Setting is early 1988 Friendly projecting a 20% increase in sales next year and even...
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Setting is early 1988 • Friendly projecting a 20% increase in sales next year and even larger increase in earnings Over 100 companies in industry - 3 dominate; of these 3, 2 are publicly traded - American Greetings and Gibson while Hallmark is privately held Total number of firms had declined about 15% per decade over last 30+ years All firms had to deal effectively with fixed costs • Significant capital tied up in inventory • • Managing distribution costs was critical to financial success Business was seasonal but "everyday sales" had increased to 50% of total industry sales Wendy Beaumont founded Friendly in 1978 Took company public in 1979 at $3/share Manufactures full line of cards o 30% of revenue was Christmas sales 25% of revenue was Valentine sales O o Balance of revenue was everyday sales and spring holiday sales o Customers were generally cost-conscious Company plant located in Reading, PA o Operating at capacity o Handled all design, printing and packaging o Printing could be handled by outside printers if necessary Business was capital intensive Line of credit currently totaled $6.25 million and was priced at 250bp above prime (currently prime was 8.5%) • Peak ($9.0 million) borrowing need was in December and January; low point was April (50% of peak) Banks urging Friendly to seek additional equity capital Questions To Be Answered Ms. Beaumont has posed the following 3 questions to her friend and consultant, Ms. McConville: 1. Should Friendly invest in equipment to enable the company to make- rather than buy-its envelopes? 2. Should Friendly acquire Creative Designs, a small Midwestern manufacturer of studio cards? 3. Should Friendly go to market to raise additional equity to relieve the pressure on its financial position? Setting is early 1988 • Friendly projecting a 20% increase in sales next year and even larger increase in earnings Over 100 companies in industry - 3 dominate; of these 3, 2 are publicly traded - American Greetings and Gibson while Hallmark is privately held Total number of firms had declined about 15% per decade over last 30+ years All firms had to deal effectively with fixed costs • Significant capital tied up in inventory • • Managing distribution costs was critical to financial success Business was seasonal but "everyday sales" had increased to 50% of total industry sales Wendy Beaumont founded Friendly in 1978 Took company public in 1979 at $3/share Manufactures full line of cards o 30% of revenue was Christmas sales 25% of revenue was Valentine sales O o Balance of revenue was everyday sales and spring holiday sales o Customers were generally cost-conscious Company plant located in Reading, PA o Operating at capacity o Handled all design, printing and packaging o Printing could be handled by outside printers if necessary Business was capital intensive Line of credit currently totaled $6.25 million and was priced at 250bp above prime (currently prime was 8.5%) • Peak ($9.0 million) borrowing need was in December and January; low point was April (50% of peak) Banks urging Friendly to seek additional equity capital Questions To Be Answered Ms. Beaumont has posed the following 3 questions to her friend and consultant, Ms. McConville: 1. Should Friendly invest in equipment to enable the company to make- rather than buy-its envelopes? 2. Should Friendly acquire Creative Designs, a small Midwestern manufacturer of studio cards? 3. Should Friendly go to market to raise additional equity to relieve the pressure on its financial position?
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Related Book For
Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave
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