C.R. Plastic Case Analysis

[pic 1]To:           Dragon’s Den[pic 2]

From:      C. R. Plastics

[pic 3]Re:           Pitch Memo

Recommendations:

1. We want to ask for additional $2 million of equity financing, under the assumption of choosing the level production method
2. We would like to give up 30% of the equity control of our company
3. Based on our analysis, the return on $2 million investment will be 12.9%, which is almost 4% higher than the bank interest rate
4. If the investors can provide us with some extra support, such as management teams, marketing support, branding effect, corporation opportunities, we will consider to give up more equity controls (e.g. 5% more)
5. We believe our company’s differentiation strategy will make us unique and very attractive for investors. We have been focusing on creating high-quality, eco-friendly, durable, and recycled plastics furniture, which represents the future trend. We believe our company has a huge potential growth, and both future demand and sales will increase. As a result, the investors will earn higher return on investment

Analysis:

Overall, we believe our company has huge potential growth. According to the industry analysis in exhibit 3, most competitors are pursuing low-cost strategy. Their products are basically the same as other competitors with undifferentiated features, thus, their future profit margins are constrained by these disadvantages.

On the other hand, for our company, we successfully differentiate our product by creating high-quality, environmental-friendly, durable, and innovative recycled plastic outdoor furniture. This strategy helps us to gain market shares. Our main product is the original Adirondack, which comprises 50% of our total sales. We keep on introducing new designs and colors to improve the function of our product. Moreover, the environmental mission and durable design is playing a more and more important role in consumers’ mind when selecting furniture, which gives our company a competitive edge over other competitors, since almost no one is thinking green.

In addition, we may get an opportunity to expand our distribution channels by selling our product to Costco. Costco has the capacity to store more inventories that helps us to reduce holdings. We will continue to work on brand identity and to increase our customer base.

Ratio Analysis:

Our company’s current ratio increased from 1.99 in 2010 to 3.77 in 2011, and the cash ratio also increased from 0.102 in 2010 to 0.137 in 2011, which shows that our company has improved our working capital management. Both inventory turnover and A/P turnover increased, but A/R turnover decreased. Thus, its cash conversion cycle dropped dramatically from 354 days in 2010 to 183 days in 2011. Due to higher sales and net income, our company’s ROA, ROE, and profit margin all increased from negative numbers to positive numbers, which indicates higher profitability. Its debt-to-equity ratio dropped from 3.59 in 2010 to 1.2 in 2011, which shows that our company has improved its capital structure.

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