Pirelli: Investing In Reifen Ritter Harvard Case Solution & Analysis

Pirelli: Investing In Reifen Ritter Case Study Solution

Evaluation of Investment in Markus Business with considering LOC

Evaluation could be conducted on basis of Refine Ritter’s cash flow projections, after the acquisition of loan with the line of credit of 400,00. The projections are done on the basis of the financial statements as well as on the basis of general logical assumption for Refine Ritters, which are provided in the case Exhibits. The line of credit is adjusted in the projected balance sheet with an increase in the amount of inventory and account payable.

The projected balance sheet with the consideration of the line of credit is provided in appendix 7. On the basis of these financial statements, certain ratios have been calculated, which are provided in the appendix 8.

It could be seen from the appendix 8 that the financial performance is more efficient with the consideration of LOC. However, through the evaluation of Pirelli’s cash flow with the consideration of LOC, it could be seen from appendix 9 that the LOC along with the Loan amount has lower rate of returns i.e., 85%. Therefore, it could be concluded that the firm should provide the loan to Mr Markus. (Brigham, 2016)

Recommendations

Pirelli is recommended to provide the loan to Markus, because Markus’s financial projections show a healthier impact on its statements after gaining the loan. Loan should be awarded because at the end; it will benefit Pirelli by increasing its sale up to 50% in future. Markus should not place the condition of  the increase in the credit facility because his leverage ratios are much lower as compared to industry, and the company’s days in payables show an increasing trend, unveilingits incapability to pay to its debtors. Markus’ ability to increase hia volume in sale is great, but after being enlightened to his weak capability in paying his debt, Markus shouldn’t be provided with the increase in his loan’s credit line.

Conclusion

It is concluded that Markus is a potential buyer of Pirelli, and Pirelli is not in the condition to lose its long term customer, who is covering a major chunk of its German Market share. Markus is good at selling the goods in large volume, which is why Pirelli should provide Markus with the loan of 1million, but should not limit its line of credit. Markus’s leverage ratio is not good as compared to the industry’s bench mark, and it is found that Markus’s ability to pay his debt are lower, after analysing his financial statements critically.

Appendices

Appendix 1:

Appendix: 2

Appendix 3:

Appendix 4:

Appendix 5:

Appendix 6:

Appendix 7

Appendix 8

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