Memorandum Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Memorandum Case Solution

The case memo assesses the issues faced by Strong-Tie LTD and evaluates whether the financial statements of the organization reflects the business core strategies. In addition, the memo evaluates the financial position of the business, illustrates the profitability growth model and provides appropriate solutions to the organization to improve financial performance and business sustainability.

Assessment:

Strong-Tie Ltd is a leading manufacturer of customized structural connectors used in construction projects. The organization is a family-owned business incorporated in the year 1945 by Bill Johnston and is headquartered in Winnipeg, Manitoba. The business model of the organization comprises of the highly automated production process and manufacturing products on the inputs from architects, draftsmen and builders thus, the organization achieves competitive advantage in product design capability and provision of innovative products.

The organization faced strategic issues in the year 2008 as the net profit of the organization reduced to 7 U.S. dollars from 954 U.S. dollars in the year 2007. The net profit of the organization reduced due to intense price competition in the region mainly from China which made it difficult for the organization to maintain a low operating cost. Additionally, the demand for customized connectors offered by the organization was also declining due to the increased number of competitors which includes Universal Connector and five Chinese producers.

In order to maintain a competitive position in the market, the organization required significant funds for investing in factory automation, construction of warehouses and operational efficiency. Therefore, the organization financed the investments through a revolving credit agreement with the Bank of Nova Scotia which required the organization to maintain a current ratio of 1.5, a cash flow coverage ratio of minimum 1 percent and debt to total capitalization ratio of maximum 40 percent. However, considering the low net income of the organization, the CEO faced concerns in relation to future financing needs and business sustainability.

Strategic Analysis:

The organization‘s inventory management strategies involve employing a just in time system to reduce holding cost, raw material, work in progress and finished goods inventory levels. It is assessed that the companies that employ just in time ratios have higher inventory turnover days as compared to the industry average which is reflected in the average raw material, work in progress and finished goods inventory turnover of 39.9,4.2 and 53.2 days which is higher as compared to industry average turnover days (Annexure, Excel).

In addition, the depreciation and administration expense of the organization has significantly increased in the last years due to significant investment in factory automation. In addition, the organization pays annual salary worth one million U.S. dollars to their daughters which are reflected by significant administration cost and is believed to be the main cause of declining net profit margin.

Moreover, the organization offers its products at a premium price as compared to the competitors due to its industry leadership which is reflected by the fact that the accounts receivable days of the business are significant as compared to the industry average receivable turnover of 63 days.

Industry Concerns:

The primary concern for the organization operating in the relevant industry line comprises a decline in the demand of the industry due to rising metal prices which was the main component in the connector production process. In addition, the U.S. construction industry declined due to significant competition from the Chinese producers who offered services and products at many affordable prices.

Considering, the declining demand for the construction industry and poor financial performance of the business, the construction industry was concerned regarding the financing of business operations in order to remain competitive in the industry. The construction industry declined as the housing prices in the U.S. were at a peak in the year 2006. As a result of depleting profit margins and a decline in demand, the reinvestment potential of the organizations operating in the relevant industry required for updating business processes and technology was reduced.

Financial Analysis:

The short term liquidity position of the organization was healthier as compared to the industry average as the organization’s current and cash ratio was evaluated to be 4.53 and 1.54 times as compared to industry average cash and a quick ratio of 4 and 0.5 times respectively. This suggests that Strong Tie Ltd has adequate cash available to pay off its short term liabilities and meets the financing terms of the Nova Scotia Bank.

In addition, the debt to equity ratio of the organization has increased to 38 percent in 2008 as compared to 33 percent in 2007 which suggests that additional loan was borrowed to meet working capital requirements and factory automation. The debt to market capitalization ratio is greater than the industry average debt to equity ratio of 35 percent thus, indicating that borrowing finance to fund future needs might be difficult for the organization as Nova Scotia will withdraw the provision of financial support if the solvency ratio exceeds 40 percent. Moreover, the declining interest cover ratio of the organization suggests that the business does not generate sufficient profits to pay off its interest expenses.............................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Memorandum Harvard Case Solution & Analysis