Industrial Plastics, Inc. RATIO ANALYSIS

Case 1

Industrial Plastics was a producer of plastic products for a wide range of industrial uses. Products include such diverse items plastic trays used in large manufacturing plants windshields for golf carts. and housings for computer terminals. All the firm's output was custom produced. The production process involved vacuum Conning in combination with hand fabrication. VACUUM forming required the use of a machine that sold for approximately $60,000. Ten of these machines formed the core 'of the firm's productive capacity. The manufacturer of most products began on vacuum farming machines. Products were then transferred to the fabrication department where operations such as routing, scraping, and beveling were performed. The firm marketed its products through the use of manufacturers' representatives. Their territories covered an area within a 300- to 400-mile radius of . the company headquarters in Memphis, Tennessee. The selection and training of representatives was the responsibility of the sales manager, Mr. Neville Larris. - industrial Plastics manufactured only special order produces; therefore, they held no finished goods inventory. All goods were shipped as soon as they were completed. The orders for the custom-produced products were secured through a bidding process. This required the sales representatives to be knowledgeable of what products Industrial Plastics wits capable of producing. Representatives also had to have the ability to convince customers of the superiority of plastic over other materials. It was found that a sales representative with these qualities usually had an outstanding sales performance. . The company was founded in 1951 by two 'brothers, Karl and Beryl Blyden, each invested $25,000. In addition, they borrowed $40,000 from the Colton City National Bank of Memphis. When they started the business, the use of plastics was fairly new, so the brothers spent a significant amount of lime convincing customers that the material was competitive with wood and metal, The firm experienced steady growth, and by 1973 annual sales were 3,000,000. About that time, the 1977, sales had doubled to $6,000,000. However, by 1978, Industrial Plastics was beginning to suffer a significant decline in sales, Consequently, the company was forced to rethink its position in the industrial market. In analyzing the situation, the brothers concluded that their strength was both in products that required both vacuum forming and fabrication. They wanted to have a reputation as a quality producer, capable of making sophisticated plastic products. They decided not to compete with firms that vacuum formed since these firms complied primarily on the basis or price, and the company Ivan not a low-cost producer in the industry. These factors led to development of their marketing strategy. Sales growth renewed in 1979. By 1933, the firm had annual sales of approximately $10,000,000. This growth was financed by the internal generation of funds, plus short and long-term debt from the Cotton. National Bank and the Volunteer, Insurance Company. The latter had financed a building completed in 1981. The firm's banking relationship with the Colton City National Dank had been satisfactory. Mr. Jason Hargrove, vice-president of the bank, met each year at the beginning of March with the Blydens and Mr. Thomas Arcadi, the controller of Industrial Plastics. At that meeting the firm's short-term requirements for the following year were discussed. In preparation for the annual meeting, Mr. Arcadi gathered a number of exhibits (Exhibits 1.1, 1.2, and 1.3) that facilitated ratio analysis of the firm's current financial position.

Prepare a report listing the the strengths and weaknesses of Industrial Plastics from the point of view of Mr. Arcadi.