Company Overview and History
Arkin, Inc. is a car manufacturing company located in a small town in Illinois that is suffering from financial difficulties. These difficulties stem from mismanagement from the CFO of the company. The manufacturing facilities consist of ten buildings owned outright by Arkin, Inc and ten buildings that the company is leasing. The lease expense of the building totals $900,000 per year. The company has a month-to-month list and either party can get out of the lease with just one month's notice. The lease expense is the only fixed expense the company has at the moment.
The company employs a staff of 200. This consists of 150 manufacturing employees, 40 non-sales office employees and five sales persons. The manufacturing employees are union employees and therefore earn union scale. The sales persons earn a commission of 30%, which is significantly higher than the industry standard of 5%.
The company has a customer base of about 200 car dealers in the Midwest. While the industry standard is for the dealers to for the cars at the time of purchase, Arkin, Inc. has extended credit to its customers.
Another issue that needs attention is the inventory. Approximately two thirds of the inventory has been deemed worthless. Although the company has an abundance of inventory, the inventory turnover is only two times per year. The industry standard is twelve times per year.
The President of the company has an idea for an expansion plan, which includes the following:
? Increase sales by 400% with a Gross Profit Margin of 20%
? Purchase the 10 leased buildings for $15,000,000
? Purchase robots for manufacturing for $20,000,000 and downsize union employees
? Issue Corporate Bonds to raise capital ...