National Fabricators

Key Events/Case Synopsis National Fabricators Inc. is a company that specializes in the manufacturing of lockers, school furniture, toilet partitions, steel shelving, and is promptly legitimately owned by Tom Kruger after buying fall out $75,000 of shargons from shareholders in 1992. The effort is very competitive as hail are climb and prices existence cut while the economy declines at the same time. As the president of National Fabricators, Tom Kruger needs to bring the company howevert on its feet in dictate to generate internet and reduce its losings of $480,315 and outstanding bank loans of $784,000.Tom Kruger also predicts that sales would fall as oft as 10% during the 1994 fiscal year delinquent to politics cutbacks on medical and educational spending as advantageously as a sluggish direct of consumer confidence. Tom Kruger is now faced with trying to draw a bead on a 60 day indication for his temporary line of acknowledgment in crop to get the company to come to the fore making gain grounds again. Problem Statement and Objectives To save the company, Tom Kruger needs to get an extension of 60 long time on his temporary line of credit so that he can keep losses to a minimum and start generating more profits.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 picturet is non cosmos utilized at full capacity and most of the operations were being primarily financed on bank credit cod to stingy hard cash at hand. To address these problems, Tom Kruger is now planning on developing a new plant layout for efficiency as well as requesting a line of credit extension in format to finance debt. Situation psychoanalysis PortersAs we can see from the case, the metal constancy is not an attractive industry be arrange of senior high competition with low bids, temporary economy, high bargaining power of buyers, and high s tart up make ups. Since the buyers vex very little suppliers to choose from to do business with, it can be concluded that suppliers have bargaining power in this industry. Buyers on the new(prenominal)wise hand only have power when they are specialized at what they do and offer a very low price. Substitution is kind of limited due to different specifications offered by the major companies.Barriers to entry on the other hand are very high due to the massive amount of money of capital needed to get a foot in to the industry. All in all competition is very high in this industry and one must bid aggressively in order to gain a contract. However, this is hard when everyone is giving their lowest bid. SWOT Analysis Overall, for National Fabricators the weaknesses outweigh the strengths for due to its failure towards managing both finance and operations for approximately 10 years.The threats also outweigh the opportunities largely due the aggravated competition whcih provides a ne gative trend towards profits for National Fabricators at bottom the industry. Strengths The company has kept all of their old employees at the management level and this get out allow them to keep stability while the company is downstairs new ownership. With a strong sales team being compenstated on a commission basis, this entrust isnpire each employ to work harder to get up and close sales which in the long run will affix company profits. National Fabricator has contracts from purchaser who are very incredible to default on their payables, because majority of them come from the government. Mr. Kruger, is well experienced for this function mostly due to his education and qualifications Weaknesses The company overlooks in a enough inventory management and cost management system, which impacts profits. With a deficiency of cash flow it forced the company to purchase substantives from more costly warehouses other than Steelmills which is cheaper, which inreturn had acc essiond manufacturing cost. Inproper scheduling and status reporting for work in hop on caused a major ineffectiveness on plant capacity use, which had openly increased operating cost and reduced net profits. Opportunities Buying from the Steelmills will result in an increase of operating profit while costs are being decreased. The company has the opportunity to grow in heterogeneous markets and aquire new customers such as malls, hotels, offices, and motels not only in Canada but as well as the United States. Threats Tremendous price and wage competition in a recurring industry will drop dead to additional losses in profits. The highest encounter for National Fabricators is the three companies which are dominating 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 terminus contracts from the government it is impacting the companys cash flow in a negative trend. Historical Financial Analysis gross revenue fluctuate due to the frequently cyclic nature of the industry but they aim to go along above 3 million annually. In 1993 cost of goods sold 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. Net profit border has been negative and no major patterns over the 9 year menstruum 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 percentage 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 set about the material cost, the profit margin will improve drastically. In 1984 current ratio went from 2. 07 to 1. 2 in 1993 which still is at an acceptable level, in the main due to the fact that operations were losing money in the past fewer years and there was a large cas h drain on the company which resulted in the lowering 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 serious problems on their credit rating from the local bank due to the worse intereage coverage ratio. Their average age of receivables in days is 78. 79 which had been steady around that number except in 1993 with 101 days mainly due to the holdback on large accounts.Since it is taking longer for them to convince accounts receivable into cash, the liquidity ability for the company is getting worse. 1993 1992 1991 1990 Liquidity incumbent ratio 1. 12 1. 34 1. 32 1. 58 Quick Ratio 0. 70 0. 4 0. 81 0. 81 Profitability %Sales harvest-festival 25. 7% (17. 6%) 14. 4% Gross 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%) (1 1. 9%) Debt/Assets 75. % 64. 2% 66. 1% 54. 7% Debt/Equity 310. 4% 179. 4% 195. 0% 121. 2% good word and Analysis We have chosen to recommend alternative 1, which will commission on improving their profits because they will be reducing the cost of materials from purchasing nowadays from Steel Mills rather than buying from the warehouses. By doing so this will help them convince Confederation Bank.Purchasing from producers rather than the warehouses will significantly 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 profits by that amount. Having laid out this plan everything looks very convincing but there 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 daily 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 financial support of Confederation Bank in order to solve these set backs that will take place if they dont take the help financial help they require. Being able to execute this plan we believe that National Fabricators would be able to convince the bank to conk out the loan.This will benefit the company because not doing so will increase the financial problems. The reason being we didnt choose alternative 2 was because it was serious too risky and way too costly especially with the risk at hand. Yes it was to better their sales but factor in that their attempts to move in the U. S. market also have the risk of not being successful. Also the number of other companies already settled their will lead a great competitive market and putting all this in concert would just show that there is much more risk at hand than reward. Exhibits and Analysis Attached on next page