C.R. Plastics Case Study: Financial Challenges and Strategic Solutions

This case study analyzes C.R. Plastics, a Canadian manufacturer of recycled plastic outdoor furniture, facing financial challenges due to limited resources and seasonal demand fluctuations. The primary problem is determining the appropriate funding amount to seek on the TV show Dragon's Den, balancing the need for capital with the implications of offering equity. The analysis identifies the problem, proposes alternative solutions like loans, debentures, inventory management, and cash sales promotion, and evaluates their effectiveness. The recommended solution involves a combination of strategies, including leveraging existing credit, securing additional loans, and optimizing cash flow through debtor discounts. The study includes performance assessments based on gross and net profit margins, highlighting the company's recovery from previous losses. It calculates the funds required based on projected balance sheets and evaluates the company's intrinsic value to determine the feasibility of the funding request. The analysis concludes with a recommendation for a strategic mix of financial tools to ensure the company's growth and financial stability.

CASE STUDY ASSIGNMENT 2
Introduction
C.R. Plastics is owned by Jamie Bailey. The venture is founded by Mr.Bailey who is
president too. The company deals in manufacturing of recycled plastic outdoor furniture in
Canada and has been providing quality product since its inception. The company has limited
resources and there are lean and peak season in business and the requirement for additional
finance crops every year to meet the production and demand of the product throughout the
yeas especially during peak season of the business whereby the venture works on three shifts.
Mr. Bailey is thinking of raising funds for meeting demands through a network television
show Dragon’s Den but he is in a dilemma regarding the amount of funds to be raised for the
purpose of financing as he cannot reduce the amount once sought in the show and less
amount sought shall not come to his full aid.
Step 1: Identification of the Problem
The major problem identified in the report is the amount of finance to be sought by Mr.
Bailey at the TV show to meet the production and demand of the business as the same
involves offering of equity of the venture. Thus, the dilemma of identifying the correct
amount of finance is the core issue of the report as the excess amount shall involve additional
equity offered with no additional demand and lower amount demanded shall result in
insufficient funds at the disposal of the company. Further, the Bailey does not wish to
increase loan of the company.
Step 2: Formulation of Alternative Solution to the problem
The alternative solution to the problem includes the following:
(a) To continue with the existing methodology of taking loan instead of offering equity to
third party;
(b) Raising funds through debentures and Commercial Papers during peak season;
(c) Reducing Production to the level of capital available;
(d) Reducing inventory turnover ratio;
(e) Offering discount to debtors to ensure quick payment;
(f) Promoting Cash Sales.
The most viable solution among the following shall be
(a) To continue with the existing methodology of taking loan instead of offering equity to
third party;
(b) Raising funds through debentures and Commercial Papers during peak season;
(c) Reducing inventory turnover ratio;
(d) Offering discount to debtors to ensure quick payment;
(e) Promoting Cash Sales.
Step 3: Evaluate and compare the alternative solution
To continue with the existing methodology of taking loan instead of offering equity to
third party : Under the said system, company can continue with the existing methodology as
sales are going to bolster and the financials of company are strong as it is making profit on

