Spartech Corporation (Financial Analysis) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction:

Spartech Corporation started its business in 1960 after the efforts of eight years it got the status as a company in 1968 in the state of Delaware.The company use to converts base polymers or resins purchase from commodity suppliers into extruded plastic sheets and roll-stock, thermoformed packaging, especially film laminates, acrylic products, especially plastic alloys, color concentrates and blended resin compounds. It uses to sell its most of the products to original equipment manufacturers and many other end customers in the wide range.

In 2009, it sold its wheels and profiles business and closed and also it had liquidated its three businesses that includes manufacturing of boat components that sold to the marine market along with one compounding along with one sheet business that used to service the single customers.

Analysis:

The analysis is based on the current results of the company, i.e. 2009 and 2010 and future estimation by consideration the company decisions and current results. In this report, there is a detailed financial analysis in which firstly the common size, finances are calculated and then finally ratio are calculated to better access the current financial situation of the company. The management discussion is also analyzed to better assess the future implications of the decisions taken by the management of the company. The detailed analysis is given below.

Common size income statement:

The company’s sales declined from 2008 to 2009 and then it has increased in 2010 with a little increment in sales percentage. The cost of sales is 91.2% for 2008, 87.45% for 2009 and 89.38% for the years 2010. The cost of sales efficiency increased in 2009 but it declined in 2010 due to the change in equipment and a restructuring in machinery to get operating efficiency in the future years. The company has a valid reason for the increase in cost of sales, therefore a little inefficiency can be ignored on the basis of continuous improvement in the cost of goods sold (Appendix 1).

The administrative expense has increased in a high percentage as compared to 2008 and 2009. The increase shows that the administration is not efficient because the sales are declining but the administration expense is increasing.The administrative expense has increased to 8.69% in 2010 from 6.67% in 2008 (Appendix 1).

The total operating expense of the company is around 106% in 2010 and 97% in 2009. The operating expense is very high as the company shows a net loss before going forward to pay any interest expense. The interest coverage ratio is low therefore the company may not survive for the long term if this situation continues in the future years (Appendix 1).

The company earned a net operating profit of 0.36% in 2009 and a net operating loss of 4.85%, the losses have occurred due to the high cost of goods sold, administration expense and other operating expenses (Appendix 1).

Common size balance sheet:

The current asset ratio has increased from 38.73% in 2009 to 44.8% in 2010. The company’s current assets are increasing due to the receivable and the inventory items, these both items have increased substantially and it has also increased the net figure of current assets in this case (Appendix 2).

Spartech Corporation (Financial Analysis) Case Solution

The decline in non-current assets are analyzed due to the goodwill figure that has declined substantially. The reason for the decline is that the company has sold some of its subsidiaries and the sale of subsidiaries effect in the sale of all assets and liabilities therefore the goodwill must be written off from the finances of the parent company and another reason can be the impairment of goodwill that can affect the profitability of the company.

However,the long term liabilities have declined along with the net current liabilities, but the only item that has increased in the liabilities is trade payables. The company cannot meet the payment criteria of its trade payable because the purchases had not increased by a high percentage as compared to the increase in trade payables percentage (Appendix 2).

The retained earnings and total equity have declined due to the operating losses of the company in the year 2010.

Common size cash flows statements:

The company has generated the positive cash inflows from its operating activities. The reason behind such positive result is the goodwill impairment expense and depreciation expense. The goodwill of the company has impaired above $56 million as if the impairment has not occurred, then the company has earned a net operating profit from continued operations..............

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