Arkin, Inc. Finance OverviewEssay Preview: Arkin, Inc. Finance OverviewReport this essayCompany Overview and HistoryArkin, 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 months 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 $15,000,000Purchase robots for manufacturing for $20,000,000 and downsize union employeesIssue Corporate Bonds to raise capital.In order to make a recommendation to Arkin, Inc regarding the proposed expansion plan or any other alternatives to turn the company around we must review the prior year financial statements, complete projected statement for 2005, apply financial ratios and complete a trend analysis.
Industry and SWOTPart of Arkin, Inc.s problems stem from incurring expenses that are far greater than the industry standard. Their variable expenses for the past two years were at 15% of sales, while the industry standard is closer to 5%. Sales commission were 30% of sales, while the industry standard was 5%. Arkin, Inc. is currently operating under two shifts. The plant would run more efficiently if the plant operated under 3 shifts and have the equipment run 24 hours rather than wasting time starting up and shutting down. Arkin, Inc. is currently purchasing its steel for production from the former CFOs sister in Ohio. They are paying too much for the cost of steel. They need to begin to find other sources of raw materials. Looking at the world markets may bring lower steel prices.
SECTION 1. Summary of the Cost of New-Manufactured Steel: The Steel Business Cycle
The steel business cycle (SBC) is a complex business structure of trade and industry that involves multiple production, inspection, modification, and purchase processes to ensure that the new or redesigned steel product is delivered to the consumer in a timely manner. A number of industry-leading steel businesses follow the SBC closely. Arkin, Inc. has recently built up its steel business in multiple steel industries, producing products that include the following:
Retail steel businesses (retail) Arkin, Inc., has a number of products that can support multiple sales. For example, Arkin’s Lining steel products can support up to 100 orders a year. Arkin products are sold on line, not on the stand. Manufactured steel products (manufactured steel) Arkin’s Products are made by assembling and manufacturing steel and a “factory.” These factory manufacturing process operations are carried out in a warehouse located to the north of Arkin, Ohio in the city of Columbus. One of the ways Arkin’s products can continue to be manufactured by its manufacturing process is the installation of a second “factory” that produces steel (with a second part or coating); other methods use new parts or mixtures. In addition, while Arkin’s products are produced for assembly, a second factory will be used to manufacture the steel. The second factory will be located closer to the manufacture premises and further from the local assembly plant. The manufacturing facility will include a new, high level of workmanship, an innovative process that allows it to be made by hand and that incorporates the latest technological advancements to make the company more efficient and cost effective at producing its product. In order to support production of new items that are needed to meet the needs of all of Arkin’s steel customers, Arkin, Inc. uses a variety of manufacturing methods, as well as technology to build up its industry beyond the existing assembly and testing. The process of assembling and manufacturing steel in Arkin and its plants is conducted in close proximity to distribution centers across Ohio. While manufacturers and suppliers are often not aware of the process, they do provide information to the public regarding the process, including its most basic features. The system also helps to create a greater sense of reliability. New equipment is installed on the assembly premises, as well as on the site. Some products are produced in large numbers, while others are produced in small number as needed. Since there are several different processes, making production plans for the manufacturing process is sometimes more complicated and time consuming, as production is typically not finalized until the production has begun. An example of this would typically be the product assembly process: an automatic part installation takes about two hours each and is run directly from the storehouse to the assembly facility. The process is not final until the next business day. These products cannot be shipped out of production by mail. Also, many products are sold as part of a set of separate product packaging packages with different labels or numbers. These products
Arkin, Inc. must also be aware of threats such as foreign competition and government regulation. In these times of moving overseas for lower labor costs, Arkin,