Tonka Inc Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Tonka Inc Case Study Solution

Introduction

Tonka incorporation is the fifth largest toy company in United States, it is famous for toy trucks, backhoes, construction vehicle and bulldozer having a major portion of corporate sales in present years. Go bot and pound puppies are two paramount achievement. Tonka sales have straight growth in four recent years.

Financial slack

Financial slack refer as spare money by the company to utilize in case of downturn or economic crises when sales, revenues and profit have a down graph. Financial slack helps the company to maintain itself in hard times.Financial slack help the company from not getting killed due to small mistakes.

Example of financial slack strategies

A company can produce financial slack through increase in cash reserve and enhancing debt capacity. Tonka can increase its cash reserves through disposing interest in non-profitable areas, Tonka have product line of electronic games that are facing decline graph in sales, and since, create the option to dispose these interest and increase in financial slack.

Tonka Inc Harvard Case Solution & Analysis

Financial slack can also be increase through designing strategies improving performance and profitability which results increase in reserves.

Financial slack can also be enhance through improving debt capacity, a company having the choice to borrow money and consume it through hard times. Debt capacity refer as the capability available to the individual or company to borrow and repay in reasonable tenure using existing resource. These debt capacity can be increase through improving market credibility and debtor confidence, reducing their risk of loan or interest not to pay back in the required times pan. Company’s debt capacity depends upon the company financial conditions, performance and already owed debt by the company.

Tonka should consider industry condition and projected strategies that will impact as financial constraint before setting financial slack and not setting financial slack appropriately will lead to loose in profitability or closure.

Difference in asset base and asset value

Asset base refers to the underlying asset that give value to the company’s investment or loan. Asset base vary according to the market force. Lender use these physical asset to save at least a portion of money through sale of backed assets if loan is not paid back.

However the asset base include property plant and equipment that are recorded on cost model which reduce value of these asset through systematic deprecation or if there is any impairment, making book value of the asset differ than the market value. Market value is the highest price that a buyer willing to pay which will be accepted by the sale

Tonka have not reported its asset book value on market due to represent High leverage ratio of equity. If the asset were reported on market value this will increase equity value of the company and will further impact debt to equity ratio. In addition these fluctuations in market value will effect profit and loss.

If Tonka move asset base to market value it will represent positive image to debt holders and capital holders, increase debtor confidence and debt capacity as well..........................

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