced an earnings decline of nearly 6.5% despite revenues increasing by over
CRITICAL ISSUES * lack of smart and strong decision making because of owner and CEO’s different perspectives/priorities * sales have increased, but profitability have decreased * ineffective management of A/P and A/R have made the company insolvent * may lose loans because bank requires current ratio of 1.25 SITUATION ANALYSIS The major decisions for the company are taken by the owner rather than the CEO. The owner lacks business sense and his decisions are based on emotional feelings, not for the benefit of the company. The owner is not willing to outsource operations and wages are above industry average. From 2001 to 2005 sales have increased by 186%; whereas, COGS and selling and admin has increased by 199% and 166% respectively. High operating expenses and ineffective management of A/R have led the company to insolvency by demonstrating a quick ratio of 0.38.
Let’s first look at the repercussions of FPL maintaining their 47 year streak, increasing the dividend as usual. This is the most unlikely scenario given that FPL’s current payout ratio is 1.07 while the industry average is 0.8. By tying up its cash flows in dividend payouts, FPL is currently unprepared to face the increased competition that is sure to come from industry deregulation. This would not bode well for future profitability and value to investors. Recommendation Kate Stark should change her previous “hold” recommendation to “sell”.
Case Recommendation Altoona State Investment Board: December 2008 By Yuwen Chen Question Asked in the Case: Altoona State Investment Board (ASIB) is a limited partner (LP) in Permira’s fund Permira IV. In the third quarter of 2008, ASIB suffered from a substantial loss from the public equity and hedge fund positions and faced to a potential loss on its private equity investments. In December 2008, Permira offered ASIB a chance to reduce its commitment, 100 million Euro, to Permira IV. However, this offer would allow state pension to address its “over-commitment problem”, which appeared to be quite punitive to those investors who accepted the term. As a consequence, the over commitment problem would eventually increase default risks of LPs.
Since these options are not recommended, they should reduce their capital spending instead and this is what the board decided to do eventually. Pan Europa had a debt-to-equity ratio of 125% and they had relied heavily on debt financing during the price wars. Now that this period was over, they should focus on the amortization of this accumulated debt and try and bring down the debt-to-equity ratio to an acceptable figure. Pan Europa’s sales had been pretty static since 1990 and some reasons for this were low population growth and market saturation. Even new product introductions had failed for them.
Yet, it was a risky project since the investors can benefit and earn a margin from the difference between the purchase price and trading value when the currency appreciates; while they may also suffer great loss when the currency drops below the purchase cost. In this incident, as the derivatives contracts it purchased did not had clear limits on the maximum loss amount, when the Australian dollar kept falling sharply starting from August 2008, its value even dropped below the purchase price, leading to heavy loss to Citic Pacific. 2. Drop in Stock Price and Loss to Shareholders When Citic Pacific disclosed the extent of the loss, its stock price declined by HK$8 (US$1.03), or 55.1%, to HK$6.52 (US$0.84), which was 85% off their high for 2008. The wealth that the Citic Pacific shareholders lost would be the declined stock price multiplied by total number of shares, that is HK$8 X 2,194,148,000 = HK$17,553,184,000 (US$2,250,408,205).
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.
This meant that the risk was issued at investment grade but now was not backed by valuable assets of the companies which were to be spun off to MI which was to be backed by equity. The value of the bonds would decline substantially and the bond holders would loose a lot of their investment. c) Management(The Mariott brothers) The management gains from the spin off since it is able to split its distressed assets from the profit driving assets and there was a new company which was not under distress thus helping them retain their management positions and start from scratch. They can concentrate on core businesses thus improving efficiency and value. d) The value of the
Because of the ever-changing character of the industry reality, any industry is likely to find its structures and skills progressively less attuned to the market expectations. (Hammel & Prahalad, 1994) Restructuring is a corporate management process, which aims at reorganizing the operational, legal, and ownership structures of a given firm. The purpose of such a process is to increase both the firm’s profitability and its internal organizational dynamics (Froud, Johal, Leaver, & Williams, 2006) . The main reason behind a company’s restructuring is the need to successfully respond to a crisis or competitive market, and to consequently improve competitiveness and profitability, as well as shareholders’ wealth (Jensen & Meckling, 1976). Depending on the type of restructuring activity, extended market expansion and potential high growth may not become impossible for a mature and cyclical product market
Marriot Case Study Financial Policy, Professor Thorsten Truijens Jana Jauffret, Moari Avancini, Julian Gole, William Dottax, Toba Horombo EMBA; Geneva University 12 Q1. MC is experiencing a difficult period due to the real estate market crash in the late 80’s, which lead to a sharp drop of income in 1990 ($47 million). In its attempt to readjust to the economic downturn which followed the real estate crash, MC restructured and sold off unprofitable businesses. The cost of restructuring was high, leading to a depletion of cash and followed by important loan payments. The policy of reducing debt made MC leave the company with just $36 million cash which was well under the number of 1990 ($283 million cash ).