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Toy World

Financial Management
15 March 2011
Group G

Sameer Duggal
Charbel Abi Ghanem
Anne Gilheany
Alessandro Procaccini
Antonio Razetto
Chloé Tuot

It is also important to note that Toy World´s current production process has no associated costs with storage and inventory. reduce spending on overhead and labor costs. the following arguments can be presented to demonstrate Toy World’s financial viabilities: . 2 . would result in an overall increase in net profits of 171. and inefficiencies exist due to frequent set up changes and scheduling confusions.000 USD (see Exhibit 3).Toy World’s increased profits in 1994 will allow the company to be a better customer to the bank (debt to equity for 1994 will change from 0. leading to high overhead costs. Recommendations: We recommend that Toy World’s production processes be evenly leveled throughout all 12 months of 1994 (see Exhibit 4). The company is able to accurately forecast sales of its merchandise for the coming 12 months. which will consequently require an augmentation of the credit line offered to Toy World by the bank.5 months followed by heavy usage. Although significantly higher than the line of credit initially offered. forecasted production volumes for 1994 depict near full capacity of equipment usage. rapidly growing company that is exploring ways to modify its current seasonal production process in order to reduce inefficiencies in machinery usage.Problem: Toy World is a profitable. forecasted sales for 1994 are 2 million more than those achieved in 1993. Toy World will need to request an increased line of credit from the bank (from 2 to 4 million USD – see Exhibit 2). training of additional workers and quality control measures. Conclusion: A modification of Toy World´s production processes.3. due to near equal monthly production and sales amounts. Moreover. we also recommend that Toy World increase its account payables cycle from 30 days to 40 days in September to ensure the credit line for September remains under 4 million. Analysis: Toy World has several strengths and challenges that are important to take into consideration: Strengths Toy World is a rapidly growing company that enjoys a positive relationship with its customers. and ROE will increase from 10% to 14%) . and generally increase its net profits in order to remain competitive in an increasingly crowded market. These changes would lead to an increase in working capital requirements (see Exhibit 5). the bank has offered a credit line of up to 2 million USD. Exhibit 2 shows that it remains unutilized for 60 days (January and February) Moreover. Based on the profitability and stability of the company prior to 1993.The bank’s requirement of keeping the credit line off the books for 30 days is achieved in Toy World’s financial plan. among other factors. Seasonal production processes currently leave machinery idle for 7. as evidenced by its continued excellent experience in collecting account receivables between 30 and 60 days. Toy World also incurs high labor costs related to overtime wages. Challenges Toy World is facing several challenges related to its equipment usage and availability.4 to 0. as the improved efficiency in machinery usage and lack of reliance on additional workers during peak seasons will allow for significant cost savings (see Exhibit 3). To achieve this. largely due to new product lines of toys.The security package offered (line of credit secured through increased account receivables and inventory) is more than enough to cover the usage of 4 million (see Exhibit 6) . from seasonal to even monthly production.

Exhibit 1 Exhibit 2 3 .

Exhibit 3 Exhibit 4 4 .

Exhibit 5 Exhibit 6 5 .

6 .