Offshore Essay

615 Words3 Pages
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? Looming financial position induced Victor Rice and Conrad Black to convince the governments of Canada, Ontario and the United Kingdom to intervene on Massey’s behalf. Massey approached the Trudeau and Thatcher government for aid in June 1980. Event there was hindrance to bailing out a privately owned multinational firm, their initiative raised the awareness of Canadian government. The Canadian
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