Group Case Snead’s Dry-Cleaning Company

Group Case Snead’s Dry-Cleaning Company

This assignment focuses on Dun and Bradstreet’s key business ratio analysis,a current financial situation analysis, and strategy development.

Fourteen Key Business Ratios Used by D&B https://www.dnb.com/product/contract/ratiosP.htm

The Seven Key Ratios Used in Key Ratio Analysis

http://ezinearticles.com/?The-Seven-Key-Ratios-Used-in-Key-Ratio-Analysis&id=5873597

Required Elements to include in Financial Analysis:

  • There are numerous qualitative and quantitative issues to address. Develop a strategic plan addressing both qualitative and quantitative issues;
  • Review the financial data provided at the end of the case study and calculate the key financial ratios important to Sheldon, potentially to his bank or other investors, and apply them to your analysis;

Required Formatting of Paper:

  • This report should be double spaced, 12-point font, and five to six page written analysis excluding the title page, reference page and .spreadsheets;
  • Provide projections of the company’s financial position.
  • Title page with your name, the course name, the date, and instructor’s name;
  • This paper should be written in the third person.
  • Use APA formatting for in-text citations and reference page. You are expected to paraphrase and not use quotes. Deductions will be taken when quotes are used and found to be unnecessary;
  • Submit the paper in the Assignment Folder.
  • Check the below Case Study

Group Case:  Snead’s Dry-Cleaning Company

 

Sheldon Snead’s uncle has owned and operated a dry cleaning business in a residential area near downtown Washington, DC for 30 years. It has been successful enough for his uncle to raise a family, send three children to college, and save enough for an OK retirement.

 

As Sheldon’s uncle plans for retirement he finds that no one in the family is interested in the business.  Sheldon worked for his uncle during the summers while in high school and began working there again after his recent layoff from a management-consulting firm, which allowed him to look for other work.

 

Sheldon’s uncle asks him whether he would like to take over the business and to eventually buy it. This is a good situation for his uncle, because he can continue to work for a while and still earn money, delaying retirement, and he can better plan the succession of the business. Sheldon see the merits of the situation, too, and starts to think about it seriously.

 

Some details about the business:

  • One location in a neighborhood zoned for residential and commercial activity near many professional office buildings.
  • The business has between 400 and 600 regular customers, and about 800 names in its computer listing.
  • The dry cleaning equipment is co-located to the storefront. The equipment is at its end of life and in need of replacement probably in the next 3-5 years
  • The business owns the building and land, valued at about $250,000. There is a small improvement loan outstanding on the property
  • The business profile is roughly as follows

o   Income statement (See attached)

o   Balance sheet (See attached)

  • The storefront area also requires renovation: new floors, countertops, computer and point of sale (POS) equipment, management system, etc. The total investment in new infrastructure is as follows:

o   New Equipment: Purchase price $100,000 -$125,000

o   New POS equipment: $10,000-$20,000

o   Renovations in storefront: $15,000-$30,000

  • No family members are interested in working there, and Sheldon will need to hire employees at rates higher than his uncle ever paid.
  • A major dry cleaning chain has just opened a modern establishment a few blocks away and its rates are between 5% and 20% lower than Snead’s. Its cleaning and laundry are done in a different building 20 miles away.

 

As Sheldon thinks about the business more, his uncle advises that he will need to expand the business in order to be different and to add services that are trendy.  His uncle recommends:

(1)              Some sort of concierge pickup and drop off service?

(2)              Tailoring and repair?

(3)              Collaboration with shoe and luggage repair?

(4)              8-hour turnaround service?

(5)              Other?

 

Sheldon is not sure about all of these recommendations, but some might work. He sees a facility that could use modern equipment and that could handle more throughput, perhaps by expanding operating times from the normal 8-9 hours per days to a 12-16 hours per day with 1.5 or two shifts of staff.

 

Through an acquaintance at the office building where he previously worked, Sheldon knows of a small retail space on the ground floor entrance that is available for a very low cost (about $3500/month) and where he could set up a receiving operation for dry-cleaning and laundry that would be further processed at the main facility.

 

The new equipment costs concern him, because Sheldon knows that he will not qualify for a loan and he would need his uncle to remain in the business for that reason alone. He recognizes the immediate threat of the discount establishment nearby and will need to develop a plan to retain his customers and attract new ones. He also sees that this is a business where there is not much growth in scope. He wonders if there are any other subcontracting opportunities, but he doesn’t know.  Then, of course, he will need to generate enough revenue to be able to buy the business from his uncle.  He hopes that in a few years of operation, he will be able to qualify for his own loan and become fully independent. His assets will always consist of only the building, any equipment and tools, and his cash flow. From his experience with the business, he knows that he will need to maintain an earnings target of at least 15%, but to qualify for loans in the future, he will need to get to and maintain a 17% to 20% ratio.

 

 

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