Astral Records Ltd North America Harvard Case Solution & Analysis

Astral Records Ltd North America Case Study Solution

Introduction

Astral Records

Astral Records is a compact disk producing company, established as a joint venture between Astral Records United Kingdom and Bendini, Lambert and Locke (an American based venture capital firm).

Astral Records, North America is a well-known company, famous for producing high quality compact disks. It works as a subcontractor to different recording companies and provides them the high quality compact disks.

Sarah Corner was hired as the CEO of Astral records after the death of former CEO. Since the first day of joining, she has faced lot of problems that include making financial decisions related to the future of the company, therefore she requested Louis to address the important issues of the company.

Situational analysis

When Sarah Corner was hired as a Chief Executive Officer of Astral Records, the company was in financial distress, its profitability ratios had been decreasing since past four years from 1990 to 1993. Financial ratios include operating profit percentage to sales that has decreased from 23.4% to 17.1% and net income margin also decreased from 18.30% to 14.3% as well as return on assets (ROA) reduced from 4.4% to 3.3%.

The company was aggressive in debt growth, its debt to equity ratio showed an increasing trend.

However, its current ratio has increased from 1.01 in 1990 to 1.21 in 1993, while as its quick ratio has decreased from 0.39 in 1990 to 0.36 in 1993, it seems that company’s liquidity position was not up to satisfactory level.

Competitive analysis

The main competitors of Astral Records are Dickenson, Harris-Besbel, Donaldson, IBBEX Corp. and ZEPORT.

Dickenson

It established about 50 years ago, it has recently entered in the compact disk industry. Earlier it was involved in the production of original artist recordings, personal management of artists and production of rock and roll tours.

Harris-Besbel

The Harris-Besbel was a leader in its industry, but recently it has faced a decline in sales. Backbiting among the owners has raised the concerns about the firm’s prospects.

Donaldson

It is the main competitor of Astral as it hasthesame sales level. About two years ago, this company was established and it showed a great success.Moreover, this company has emerged as an aggressive competitor in the compact disk industry.

IBBEX Corp.

Company has been dealing in different industries including film production that was its major business and also in compact disk industry. It mainly focuses on its major business of film production and also doing innovations in that industry.This company is projected to be the market leader in compact disk industry within the time period of three years.

ZEPORT

This company is doing investments in new areas, and trying to get exit from compact disk industry.

Problem statement

The main problem Sarah Corner was facing, that was about the financial performance of the company.

Profitability ratios were decreasing. Company was purchasing new machine but did not have any source of financing. Due to the lower current ratio, banks were not giving loan to the company.

Critical Key issues

  • Evaluation of current and past financial health of Astral Records
  • Key assumptions for forecasting the firm’s future financial performance
  • Assessment of the company’s forecasted financial statement of the year 1994 and 1995
  • Calculations for WACC
  • Assessment of FCF analysis of the new machine investment

Strategic analysis

SWOT analysis

Strengths:

  1. The BLL Company is one of the major disc manufacturing profitable companies.
  2. Highest quality discs are produced by BLL Company.
  3. Company is financially strong and stable
  4. Growth strategy would help company to increase its revenue and net income.
  5. Investing in new machinery would increase company’s worth and valuation.
  6. Company owns flexible employees, which would help it to achieve manufacturing target by giving overtime.

Weakness:

  1. The operating expenses of the company are much higher and increasing over time which is decreasing net income of the company.
  2. Despite of investing in machinery, company has to face employees’ overtime as machine is working very slowly.
  3. In 2013, company cash is decreasing. As a result, the short term liability of the company had increased at higher rate.
  4. The industry in which BLL exists possesses low barrier entry. As a result, higher competition could be faced by the company in near future.

Opportunities:

  1. The company owns competitive advantage of producing the highest quality of compact disks in the industry.
  2. The company owns higher customer base, as a result, sales and profitability of the company are increasing overtime.
  3. As the company is financially stable, it could make any favorable investment that will led the company to remain highest and strongest competitor in the market.

Threats:

  1. The low entry barrier in the industry might increase company’s competition and as a result, company may lose its reputation in the industry.
  2. As the operating expenses of the company is increasing further, this increase would result in net loss of the company.
  3. The increase in labor cost would decrease the benefits achieved by making investments in machineries...............

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