The output produced by the company is still in demand by the customers, but this demand is primarily due to the government orders. The company finances the number of research studies aimed at the enhancement of existing productive capacities of the firm. Although the policy totally justified itself, the financial resources for the implementation of the research projects majorly relied on the credit banks from the banking institutions. The most remarkable year for the industrial performance of the company was the 1985, when the revenues accrued by the company exceeded the losses incurred (it shall be additionally highlighted that the major part of the incurred losses was due to the heavily financed investment projects)
In 1989 the banking institution which maintained the research projects and other financial transactions of the company denied to allow further crediting of the firm primarily owing to the facts that the financial environment of the company suggested that the firm is very likely to experience grave financial problems in the upcoming future, in the 1990 in particular. The technologies utilized in the production cycle of the enterprise seemed to have become hopelessly obsolete). However, having evaluated current market positions of the asking company and the financial atmosphere thereto, the executive management of the banking institution ultimately resolved to repel the respective credit request.
The Problems
Problem # 1 Deficit of Finance
Generally, two major problems can be identified. First and foremost, it is clear that the firm experiences drastic lack of finance. The financial statements for 1989 precisely indicate that the losses incurred by the company totally exceeded the revenues accrued, by the firm, although previous years were profitable for the company in question. The comparative study of the market positions of the major competitors of the firm clearly indicate that the sales of the nearest competitors of the firm outscore Dynatronics by many financial indicators.
In particular, whilst the sales of Dynatronics for 1988 are 27 ($ million) , the sales for the same period of AMP, Inc. are on the point of 2,679 ($ million), for Dynatech Corp. on the point of 400 ( $ million) and the runner of the rally, the Analog Devices at the point of 439 ( $ million). The volume of production sold by the companies is reported to be almost identical. In order to cope with growing deficit the management of the company decided to emit more shares. Obviously, the proper strategy has been chosen.
The Advised Solution.
In the context of the existing financial problems of the company, the most desirable strategy to cope with the budget deficit seems to be further emission of shares and borrowing from the financial institutions assenting to allow crediting.
Problem # 2
Insufficient and Ineffective Scientific and Industrial Research
The statement of the facts precisely indicates that starting from 1988 the sales of the company dropped because of the obsolete production of the company. It is stipulated that in 1985-1987 the research profited the company, but 1988 happened to be a crucial point for the industrial performance of the company.
Therefore, it is suggested that the nature and the scope of the scientific and industrial research conducted in 1988 was insufficient to meet the market requirements of the company.
The Solution
The best option to handle the situation in question does seem to be to allocate significant financial resources ($25 million at least) to proceed with the improvements of the company output, although the firm still experiences grave financial difficulties.
American Chemical Corporation Case
The Most Important Assumptions of the Case
First and foremost the decision to purchase the shares of Universal Paper Corporation happened to be a considerably precarious transaction due to the emerged accusation of the antitrust law, although the charges have been subsequently dropped by the United States Judicial authorities. This case subsequently affected the reputation of the company, what has been ultimately reflected in the annual financial statements of the firm
Secondly, the factor that shall be specifically analyzed in this case is the decision of the company to sell the Collinsive Plant, to one of the competitors, the Dixon corporation. The plant was particularly important to the financial environment of the company due to the fact that the producing capacity of the plant is 40 000 tons of sodium per year. Sodium is in demand contemporarily on the markets of the United States of America. Although the industrial expenses to maintain the work of the plant in action have been increased ( in particular the energy costs) with the installation of the metal electrodes instead of the graphite ones and with the elimination of the laminate, the plant was turned into a considerably profitable enterprise.
However, it shall be additionally stressed, that the Dixon relied on the currently available debt finance mechanism to finance the transaction. To be more exact, the scheme involving complex banking bonds was involved to pay for the plants and the related facilities.
The Outline of the Problems
Problem 1, the Reduction in Revenues
Although some analysts may think that the transaction is profitable for the American Chemical Corporation case, the plant was nevertheless the source of revenue for the firm, although not a major one. With the sales transaction operation, this source elapsed and the funds to close the budget gap were not still obtained (due to the fact that Dixon finance the transaction via debt-related strategies and therefore the “cash was “ was not obtained by the seller) .
Quantative Proof of the Proble,
To illustrate , while the closest competitors of the company managed to increase their revenues between the period in 1977 and 1988 (; on 11 million Dow Chemical; on 2million $ Du Pont and on 4 $ million and on 8 $ million Union Carbidge) the sales and respectively the net income accrued by the American Chemical remained almost at the same level.
The Solution
The first solution is borrow from the banking the deficit financial funds in order to refinance the industries in the firm which necessitate the industrial and production improvements first of all. In particular, it does seem to be highly advisable for the top-management of the company to invest to the scientific and the related industrial research in order to innovate the output of the firm to attract the new customers or to increase the price for the existing commodities, but at the same time to ensure that the demand for the commodities of the firm do not drop down.
Problem 2
Gap in Finance
The decision of the counteragent in the transaction in question (i.e. the decision to purchase the plant) to finance it by means of borrowing mechanisms caused a considerable gap in the financial environment of the company. This gap shall be closed by the financial management of the company in any case.
The first option is to repel the transaction and to use the producing capacities and the sales of the plant to accrue revenues. However, this strategy is highly unadvisable as it may damage the commercial reputation of the company.
More viable option for the company is to negotiate a loan in the banking institution or to ask the buyer of the plan to employ other mechanisms than debt financing to cope with the transaction.
