Building a Robust Business - The Card Company Case Study - Business Assignment Help

Assignment Task:

Operational Finance: Building a Robust Business
Peer-to-Peer Assessment (Part II of Final Quiz)
1. General instructions:
Part II of the final quiz is a peer-to-peer assessment. Once you have submitted your own work, you will be asked to review three of your peers’ answers to the same question. The question is worth five points.
In order to earn the full six points, you should develop the following:
1. A short business analysis
2. A brief P&L analysis
3. A brief balance sheet analysis
4. Diagnosis
5. Action Plan
A forecast is also necessary in order to arrive at a conclusion. However, as this was already done in part I of the exam, you need not include it again here.
Please discuss the five points, following the methodology learned in class. (Please see details in the answer key. This document will only become accessible once you have submitted your own quiz.) If your fellow learner uses part but not all of the methodology (for example, they look at Gross Margin and ROS but forget to discuss OPEX), or include some of the six points in lesser detail than indicated in the solution, you can assign partial credit (0.5 points, for example).
If you have any questions or need clarification, please post your question on the Discussion Forum for Week 4 Assignment.
OPERATIONAL FINANCE: BUILDING A ROBUST BUSINESS
For the final exam, please read the case below. The exam is divided into two parts. The first is a multiple-choice section composed of 10 questions based on the Cardbox case. The second is a peer-to-peer review asking you to analyze Cardbox's financial statements, its problem and develop a solution.
CASE: THE CARDBOX COMPANY
In December 2008, Alberto Puig, CEO of The Cardbox Co. was concerned by the severity of the economic crisis that was damaging the sales of the company. “It is imperative that we come up with a different business model if we want to survive this big crisis,” thought Alberto, while at his desk.
Cardbox was a family business, selling paper and cardboard. The business was located in Barcelona, in one of its industrial suburban areas. The distribution channels were two: wholesalers’ distributors and their own webpage. One of the advantages of Cardbox was the immediate availability of a large number of products offered in its catalog. These products could be dispatched in 24 hours thanks to the size of the inventory.
The first year in its history that the company saw a reduction in sales was in 2007 when sales had gone down 8% to 45.8 million euros. In 2008, sales were 42.3 million euros and the prospect was a decrease of 15% in sales in 2009.
Besides the sales reduction, there were more problems. The price of materials had gone up, and customers were looking for extended payment periods. The company had also had an increase in bad debts. In 2008, 1% of the sales would never be paid back (Bad Debts). The company accounted for this loss in the P&L as a cost.
As a result of the condition of the Spanish economy, the banks were cutting down credit lines for most of the customers. In the case of Cardbox, this measure would mean a reduction of short term credit lines in 2009 to 15 million euros, but Alberto did not know if he would be able to do it.
The assumptions for 2009 were the following:
Sales: 85% of 2008 sales.
COGS, purchased goods at acquisition price, were expected to be 82% of sales.
Bad Debts: it was expected that in 2009, 2% of the sales would never be paid back. These Bad Debts would appear in the P&L of 2009 as a cost.
Overhead: 14% of sales.
Depreciation: 10% of last years’ Net Fixed Assets.
Interest Expense is computed as 6% of the sum of Short Term Credit and Long Term Loan at the end of 2008.
Corporate Taxes are 30%. Taxes are paid in June of the following year.
Days of receivables: due to measures taken by the marketing department to increase sales in 2009, it was expected that the receivables period would be 150 days.
The minimum cash balance required for 2009 was 1 million euros.
Days of Accounts Payable. Since industry payment terms were 90 days, this was the objective for 2009. Compute payables on 2009 purchases of 26.306 million euros.
Days of Inventory. On January 1, 2009, the company was planning to send back the merchandise to one of the suppliers at acquisition price. With this sale back and other efficiency measures, the days of inventory should decrease to 170 days.
Fixed Assets. In 2009 Cardbox expects to invest in fixed assets an amount similar to the depreciation of the assets.
In order to reduce the firm’s liquidity tension, Alberto had asked the bank for an additional 2 million long term loan. This loan would be guaranteed by a mortgage on one of the family properties. With this new loan, and after having amortized 400,000 euros, Total Long Term Debt at the end of 2009 would amount to 5 million euros.
The company had not paid dividends for the last three years and was not expecting to pay any dividends in 2009.
Additional information:
To develop the forecast for 2009, you will need the following data for 2010:
The expected sales for 2010 are 40 million euros.
THE expected COGS for 2010 is 82% of sales.
For calculations, consider the years to have 360 days.
Remember: negative taxes in the P&L and in the Balance Sheet are amounts that the Tax Authorities owe the company.

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