sales. Thus, continuing with the existing methodology shall bolster future growth of the
company. The weakness of the above method is that there is credit crisis
Raising funds through debentures, Commercial Papers or short term loan during peak
season: Raising of funds during the peak season of the company shall help the company to
meet its future credit requirement and shall support the business activity. Further, the loan can
be secured against the working capital of the company to ease the availability of funds for the
company. The major weakness is that there is credit crisis.
Reducing inventory turnover ratio: The third solution that can be think of is ejecting the
issue through its roots by reducing inventory turnover ratio and using Just in time concept.
However, the same might increase the cost of production of the company on account of
double and triple shifts.
As an alternative company can try to maintain minimum inventory as per requirement to
reduce capital blockage. Further Cash Conversion Cycles can also be reduced to combat the
issue of financing.
Offering discount to debtors to ensure quick payment
As evident from Balance sheet of the company, a huge chunk of cash resource of the
company is blocked in Account Receivable. Mr. James should chalk out incentive plan to
enable speedy realisation of cash from the debtors of the company by offering them discount
and thus manage the limitation of finance issue. The weakness is that the same may not
suffice the requirement of financing by 100%.
Promoting Cash Sales
The company should promote cash sales to mitigate the issue as increase cash sale shall meet
the requirement of finance of the company, thereby resulting in cash availability to meet the
demand requirements. The weakness is that the same may not suffice the requirement of
financing by 100%.
Step 4: Recommend and justify an effective Solution
The most effective solution to the proposed problem is the mixture of two or more alternative
solution as both operating efficiency and external finance shall be mixed to combat the
current problem. Thus, the company shall continue to use existing credit facility along with
procuring additional loan from the market at peak seasons and shall offer discount to its
debtors to ensure quick and speedy payment to reduce the overall finance requirement.
Thus, an effective combination of two or more alternative solution shall help the company to
overcome the current problem stated in the report. The solution is effective as the availability
of funds shall reduce the requirement of external finance and any shortfall can be easily
manageable through line of credit or external borrowings. Thus, self-dependency shall also
bolster the growth of the company.
As stated in the balance sheet too, that major of funds are blocked in the accounts receivable.
Hence, managing the same shall help the company to meet its funds requirement.

Performance Assessment of C.R. Plastics for past years
The computation of Gross Profit Margin and Net Profit Margin has been presented here-in-
below:
Sl No Particulars 2006 2007 2008 2009
1 Sales 2390890 2767003 3352841 4288432
2 Gross Margin 869325 626475 787038 1622455
3 Gross Profit Margin (%) 36.36% 22.64% 23.47% 37.83%
4 Net Profit 259725 -143681 -200149 208992
5 Net Profit Margin (%) 10.86% -5.19% -5.97% 4.87%
On perusal of the above, it can be inferred that company is trying to recover from its lost
making situation in past two years. Further, the gross margin has also shown a sharp increase
in 2009. Thus, the company is trying to increase its operating efficiency and shall further try
to curb its operating expenses by managing its production activity. On an overall basis, the
company is running on a rough trajectory but its slowly coming back on line under cut throat
competition.
Fund Required by the company
The fund required by the company has been computed on the basis of difference in asset in
present balance sheet and the proposed balance sheet with the highest total of assets. The
same has been presented here-in-below:
Sl
No Particular Present Balances
heet
Future Balance sheet
(June)
Differenc
e
1 cash 89111 100000 10889
2 Prepaid Expense 39408 42000 2592
3 Account Receivable 381210 2300000 1918790
4 Inventory 35971 1084546 1048575
5 Furniture and Fixture 719338 22077 -697261
6 Computer Equipment 22077 21787 -290
7 Shop Equipment 888120 1560873 672753
8 Leasehold
Improvements 96880 104033 7153
9 Total 2272115 5235316 2963201
Further, the intrinsic value of the company has been computed based on the balance sheet of
2010 estimated and the amount Mr. Bailey demand compared to 30% of intrinsic value of the
company stands at 15.83. The same may be rejected. Further, no data regarding market
comparable and the market value of the company is provided. Hence, a deep analysis could
not be done.

Sl No Particular Amount
1 Share Capital 250
2 Retained Earnings 623531
3 Total Equity 623781
4 30% of Equity 187134.3
5 Amount Demanded 2963201
6 Multiple 15.83462251
However, when the same is analysed based on September 11 Financials, the proposition shall
seem feasible at 7.88 multiple.
Based on September 11 Projected Balance sheet
Sl No Particular Amount
1 Share Capital 250
2 Retained Earnings 1251725
3 Total Equity 1251975
4 30% of Equity 375592.5
5 Amount Demanded 2963201
6 Multiple 7.889404075