FLORENCE INDUSTRIES,

INC.
Subtitle

Content

Brief Introduction

Financial Analysis

Issues and Recommendation

New project Proposal

Cash Flow Management

Investment Center

Balanced Scorecard

Other Suggestions

Brief Introduction
Three divisions:

Consumer Products

Industrial Products

Professional Services

Profit Center

Investment
Center

Brief Introduction

Performance Evaluation:

Gross Return on Assets

Net Return on Assets

Target:

Overall Gross ROA of 12%

New project: 15%

Financial Analysis
2008

A/R

2009change

percentage

82128

93642

11514.00

14.02%

inventory

132972

152802

19830.00

14.91%

net PPE

147810

178542

30732.00

20.79%

75732

92688

16956.00

22.39%

long term debt

Issues and
Recommendations

Issue 1: New Project Proposal

Issue 1: New Project Proposal
Benefit
Pretax Profit about 2.5 Million
Increase EPS 10 cent

Issue 1: New Project Proposal

Gross Return on Asset

13.1%

Recommendation
Accept

Consumer current Gross Return: 10.8%

12%

13.1%

15%

Issue 2: Cash Flow Management

Cash Flow

Cash inflow from

Operation

29.6M

Cash outflow from

investment

56.3M

Cash inflow from

financing

27M

26.76M is financing from Short-term and Long-term Debt

Issue 2: Cash Flow Management

2008

2009

Debt-to-Equity

31.6%

38.8%

Debt-to-Assets

19.7%

22.6%

L-T Debt-to-Equity

31.6%

35.1%

Increase in leverage ratio

Issue 2: Cash Flow Management

Income Statement

Interest expense
increase 69%

Increase in Debt
Increase in Interest
Rate
Cost of Debt Ratio
increase
4.5%5.7%

Recommendations
Division
Revenue

Managers do not care about cost of

working capital

Breakdown cash flow statement

1.

More accurate

2.

Better evaluation of different

divisions performance

3.

Leverage ration control

Issue 3: Investment Center

Evaluate divisional performance based on net ROA

Headquarter expenses are not controlled by division;

Headquarter expenses arbitrarily allocated based on

revenue.

Inconsistent with the target measurement gross ROA

Same gross ROA target for all three division

Not in same business activities or industries;

Different assets requirement;

Different level of risks.

Issue 3: Investment Center

Disadvantages of gross ROA measurement

Excess leveraging

Increase in return on sales?

Other issues:

Usage of old and less efficient asset

Take advantage of depreciation

Disagreement towards the measurement

Recommendations

Balanced Scorecard Consumer

Product
Goals

Measures
Financial

Internal Process

Goals

Measures
Rate of Returns
(returns/total sold)

Maximize Shareholder
Value

Return on Gross Assets

Improve Quality of
Products

Maximize Efficiency

Return on Sales

Introduce New
Proprietary Products

# of Patents issued

Maximize Growth

Sales Growth

Improve Marketing
Learning and Growth

Marketing Performance
Audit

Goals

Measures

Training of Employees

Training hours per

employee
Employee turnover rate

Customer
Increase Market Share

Market Share

Improve Brand Image

Brand Awareness Surveys

Retain Customers

# of Commercial Customers
lost/Total Commercial
Customers

Retain Personnel
Optimize Workforce

Productivity measure
(labour hours per unit)

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Category 1

Category 2

Category 3

Category 4

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Group 1

Group 2

Class 1

82

95

Class 2

76

88

Class 3

84

90

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dfa

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