Astral Records ltd. North America: Some Financial Concerns Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Strengths & Weaknesses of the Astral Records North America

Strengths

Astral Records North America is considered as a high quality manufacturer of compact disks in the industry. This reputation in the industry helps the company to develop itself into one of the successful brand in the market. Moreover, the company has efficiently utilized its assets as well; another strength of the company is a joint venture that provides it the advantage over other companies in the industry.

Weaknesses

The main weakness of the company is the managerial problems that they are currently facing. The profitability of the company is also declining as well as currently the company is also facing liquidity and leverage problems, this is due to the inability of the inventory to convert into cash, and the the entrance of small manufacturer in the industry that created the competition for Astral Records North America in terms of price.

Question 2

Astral Records North America Projected income statement (1994-1995)

The projected Income statement of Astral Records North America for the year 1994 and 1995 has been examined in order to analyze the expected future performance of the company as it will be helpful in order to make future decisions. The expected sales of the company during the year 1994 are $ 45,761 thousand, whereas; on the other side the expected sales of the company for the year 1995 is $52,625 thousand.


ASTRAL RECORDS Historical and Projected Income Statements (in dollar thousand)
Year	1990	1991	1992	1993	1994	1995
	(Actual)	(Actual)	(Actual)	(Actual)	Forecast	Forecast
Sales	26,202	28,822	34,010	39,792	45,761	52,625
Operating Expenses:
Production Costs and Expenses	11,950	13,380	17,847	22,335	27,456	31,575
Admin. and Selling Expenses	5,734	5,967	7,020	7,970	9,152	10,525
Depreciation	2,376	2,367	2,667	2,667	2,667	2,667
Total Operating Expenses	20,060	21,714	27,534	32,972	39,275	44,767
Operating Margin	6,142	7,109	6,476	6,820	6,485	7,858
Interest Expense	(2,427)	(2,535)	(3,265)	(3,222)	(900)	(900)
Earnings Before Taxes	3,715	4,574	3,212	3,598	5,585	6,958
Income Taxes	(1,647)	(1,845)	(1,269)	(1,403)	(2,234)	(2,783)
Dividends on :
Net Earnings	2,068	2,729	1,943	2,195	3,351	4,175
Dividends to All Common Shares	1,000	1,000	1,000	1,000	1,000	1,000
Retentions of Earnings	1,068	1,729	943	1,195	2,351	3,175

Moreover, the expected sales of the company during the years 1994 and 1995 were assumed to be 15% increase in the sales growth as compared to the previous year showing that the profitability and growth of the company will improve from the year 1993 in the future.

Astral Records North America Projected Balance statement (1994-1995)


Years	1990	1991	1992	1993	1994	1995
	(Actual)	(Actual)	(Actual)	(Actual)	(Forecasted)	(Forecasted)
Assets
Cash	1,764	2,040	2,905	1,540	1,771	2,037
Accounts Receivable	8,113	9,125	10,311	13,316	$15,045	$17,301
Inventories	15,861	17,147	25,643	34,717	42,424	50,310
Total Current Assets	25,738	28,312	38,859	49,573	59,239	69,648
Gross Property Plant & Equipt.	23,667	26,667	26,667	26,667	26,667	26,667
Accumulated Depreciation	(2,505)	(4,872)	(7,538)	(10,205)	(12,872)	(15,539)
Net Property Plant & Equipt.	21,162	21,795	19,129	16,462	13,795	11,129
Total Assets	46,900	50,107	57,988	66,035	73,035	80,776
Liabilities and Stockholders' Equity:
Short Term Borrowings (Bank)	12,060	13,042	19,680	25,802	33,027	42,274
Accounts Payable	4,511	4,607	4,705	5,328	5,648	5,987
Other Current Liabilities	9,014	9,414	9,616	9,723	7,660	4,146
Total Current Liabilities	25,585	27,063	34,001	40,853	46,335	52,406
Long Term Debt	10,000	10,000	10,000	10,000	10,000	10,000
Shareholders' Equity	11,315	13,044	13,987	15,182	16,700	18,370
Total Liabs. & Stkhldrs' Eq.	46,900	50,107	57,988	66,035	73,035	80,776

The above table shows the expected balance sheet of the Astral Records North America that indicated the improvement in the expected performance of the company in the coming years that is in the year 1994 and 1995. In addition to this, the projected external financial requirement for the year 1994 is $7,225,000 ($33,027,000-$25,805,000) and for the year 1995 it will be $9,247,000 ($42,274,000-$33,027,000).

Furthermore, the projected debt to equity ratio of the company for the years 1994 and 1995 will be 3.37 and 3.40 (total liabilities/equity) respectively. From the analysis of the company’s recent debt to equity ratio as well as from the expected debt to equity ratio it is concluded that Astral Records North America will not be able to repay its loan in the future within a reasonable period, but only it will be possible for the company to repay its loan if the key assumptions that are used in order to prepare the projected financial statements are improved...........................

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