Hansson Private Label, Inc.: Evaluating an Investment in Expansion Â Case Solution
The gross margin of the company is in a strong position for the historical results from 2003 to 2007, the margin remains at the percentage between 15% and 20% for the five years. However, the gross margin rate with the project will also be strong. The gross margin is15% to 19% in the first five years and 19% to 20% in the last five years of the project. This shows that the costs of goods are controlled efficiently by the company.
Selling, General and Administration over Revenue:
The selling, general and administration expenses over the revenue ratio are almost same for both sides. The ratio is around 7% to 8% in the historical financial of the company and in the project financial results in the Selling, General and Administration over revenue being 8% for all the ten years of the project. This is due to the projections for the project and it is very difficult t
o maintain the constant percentage of the ratio for the ten years.
The EBITDA margin is the earnings before interest tax and depreciation over the revenue of the company. The EBITDA margin in the historical results of the Hansson Company is 12% and 12.3% in the 2003 and 2004 year. However, the margin has reduced significantly in 2005 to 7%. The margin was then increased to 11.2% and 10.8% in the years 2006 and 2007 respectively. The project has given this ratio between 7% to 11% in the first five year phase and then 12% for the next five year phase of the project.
The EBIT margin is the earnings before interest and tax over the revenue of the company. The EBIT margin of the company is at strong and acceptable level between 9% and 11% in the historical financials except in the 2005 year when the margin was 7%, which is the lowest margin of the company. On the other hand, the EBIT margin of the project is much less than the historical results of the company. The EBIT margin of the project is from 3% to 8% for the first five years of the project and 9% for the whole five year phase of the project. This shows that the project is under performing on the basis of projected information of the project as compared to the existing operations of the company.
Net Income Margin:
The net margin is the net profit of the company over the sales of the company. The net profit margin or net income margin of the project is at significant low level between 2% to 6%. On this basis there is a least chance that the management of the company would approve the project.However,when we see the net margin of the company in its historical financial results, then the management could approve the project because the net margin of the company in its historical data is not much higher than the projectâ€™s. The net margin of the company in the past years was from 3.4% to 6%. This shows that the company only gets 3% to 6% of its revenue as disposable after paying the entire expenses and obligations.
Debt over total assets:
This is the ratio of the debt of the company over the total assets of the company. The ratio of the company according to the historical financial results shows that the debt to asset ratio was around 14%, which shows that the debt used by the company is 14% of the total assets of the company. On the other hand, if the company decided to finance its project completely through debt finance, then the ratio will be 30% assuming the total assets of the company will remain same as in 2007. This shows that the debt to total asset will not increase if the company finances its project through debt financing completely…………
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