How to meet corporate financial goals


Case Scenario:

Happy Valley Tire & Rubber Corporation, located in Appleton, Wisconsin, is a manufacturer of consumer and industrial rubber products.  The company has two operating divisions.  The tire division manufactures high-macho-point performance tires for passenger cars as well as truck and off-the-road tires.  The tire division sells these tires into both OEM and replacement markets.  The rubber products division manufactures a variety of standard rubber casings and structures for industrial applications.  These are sold through manufacturer’s representatives and Happy Valley’s on-line sales site.  During the most recent fiscal year, the tire division sold 3,484,000 tires and the rubber products division sold 431,474 casings and structures.

HV has carefully assessed its corporate financial goals, and has determined that it needs a BEP of 15% to meet its goals for growth, payout and capital structure.  The operating performance of the divisions in FY 2004 is provided below:

Asset Base

 

Asset

 

Tire Division

Rubber Products Division

Accounts Receivable

$108,349,933

$47,443,484

Materials Inventory

19,711,247

17,543,665

WIP & FG Inventory

61,362,425

16,391,295

PP&E (net)

256,569,590

366,044,400

Total

445,993,195

447,422,844

Operating Income

 

Tire Division

Rubber Products Division

Sales

$513,138,400

$284,603,981

Cost of Sales

 

 

Materials

157,689,975

69,683,293

Variable Labor

9,064,340

0

Variable Processing

178,169,984

50,477,844

Fixed Manufacturing

5,803,294

 

60,648,000

Depreciation

17,446,706

15,129,600

Cost of Goods Sold

368,174,299

195,938,737

Gross Profit

144,964,101

88,665,244

SG&A

 

 

Royalties & Commissions

68,387,800

19,740,599

Distribution

12,928,400

4,099,003

Fixed SG&A

9,046,170

19,440,000

Depreciation

 3,078,830

0

Total SG&A

93,441,200

43,279,602

Operating Profit

51,522,901

45,385,642

Study these targets and results and write an executive format memo to management outlining how HV might most appropriately move toward achieving its objectives supported by an accompanying Excel file which clearly shows analysis and graphics.

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Accounting Basics: How to meet corporate financial goals
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