Problem identified
Baldwin Bicycle Company (Baldwin or the Company), a small mid-market ride manufacturer, had a private label opportunity with Hi- Valu Stores, Inc. ( Hi- Valu), which operated discount part chain stores in the Northwest. Baldwin had to make a decision whether to take back the Hi-Valus contender deal or not. To make an informed decision, the partnership should exam a blending of financial, marketing, and strategic implications of the Challenger deal.
Financial analysis
Current financial situation
With an annual ROA of 3.15% in 1988, Baldwins current financial situation is not favorable at all ( identify exhibit 3 for dimension analysis). First of all, the society had poor assets management. The high inventories and accounts receivables, which account for 62% and 31% respectively of total current assets, substantially vitiate the financial liquidity (see exhibit 4 -balance sheet). As the currency ratio is merely 9.83% (see exhibit 3), the company is extremely gyp of cash flow and at the danger of illiquidity. The low arsenal turnover of 2.9 times per year signals that the company should take footprint to improve its asset management (see exhibit 3).
Furthermore, the company is veneering a high risk of insolvency in the future callable to its highly leveraged financing. The high Debt to Equity ratio of 1.6 may be a barrier for further financing at a reasonable cost (see exhibit 3).
Besides, the companys profitability is not promising at all. The annual dispel on sales of 2.49% provides the company little room for growing (see exhibit 3).
Return on equity, driven by the low asset turnover, low return on sales and high D/E ratio, is flash compared to the cost of funds.
Challenger deal profit analysis (see exhibit 1)
The Challenger deal will bring an additional $577,250 contribution boundary line to Baldwin. Selling at $92.29/unit, the Challenger...
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