Net working capital strategies Financing requirements are separated into permanent need and seasonal need ; Aggressive financing strategy ; all seasonal needs, possibly some permanent needs are financed with short term funds Conservative financing strategy ; use long term funds for all except emergency or unexpected outflow of funds 13 Du Pont Analysis Financial leverage multiplier measures the benefits of financial leverage. 4 Conclusions from benchmarking analysis ; Penn relies heavily (too heavily) on short-term debt this is costly, because short-term interest costs are exceedingly high right owe ; Penn is taking much longer to collect on its sales than its competitors this is costly, because it means the firm must borrow more to support these slow collections ; Penn is turning inventories much too slowly, tying up more capital than competitors ; Penn s profitability is okay but obviously could be – and should be -?? much better.
Professor Lena C Booth 15 What Should the Penn Family Do? ; Charlie may have increased its sales , but he had not entirely brought the company up to a competitive standard in its performance ; For the family s uncial/income needs, the company appears to be meeting their needs and yielding close to the family s required rate of return on its invested capital.
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Other operating measures, however, could be further improved. ; Penn Plasma’s valuation in the marketplace may be just short of when it may be seen as promising but not yet fully-developed ; Is this an attractive time to explore selling the firm? Taking on a partner?