**you will find the at the very first paragraph ,what what the manager is concerned with , manager has to take decision regarding sometime , what is that problem , you have to figure out that problem of this case and write about it , then give the possible solutions ( couple of solutions )of the problem ( give different ways to solve the problem) .**

Tonka Corporation, the fifth largest toy company in the United States, had two of the most successful years in its history in 1985 and 1986. The company's sales of $293 million and profitability of $22 million were unprecedented; Tonka also had issued more than 1 million shares of common stock in December 1986 and had retired its long-term debt in January 1987, both of which contributed to its low leverage and high liquidity. Becoming and remaining financially sound was a difficult task in the toy industry, because of the typically short life spans and "hit or miss" nature of most products. Now, in February 1987, Tonka's management was undergoing a capital-structure policy review in an effort to determine whether the company could use its financial resources more efficiently and yet remain conservative. THE TOY INDUSTRY Over the past several years, a trend toward consolidation was evident within the toy industry. II) 1983, the top five toy companies in the United States were responsible for 32.7 percent of total sales; by 1986, that figure had risen to an estimated 44.2 percent. In 1984. Hasbro, Inc . acquired Milton Bradley, best known for the board game Monopoly, and, in 1985, it acquired certain assets of another toy company, Child Guidance. In 1986 alone, Coleco Industries had acquired two other companies (including Selchow & Righter, the producer of Scrabble and of the blockbuster board game of 1984, Trivial Pursuit), the product line of another. company, and the North American subsidiary of Tomy Kogyo, a toy company that specialized in high-technology applications. The results of these consolidations are shown in Exhibit 1.

EXHIBIT 1 Percentage of Industry Sales by Company (dollars in millions) i Est. 1982 1983 1984 1985 1986 Coleco Industries ......... 7.8% 9.4% 10.2% 9.2% 6.0% Hasbro, Inc. ............. 2.1 3.5 9.4 14.7 16.1 Kenner Parker Toys" ..... NA 8.5 8.5 7.6 6.0 Mattel,Inc.t ............. 21.1 9.9, 11.6 12.5 12.p Tonka Corporation ....... 1.2 1.4 1.8 2.9 3.5 Subtotal for 5 largest toy companies .......... 32.2% 32.7% 41.6% 46.9% 44.2% Kenner Parker was a wholly owned subsidiary of General Mills until November 1985. t In 1982, Mattei sales included revenues from Ringling Brothers, Barnum & Bailey Circus. Sources: Steven Eisenberg. Bear. Steams & Company. "Toy Industry Review." December 1986. p. 1; and Value Line Investment Survey. Of the approximately 800 toy companies in the United States, only the largest were able to minimize sales and profit volatility through diversification. Even they were not always successful, however, as shown in Exhibits 2 and 3. Each company's fortunes rose and fell with the success or failure of its latest products, and even the biggest hits tended to have life cycles of only one or two years. In 1984, Coleco's sales, for example, rose from $597 million to $775 million, then declined to $501 million in 1986. Kenner Parker's sales rose from $539 million in 1983 to $648 million in 1984, before falling back to $503 million in 1986. MatteI's sales rose rapidly for two years and then stabilized for two years at about $1.06 billion. Tonka's sales, however, grew rapidly for four straight years. Exhibit 4 provides a breakdown of total industry sales by product type. With the exception of games and puzzles, plush toys, and infant and preschool toys, estimated 1986 sales by category were flat or down by as much as 25 percent, as was the case with action figures, dolls, and electronic games. As a result, overall industry sales were down $27 million in 1986. Within each segment, the basic and technology-enhanced toys did well, and industry analysts expected retailers to limit inventory risk in 1987 by concentrating on those types. Regarding the strength of the toy industry as it moved into 1987, a December 1986 report stated: Aggregate industry shipments remain flat. ... The industry has essentially been unable to offset this softening with any meaningful new or exciting category of products.' The toy industry also was susceptible to changes in demographics, in seasons, and in the economy. By early 1987, the factors that contributed to toy company