CLASSIC FIXTURES AND HARDWARE COMPANY Harvard Case Solution & Analysis

CLASSIC FIXTURES AND HARDWARE COMPANY Case Solution

INTRODUCTION

The products of the company are very well known for their quality, classic design, and timeliness. The company has always been privately held and has limited access to capital markets to raise additional funds when needed in form of equity and debt.In 2008, the company’s loan balances increased beyond the forecasted amounts, which led Classic Fixtures and Hardware Company to consider turnaround strategies in order to save the company from default on loans.Such events require extreme measures in order to neutralize the threat of going bankrupt. This document provides problems and reasons behind the inability to pay loan borrowed from Southwest National bank, it also includes the current financial situation of Fixtures Company and also the remedies that will be useful to the company in the payment of their loan.

PROBLEM STATEMENT

The document address problem  Classic Fixtures and Hardware Company is currently facing,which is their inability to pay off loan to Southwest National bank.Furthermore, there is a problem whether how company can manage to pay the loan in times when the company is forecasting its inability to clear loan amounts.Therefore, proper implementation of turnaround strategies may fix these current problems for Classic Fixtures and Hardware Company.

ANALYSIS

1.                 WHAT IS THE PROBLEM AND REASON FOR THIS PROBLEM OF CLASSIC FIXTURES AND HARDWARE COMPANY?

When companies like Classic Fixtures and Hardware Company run their operations majorly on loans and have limited access to capital markets, then their chances of default increase if any sudden change in trends are witnessed. This is what happened to Classic Fixtures and Hardware Company, which is another reason behind such financial problems and their inability to pay off Southwest National bank’s loan. The investment in non-current assets has also increased the company’s capability to close out its loan obligations.

It is evident from the balance sheet and the forecasted balance sheet of the company that the long term debt will not be paid at all by company in the financial year 2008.Furthermore,even if the cash position of the company is strong in financial, the company still has no plans of clearing out its debts. This indicates that it is going for expansion next year at the expense of loan.This is in turn creating problems for the company to either go ahead with the expansion and investments in non-current assets or to clear out the Southwest National bank’s loan.

Now if we talk about the financial performance of the Classic Fixtures and Hardware Company through financial ratios, they imply that the company’s net profit margins and gross profit margins are declining from the end of 2007 to the forecasted year results of 2008. The stable interest cover, liquidity ratios like quick ratio and current ratio are stable between 2007 and 2008.This consistency in these ratios suggest that the company will earn more or less the same, but the company will not pay out loans because they want to expand in order to meet demand in the market.On the basis of the month to month financial ratio analysis, the profitability ratios are declining and the interest cover turned into negative one at the end of year 2008.It appears that on the basis of these forecasted results, the CFO held the opinion to extend the loan term with Southwest National bank..................

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