COMM 371, Lecture six
COMM 371, Lecture 7
Lecture six: Financing Periodic Needs - Toy Community, Inc. • Objectives: • To understand the pattern of current possessions and cash flows in a company with seasonal sales, and how these are generally affected by the choice of production program • To comprehend the trade-off between earnings versus risk and fluidity in picking between level and seasons production • To practice the mechanics of basic financial analysis What exactly is it that we are trying to help Mister. McClintock with? Case Information • Highly seasonal revenue (80% of sales between August and November) • Current production follows sales, and thus is highly seasonal. • Question: if the company soft production within the year? • Examine pro-forma monthly declaration of cash goes for 1994, constructed with foundation on pro-forma tables through company
COMM 371, Spiel 7
COMM 371, Address 7
That which we will do • Assess Doll World's need for external funding under it is current (seasonal) production plan. Discuss the timing, magnitude, and life long borrowing requires, and risk. • Assess Toy World's need for external financing beneath the proposed level production prepare • Conceptual discussion • The mechanics of organizing the pro forma cash flow statement and balance sheet • Would a bank always be likely to give you the financing important under the easy production program? • Might you recommend re-homing of the level production program? • Cost savings versus risks
The Current (Seasonal) Production Strategy Production is around equal to product sales (production reacting to consumer orders). Price and benefit for the periodic production plan: • Products on hand • Inventory is minimized and the money necessary to financing inventory is definitely minimized. • Inventory risk is reduced. • Costs • Overtime premiums in high season (reduces profits) • Trouble scheduling creation runs & shorter development runs • Fixed capital is underused part of the yr and then run to capacity • Seasonal loans...