Dynashears case

[Dynashears case study] | |

EXECUTIVE SUMMARY Dynashears, Inc. is a scissors and shears manufacturing company that has recorded stable sales and growth rates since 1958. On April 1991 Dynashears, unable to pay liquidate a $1 million loan, acquired from the Wellington National Bank in the previous months to complete a plant modernization and cover their fall funding requirements, the firm requested an extension. Evidence supports Dynashear’s president’s claim that the company's decreased liquidity and increased absorption of cash is due to the decrease in sales caused by a recession. As of March 1991, the average inventory turnover ratio variance is 28 days over the pro-forma projections due to a 16% decline in sales (reference exhibit [ex.] C). Its quick ratio and days-sales-outstanding have moved accordingly, pointing to a reduction in cash, which had a variance of up to $1.3m off-target when comparing pro-forma to actual cash flow statements. Long-term debt and debt-to-equity ratios (reference ex. A and C) show little variance from projections. For the upcoming period, we offer strategic recommendations based on a continued economic recession scenario, reducing forecast sales by 16% from original pro-forma (reference ex. D). Dynashears will cut dividends until the loan is paid and temporarily shut down its factory and halt production from May through June. These steps will restore inventory turnover ratio to approximately 100 days (which is more in-line with a recession scenario) and increase cash flow enough to pay back its loan, as well as provide enough cushion to internally finance continued operations in a recession environment.
I. Problematique Mr. Winthrop of Wellington National Bank of New York must assess Dynashears’ pro-forma and actual income statements to assess Dynashears’ inability to pay back its short-term loan from his bank in agreement with the loan contract. Dynashears has experienced a drop in sales and free cash