- GdL is a family business based in Italy which manufactures and sells toys
- Toy industry is very competitive and highly seasonal; toys have a short life cycle
- Demand depends on advertising, supply chain relationships and popular influences
COMPANY STRATEGY
- They make traditional toys so they are not as highly affected by Christmas seasonality
- Reduce manufacturing costs as much as possible; less personnel and more automation
- Does not want to lay off workers
- Obtained line of credit to solve operating capital problems
2001:
Factory and machinery expansion to boost production capacity and increase sales
Obtained 10 year bank loan of 20 million
THE PROBLEM
Sales and Profit are growing each year, but Line of Credit is being used extensively. Where is the cash going?
CONCLUSIONS
- Big part of cash flow is going to 50% Dividend. Priority should be to repay line of credit before declaring such a high dividend
- Reduce period of receivables
- Redistribute payments of dividends and buildings over 12 months
claring such a high dividend
Giocattolo di Legno
Pro Forma Income Statement
Fiscal Year
2004 2003
Net Revenue
Sales 81,500 70,872
Cost of Goods Sold 42,600 37,420
Gross Profit 38,900 33,452
Expenses
Operating Expenses
Selling and Administrative 24,300 21,909
Other overhead expenses 4,100 3,600
Operating Profit 10,500 7,943
Financial Expenses 1,200 1,098
Profit Before Taxes 9,300 6,845
Corporate Tax 2,790 2,054
Net Income
Profit After Taxes 6,510 4,792
Working Capital:
OE + Non Current Liabilities - Non Current Assets = Long-Term Resources
42301 + 14000 - 38100 = 18201
Inventories B&E (net) Accounts Payable
10,271 O/B 38,100 O/B O/B 5,200
38,400 RM 6,000 Purchases Purchases 38,400
3,500 DL and MAN EXP Depn 2,800 37,200 Payments
2,800 Depn
COGS 42,600
990 32,011
Gdl (Giocattolo di Legno), SpA
Exhibit 4
Receipts
Receipts from customers 8,100 6,600 5,800 3,500 3,400 3,600 6,500
Payments
Labor and manufacturing expenses 280 280 280 280 280 280 280
Payments for purchases of plant and equipment - 1,500 1,500 1,500 1,500
Total payments (excluding short-term debt) 4,098 6,084 8,908 6,472 8,405 8,522 5,012
Net cash flow (excluding short-term debt) 4,002 516 (3,108) (2,972) (5,005) (4,922) 1,488
Cash flow from operations 4,002 2,016 392 (1,472) (3,505) (4,922) 1,488
Cash flow from financing (4,002) (516) 1,108 2,972 5,005 4,922 (1,488)
- - - - - (6,000)