Miniscribe Case Study
A CASE STUDY ON
MINISCRIBE CORPORATION
July 6, 2012
EXECUTIVE SUMMARY
The case subject revolves around MiniScribe, a manufacturer of disk storage products that is under the watch list for rumors directed to the firm’s problems with cash flow and inventory. The objective of the report is to come up with a BUY OR DON’T BUY recommendation for Alexander & Ferris using the available financial and qualitative information.
The analysis was conducted by deriving additional information from available financial data and proceeding with an interpretation of the results in light of qualitative information. The group developed decision lists for a BUY or DON’T BUY recommendation and these were compared against relevant factors that assess the profitability, efficiency, and sustainability of a company.
Following a thorough analysis of the financial statements, financial ratios, and industry trends, the decision is to proceed with a DON’T BUY recommendation. On the evaluation of profitability, expenses are increasing at a faster rate than sales, and cash flow generated by operating activities is steadily declining, even reaching negative values towards the third quarter. MiniScribe’s position on research and development investments, while it maintains its good reputation in the stock market, is too high to maintain considering the firm’s depleting cash resources. As expenses increase, problems in cash flow and asset management become more and more significant. MiniScribe’s resources are locked in rapidly increasing inventories and A/R balances as indicated by increasing turnover days. Inefficient inventory management and long collection periods lead to more doubts on MiniScribe’s ability to remain liquid. Further pursuing this analysis, liquidity is a prime concern because MiniScribe has been resorting to short-term borrowings and debt to address its cash flow problems. With decreasing cash balances and increasing current liabilities, MiniScribe’s uncontrolled
MINISCRIBE CORPORATION
July 6, 2012
EXECUTIVE SUMMARY
The case subject revolves around MiniScribe, a manufacturer of disk storage products that is under the watch list for rumors directed to the firm’s problems with cash flow and inventory. The objective of the report is to come up with a BUY OR DON’T BUY recommendation for Alexander & Ferris using the available financial and qualitative information.
The analysis was conducted by deriving additional information from available financial data and proceeding with an interpretation of the results in light of qualitative information. The group developed decision lists for a BUY or DON’T BUY recommendation and these were compared against relevant factors that assess the profitability, efficiency, and sustainability of a company.
Following a thorough analysis of the financial statements, financial ratios, and industry trends, the decision is to proceed with a DON’T BUY recommendation. On the evaluation of profitability, expenses are increasing at a faster rate than sales, and cash flow generated by operating activities is steadily declining, even reaching negative values towards the third quarter. MiniScribe’s position on research and development investments, while it maintains its good reputation in the stock market, is too high to maintain considering the firm’s depleting cash resources. As expenses increase, problems in cash flow and asset management become more and more significant. MiniScribe’s resources are locked in rapidly increasing inventories and A/R balances as indicated by increasing turnover days. Inefficient inventory management and long collection periods lead to more doubts on MiniScribe’s ability to remain liquid. Further pursuing this analysis, liquidity is a prime concern because MiniScribe has been resorting to short-term borrowings and debt to address its cash flow problems. With decreasing cash balances and increasing current liabilities, MiniScribe’s uncontrolled