Flinder Valves and Controls Harvard Case Solution & Analysis

Introduction

Flinder Valves and control Inc. is a renowned firm in the manufacturing of technical components related to the engineering field. The company has established its small business in the aerospace and defense industries since late 80s. The company has maintained the growth of its business by acquiring several commercial properties which were previously being utilized for the engineering purpose by other firms. The company had not planned for its merger since its foundation; however, none of the deals became successful. Due to this reason, the expansion of the company took place with the help of leasing and licensing.

In the current scenario, the company is planning to construct a machine whose application would bring a breakthrough in the military operations. The machine is based on a hydraulic control mechanism and will help to preserve the defense system. Although the idea is still in the pipeline because the company is involved in the research work related to the cost structure of this application. The professionals at Flinder are considering the opinion that if the idea gets successful then the name of the device will be Widening Gyre that will manage the hydraulic functions for the armed forces by exerting huge commercial value.

Apart from all the activities running in Flinder Valves and control Inc. the company has decided to become a part of the RSE Corporation from the business point of view. Although Flinder Inc. is doing well on its financial side and will move forward towards success, but still to get the best opportunities in the market the company tends to go for the merger.

Problem Statement

Flinder is currently planning for its strategic acquisition by RSE International Corporation. After the depressing condition of 2008, Flinder Valves and control Inc. has decided to become a part of RSE internationals. Now the analyst wants to analyze the purchase price for the buyer and the seller with the help of the company’s valuation analysis. Both companies want to identify the terms and conditions of negotiation in the process of acquisition in a dynamic business environment.

Using the case and the additional data in Exhibits 1 and 2, how do you see FVC’s circumstances?

We have used Exhibit 1 to calculate the working capital (WC) of Flinder Valves and Control Inc., with the help of WC it can be said that the company possesses 16840 assets for its day-to-day operations which is good. A quick ratio of 3.1 is also revealing that the company is financially strong to meet its current obligations. Similarly, the current ratio of Flinder is also showing excellent results of 4:1 that is because the company possesses four times assets to cover its single debt.

Depending on the current level of the income statement of Flinder Inc. from Exhibit 2, the company has experienced negative growth in the year of 2003 that is -4%. However, after 2003 the income statement of the company has not shown negative figures, but the declining trend remains the same from 2003 to 2007. The crest and trough practiced by the company during these years have shown that after having the negative growth rate in 2003 the company worked hard to achieve 28% growth in 2006. Then again, the company had not sustained its growth rate and jumped through a downfall at the rate of 9% in 2007 from 28 % in the previous year.

The cost of goods sold in Exhibit 2 has also revealed that Flinder Valves and control was also failing in managing its expenditures on the sales of its manufacturing product. As the trend from 2004 till 2008 has shown the huge recurring numbers of COGS in the income statement. The company must maintain its revenue to expense ratio; however, the scenario shows 71% COGS in 2004 and 69% in 2005 & 2006 and 70% in 2007. These rates reveal that the company is paying more than it is earning, by having 70% cost shows that the company is extremely facing the downfall in its operational side. The gross profit was also depressing during these years with the rate of 30% in 2007....................................

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