STRATEGIC FINACIAL ANALYSIS AND DERIVATIVES

CASE STUDY PRESENTATION: TOY WORLD INC.

PRESENTED TO :

SIR SOHAL SAWANI

PRESENTED BY:
1. Erum Abdul Jabbar 20171-23173
2. Mariam Tariq 20211-29668
3. Muzzammil Naeem 20171-22306
4. Syed Hassan Ahmed Naqvi 20121-14135
 COMPANY BACKGROUND

1. Plastic toys manufacturing

4. In 1993, Dan Hoffman was hired
company founded in 1973 by as the production manager
David Dunton and Jack
McClintock

2. Originally a partnership,
incorporated in 1974 with Mr. Dunton
holding 75% and Mr. McClintock
holding 25% of stock
5. Mr. Hoffman worked in the plastic
plant of a large diversified chemical
company and had a familiarity with
plastic manufacturing

5. In 1991 Mr. McClintock assumed presidency

due to the health conditions of Mr. Dunton
 PRODUCT PORTFOLIO

Product groups include toy cars, trucks,

construction equipment, rockets, spaceships
and satellites, musical instruments, animals,
robots and action figure.
 OBJECTIVE

To accept the proposal to adopt

level monthly production for the
coming year.
 INDUSTRY ANALYSIS
Design and price fights
Short lived products due to
changing popularity and similar
products offered by competitors

Highly competitive market Product innovation

There were total 11 competitors Strong dependence on the
in the toy industry. invention of the next popular toy

Foreign Manufacturers
Low entry barriers Import of cheaper plastic toys by
• Simple production process foreign manufacturers with
and low capital requirements lower labor costs
• Many competitors
 FINANCIAL PROFILE

• Net sales around $6.1 M

• Net profit $ 82,000

1991 1993

1992
• Net sales around $5.2 M • Net sales around $8 M
• Net profit $ 244,000 • Net profit $ 270,000
• Year End Cash Balance was
$200,000
FINANCIAL STATEMENT
 FINANCIAL ANALYSIS

DECREASE IN PROFIT FOR 1992 OUTSTANDING LOAN 1993

• Entrance of new competitors
• Operating Expenses
Increased.

$752,000

PROJECTED SALES 1994

• Projected Net sales around $ 10 M. REASONS
• Net profit of $351,000 • Introduction of new products.
• New Production plans.
 COMPANY GROWTH

Over 80% of annual dollar

04 volume was usually sold from
August to November .
The COGS had averaged
70% of Sales in the past
and was expected to
maintain roughly that
proportion in 1994 under
seasonal production.
02
05
Quoted collection period
was 30 days but
customers usually took
03 60 days to pay.

Rapid Growth since its

foundation in 1976.
01 Expanding Operation had
somewhat strained Working
capital position for Toy World.
 LOAN AND ITS CONDITIONS

The bank was willing to

extend the credit line to $2
Million.

The company had

periodically borrowed Loan would be completely paid
from its primary bank, off the books for at least 30 day
CITY TRUST COMPANY, d a period during the year and
on an secured line of would be secured by accounts
credit. receivable and inventory.

Interest would be 9% and

A loan of $ 752,000 was if the loan exceeds $2
d Million it will be subject
outstanding at the end
of the year 1993. to further negotiations.
 PRODUCTION PROCESS

Plastic Molding Powder, the principle raw Purchases on net 30 days were
material, was processed by injection made weekly in amounts
molding press and formed into shapes necessary for estimated
desired. production in the coming week.

The toy sets were then

assembled and packaged in Total purchases in 1994 were
cardboard cartons or plastic forecast at $ 3 Million.
bags

All runs begin were completed The production manager

on the same day so there was believed that the company
no work in process at the end of would be able to hold capital
the day. expenditures to an amount
equal to depreciation during
next year.
 PLANT AND LABOR UTILIZATION

Work force is highly expanded

The first bulk order for from August to December to
Christmas comes in August. meet the sales.

Overtime premiums amounted

25% to 30% capacity was used to $185,000 in December 1993.
from January to July due to low
orders.
 PROPOSED CHANGE TO LEVEL PRODUCTION
REASONS
• Overtime premium reduced
profits.
• Inefficiency in assembly and
packaging as workers faced
difficulty in re-learning
processes
• Accelerated production
resulted in frequent set up
changes and confusion
• Seasonal changes in workforce
resulted in recruiting
difficulties and high training
costs
• Machinery stood idle for certain
period and then was put to
heavy use
IMPACT
• Estimates of sales volume
proved to be reliable in past
• Higher storage costs to be
included in operating expenses
• COGS would be 70% of sales
under seasonal and 65.1% in
level production
• Fund inflow and outflow would
be in balance
• Additional Direct Labor
Savings
• Elimination of OT Wages will
result in substantial savings
• Rescheduling of purchases
would not affect purchase
terms
THANK
YOU