Flash Memory Inc. Harvard Case Solution & Analysis

Flash Memory Inc. Case Study Solution

Introduction

Flash Incorporation was founded in late 1990s by four engineers. The company had six individuals as board of directors having 100% shares of the company. The company enjoyed great success since its initiation as it focused on developing Solid State Drives (SSD) which facilitated the drastic increase in company’s sales. These products were highly useful in laptops, smartphones, computers and notebooks as these were highly innovative and growing technology.

Due to increase in company’s growth and success, along with the industry’s potential to increase, the market was facing intense competition, high rivalry, increase in product lines and offerings with low profit margin. However, the company focused on developing same things, but the competitors focused on innovative things due to which the products developed by Flash Memory Inc. became old fashioned and thus, the products lost their value.

Consequently, company lost its market share and the sales decreased in all over the country. In few years, the company’s product became obsolete and lost all of its sales. In reply to innovation and tough industry competition, company started to make investments in research and development. Moreover, it also hired professional and experienced scientists and expert software engineers to help on this cause. It received the deal to make investment in five years of project which would help the company to increase its sales drastically.

The company is planning to accept the deal but main problem is either to make investment through debt and purchase notes payable from bank or to sell company’s equity shares held by the board of directors.

Analysis

In order to drive smart solution for the company, it is important to analyze the company and its operations in depth to prevent itself from repeated problems in future. Following questions have to beans were to conduct an in depth analysis of the company.

Forecasted income statement analysis

The forecasted balance sheet and income statement of the company have been developed and shown in exhibits as the projected sales were given in the case. Moreover, the case also provided assumptions that have been used by the company in order to make future projections. The forecasted income statement shows that company’s sales would be increasing from 2009 to 2011, but would remain same in 2011 and 2022. Moreover, the COGS would also remain same of the two years, but eventually increasing from the last few years. As the sales impact is higher, the gross profit would also increase overtime.

Consequently, the company’s net operating income would also increase, along with increase in company’s net income. However, in 2011, with the increase in interest expense of the company, it would be facing little decrease in the net income and thus this difference is also observed in EPS.

Flash Memory Inc. Harvard Case Solution & Analysis

 

 

Forecasted balance sheet analysis

The forecasted balance sheet shows that company would be facing increase in its current assets as well as non-current assets therefore, its overall assets would also be increasing. On the other hand, the liability in 2010 and 2011 would also be increasing. However, due to the decrease in notes payable in 2011, it would be facing decline in liability. In addition, the shareholder’s equity of the company would also increase in three years as there is an increase in retained earnings of the company.

It has been assumed that all sales of the company have been calculated on the basis of credit. Moreover, whole net income of the company has been retained. In addition, the number of outstanding shares of the company would remain same as in previous years. Also, only “note payable” has been taken as the debt of the company....................

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