Case Study Drivers of Industry Financial Structure

Case Study Drivers of Industry Financial expression Executive Summary KR+H is a manufactory social club in cabinet industry and it had devised a unique operating dodging of producing high quality use cabinets at a low exist. Because the enthronizations forget prune damages and increase the working efficiency in manufacturing process. And the depth psychology forget show that adding enthronisation is valuable and profitable. Based on KR+Hs past fiscal performance and the cost of investment, KR+H would need additional support to fund the proposed capital investment.The natural funding could be truly difficult for KR+H ground on it had a deficit in 1992. And internal financing whitethorn in like manner slow down the investments because KR+H has to retain its profit. as well as rising the price is not a very good filling in a long perspective. Because it could retard their growth and therefore did not represent a feasible path to a long-term profitability. So we suggest that KR+H should finance the proposed capital by relying on external financing from a bank or an outside investor. ContextKR+H is a manufactory troupe that designs,fabricates and installs high quality, uniquely designed cabinetry. forthwith it had devised a unique operating strategy of producing high quality custom cabinets at a low cost. KR+H believes that the use of computer-controlled equipment allowed the fast to significantly reduce their labor cost and other production cost while change magnitude the efficiency of the manufacturing process. In sound out to support the tuition if their innovative operating system, KR+H need to clearly assign the scope and speed of growth for their business.However, the partners do not have internal funds to finance the investment and their access to external capital markets is limited. thereof KR+H needs a better operating and pecuniary strategy to managing rapidly growth and its capital. I think the article repeat advantage in a downturn is very helpful. Many companies neglect to see the opportunities hidden in economic downturns. In order to fasten on advantage of opportunities, KR+H first need to do a thorough but rapid assessment of its own vulnerabilities and then excise decisively to minimize them. David and Daniel, 2009) KR+H could approach their problem by using some of those steps introduced in this article such as Monitor and maximize its cash position 1. Evaluating the capital position In the cash flow statement Exhibit 6, the net decrease in cash by $15,298 in 1991 and $46,955 in 1992. In order to chance cash requirement during 1992,KR+H gets a personal loan around $35,000 and the bank overdraft to cover its deficit about $14,000,which shows us that KR+H are short of cash during the past yrs and it gets worse. The total sweetening of the new investment will be crime syndicate Cost exact in Capital $300,000 $100,000(developing in 2 years) Software $25,000 $30,000 (maintain & update per year) trade $40,000 Based on KR+Hs past financial performance and the cost of investment, KR+H would need additional financing to fund the proposed capital investment for sure. 2. Adding investment is valuable and profitable I think the proposed projects are profitable investments and it will add values. Because the investments will reduce costs and increase the working efficiency in manufacturing process Category Number Increase production capacity 50% Labor cost saving per year $170,000 Another fact is that on a pro forma basis, KR+Hs cost of goods sold in 1990, the year before merged is approximately 60% of gross revenue. In 1991,the percentage is increase to 67% and in 1992 the year after the merger the percentage bloom to almost 75%. It shows us that some unanticipated cost increasing rapidly while the revenue is rising. If KR+H could adopting the new investment it would make its production more efficiently and the technique may in like manner save some cost of goods. In addition, the cabinet industry go through a decline in efficiency in 1992. Firm coat Sales per work Compare to 1991 Large $120,000 gain 9% middling $84,000 decline 11% Small $80,000 off 2% KR+H could gain a long-term rapid growth in sales by first adopting the new technique and the improvements in production efficiencies will give KR+H more advantages in sales. There is no doubt that the investment will increase the operating leverage and also increase risk. In Exhibit 9, with investments KR+H will per year saving $207,900. Therefore, adding the investment is very profitable. And also rising the price is not a very good option in a long-term perspective. Because it could retard their growth and therefore did not represent a viable path to a long-term profitability. I think KR+H finance the proposed capital by relying on external financing.Because the internal financing could be very difficult for KR+H based on it had a deficit that was covered with a personal lo an to company about $35,000 by a partner and a bank overdraft $14,000 in 1992. And internal financing may also slow down the investments because KR+H has to retain its profit. The investors wouldnt want a low bear just because the firm wants to invest. Thus, external funding will be a better choice. Ratios In 1992 and 1993, exhibit 4 Year Return on Sales Return on Equity 1992 2. 1% 21% 1993 8. 3% 98% Besides this, KR+H also is profitable in 1992 and assume that it will have 10% growth rate. Meanwhile, with the investments could save KR+H about $209,900 each year.Those profitable data in its financial performance will help KR+H to get a loan from a bank or other outside investors. outcome KR+H has its new investments developed and they focus on diminution by continuing to increase the level of automation in the process. And this investment is valuable and profitable. Based on KR+H had performed not very well in their cash flow in the past 3 years. The company also troubled wit h limited access to the capital market. Therefore, it is unavoidable for KR+H to get external financing in order to maintain its revenue and get a rapid growth. References Robert C. Higgins(2012), Analysis for financial management David Rhodes and Daniel Stelter(2009), Seize advantage in a downturn