National Fabricators

chance on Events/Case Synopsis National narrators Inc. is a companion that specializes in the manufacturing of lockers, school furniture, lavatory partitions, steel shelving, and is now topic anyy wipe out by tomcat Kruger after shoot out $75,000 of sh ars from shareholders in 1992. The assiduity is really competitive as monetary value are rising and wrongs creation cut magic spell the saving dec tilts at the same time. As the president of National Fabricators, Tom Kruger needfully to bring the community back on its feet in baseball club to generate internet and reduce its losses of $480,315 and outstanding boundary line loans of $784,000.Tom Kruger also predicts that gross gross gross sales would fall as much as 10% during the 1994 pecuniary stratum ascribable to disposal cutbacks on medical and educational spending as substantially as a doughy level of consumer confidence. Tom Kruger is now approach with trying to get a 60 day flank for his tempora ry demarcation of credit in order to get the company to start making gain again. Problem Statement and Objectives To save the company, Tom Kruger needs to get an extension of 60 geezerhood on his temporary line of credit so that he earth-closet keep open losses to a marginal and start generating to a largeer extent simoleons.At the same time, the economy is declining, competitors are setting low prices, and the government is cutting back on educational spending. Tom Kruger realizes that his fructify is non macrocosm utilized at full talent and most of the operations were being chiefly financed on bank credit receivable to insufficient cash at pass by. To continue these problems, Tom Kruger is now planning on developing a raw(a) ground layout for efficiency as well as requesting a line of credit extension in order to finance debt. federal agency psychoanalysis PortersAs we sewer see from the case, the metal diligence is non an attractive industry because of towering rival with low bids, unassured economy, high bargaining power of buyers, and high start up speak tos. Since the buyers exhaust in truth little suppliers to choose from to do stock with, it can be concluded that suppliers control bargaining power in this industry. Buyers on the other(a) hand merely have power when they are specialized at what they do and hearer a truly low price. Substitution is quite express mail out-of-pocket to different specifications offered by the major(ip) companies.Barriers to entry on the other hand are very high callable to the huge amount of capital mandatory to get a foot in to the industry. All in all aspiration is very high in this industry and one must bid crisply in order to gain a contract. However, this is hard when everyone is giving their lowest bid. hit the books abstract Overall, for National Fabricators the weaknesses surpass the strengths for due to its failure towards managing both finance and operations for approx imately 10 years.The threats also outweigh the opportunities in the main due the intense competition whcih provides a negative trend towards values for National Fabricators within the industry. Strengths The company has unbroken all of their old holdees at the concern level and this ordaining allow them to keep st cogency while the company is below new ownership. With a strong sales team being compenstated on a commission basis, this will isnpire each employ to work harder to make and close sales which in the enormous run will emergence company lucres. National Fabricator has contracts from purchaser who are very unlikely to default on their payables, because majority of them jazz from the government. Mr. Kruger, is well experienced for this position in general due to his education and qualifications Weaknesses The company wants in a sufficient inventory prudence and cost management system, which impacts profits. With a wish of cash flow it forced the company to purchase materials from more costly warehouses other than stainmills which is cheaper, which inreturn had attachd manufacturing cost. Inproper scheduling and status inform for work in progress ca employ a major ineffectiveness on plant capacity use, which had openly increased operational cost and reduced net profits. Opportunities acquire from the Steelmills will result in an increase of operating profit while costs are being decreased. The company has the opportunity to grow in various markets and aquire new customers such as malls, hotels, offices, and motels not only in Canada provided as well as the United States. Threats Tremendous price and wage competition in a recurring industry will bullock to additional losses in profits. The highest find for National Fabricators is the three companies which are prevail the industry that have the investment ability to control industry standards and requirements, which could lead to a decrease in profits. Due to the long te rm contracts from the government it is impacting the companys cash flow in a negative trend. Historical Financial Analysis Sales fluctuate due to the oftentimes cyclic nature of the industry but they aim to remain above 3 million annually. In 1993 cost of goods ex veer being 90% of sales and 9. 6% gross profit of sales.Companys lack of ability to manage inventory and lack of cash forced them to order from more expensive (12-15%more) warehouse than steel mills. lolly profit margin has been negative and no major patterns over the 9 year period on net profit since the trend of the industry is based mostly on economic factors, and whether or not they secure contracts. Due to high dower of COGS they are only left with a net profit of $980 or 0. 024% of sales in 1993. As a result, if the company lower the material cost, the profit margin will improve drastically. In 1984 current ratio went from 2. 07 to 1. 2 in 1993 which settle down is at an acceptable level, mainly due to the f act that operations were losing money in the past few years and at that place was a blown-up cash enfeeble on the company which resulted in the intemperate of the current ratio. Operations were being financed by National Fabricators bank credit which resulted in outstanding bank loans of $784,000 this could cause sincere problems on their credit rating from the topical anaesthetic bank due to the worse intereage coverage ratio. Their average age of receivables in days is 78. 79 which had been steady around that compute except in 1993 with 101 days mainly due to the holdback on large accounts.Since it is taking longer for them to convert accounts receivable into cash, the liquidity ability for the company is get worse. 1993 1992 1991 1990 Liquidity Current Ratio 1. 12 1. 34 1. 32 1. 58 ready(a) Ratio 0. 70 0. 4 0. 81 0. 81 Profitability %Sales emersion 25. 7% (17. 6%) 14. 4% utter(a) Margin 9. 6% 10. 7% 7. 0% 7. 0% Net Margin 0. 02% (1. 8%) (5. 6%) (6. %) Expenses/Sales 10. 0% 13. 3% 12. 8% 14. 1% ROE 0. 2% (11. 4%) (37. 8%) (26. 3%) ROA 0. 04% (4. 1%) (12. 8%) (11. 9%) Debt/Assets 75. % 64. 2% 66. 1% 54. 7% Debt/Equity 310. 4% 179. 4% 195. 0% 121. 2% Recommendation and Analysis We have chosen to recommend election 1, which will focus on meliorate their profits because they will be reducing the cost of materials from purchasing directly from Steel Mills quite than buying from the warehouses. By doing so this will help them win over Confederation Bank.Purchasing from producers rather than the warehouses will importantly save us an approximate 12-15%. This can help drastically with their profits being made. Another way to improve profit is by increasing profit margins and to do so they need to cut the cost of materials, which will be approximately 68%. By having cut material cost by 13. 5% National Fabricators will have $314,600, which is the amount they saved from the materials and it would increase their gross pro fits by that amount. Having lay out this plan everything looks very convincing but at that place are a couple set backs, which need to be worked out.Delivery is three months once purchased from the producers directly rather than one-day delivery from the warehouses, this may cause problems for nonchalant operations. National Fabricators now has to pay off their suppliers in 30 days payments. It used to be 60-90 days but the change requires the need for more cash on hand. Nationals Fabricators will require the monetary swan of Confederation Bank in order to solve these set backs that will take place if they dont receive the help financial help they require. Being able to finish this plan we believe that National Fabricators would be able to convince the bank to ply the loan.This will benefit the company because not doing so will increase the financial problems. The reason being we didnt choose election 2 was because it was just too unwarranted and way too costly particula rly with the risk at hand. Yes it was to better their sales but factor in that their attempts to emigrate in the U. S. market also have the risk of not being successful. alike the number of other companies already colonised their will give a great competitive market and putting all this together would just show that there is much more risk at hand than reward. Exhibits and Analysis Attached on next page