Paraphrase

FIN423

Fantastic Manufacturing Inc. Strategy Paper

To solve Mr. Rose and Mr. Turner’s problems, we must look to the financial health and the environmental factors surrounding Fantastic Manufacturing Inc. Once a base has been established we can then evaluate the need for increased financing in the company and decide the strategy of which level of fan parts to order. The key to all of this is by forecasting and not just short term forecasting will do such as months, we need to forecast for multiple years.

To begin we will need to figure out the financial ratios relating to the health of the firm, This information will add up and help us figure out the forecasts. Total assets to total liabilities of 1.13 is great when it comes to liquidity in the company. It shows for future reference Fantastic shouldn't have any liquify problems. There are other ratios to consider as well, such as receivables turnover, inventory turnover, and debt to sales. Fantastics debt to sales does show a problem when it comes to collecting debt, Fantastic seems to be unable to collect debt from smaller clients. This uncollected receivables increases Fantastics future write offs which leads to unhealthy books and bad financial health. A solution for this can be for Fantastic to move towards larger clients or become more strict with who the begin business with.

You will need to prepare forecasts of Fantastic’s financial statements and cash budgets for 1981-1982. A big question is about how long to forecast for, Fantastic has been forecasting for months ahead but demand for ceiling fans has grown so fast that those forecasts were rapidly outdated. Monthly forecasts sound more appropriate for Fantastic’s situation and rapid development. These forecasts should be taken from the financial ratios solved in the beginning but additional data will be used to alter the results depending on the environmental conditions. Such an example would be that forecasting for this specific company should be done during the busy months of the company’s sales. Fantastic does need to resolve some of its issues like mentioned before. One of those problems stems from being able to accurately forecast sales, Like mentioned before creating a monthly forecast will be beneficial when it comes to Fantastics busy months compared to their slow months. This will help Fantastic adjust their inventory sizes passed on forecasted order sizes.

I believe in order to Fantastic to keep up with demand and improve financial funding, they need to consider short term funding. This will help stabilize the company depending on the volatile seasons since Fantastic does a great job already paying off current liabilities with credits. Another solution can be for Fantastic to begin keeping cash reserves, this will entirely eliminate the need for funding and can be taped into whenever. However another small problem comes into play such as the new warehouse Fantastic being using. This seems like wasted space and can be effecting Fantastic negatively when it comes to wasting resources. The warehouse they currently have can fulfill volumes of sales close to $100 million but Fantastics current sales volume is nowhere near this. I do understand they are preparing for growth but at this rate the warehouse seems like too big of a step in that direction.

In the end I believe Fantastic is in the right direction but needs slight adjustments in order to keep heading in the right direction. the need for expansion is imminent especially when taking into account the growth the company is experiencing. And in order to keep up with demand the funding is the best way to increase financing. One extra important factor to maybe consider is currency fluctuations since Fantastic is dealing with other suppliers from around the world. But this could be irrelevant,