Smart Union Toy Company
Accounting: Case Study for Toy Story
Assignment: Toy Story Summary
Main problem – loans will become due and they might need short term financing
Questions:
1. How does Smart Union make money? What are the key success factors in Smart Union’s business? What are the major risks the company is exposed to?
Smart Union is engaged in the manufacturing and trading of recreational and educational toys and equipment for OEMs, such as Mattel, Hasbro, and Megablocks. The company has diversified product classes including hard and electronic toys, soft toys, educational and recreational products, and sports products. The company’s major product line was hard and electronic toys, followed by educational and recreational products. Smart Union has a vertically and horizontally integrated operation which offers one-stop production capabilities encompassing design, model fabrication, tooling, different processes of manufacturing, assembly, and packaging.
Key success factors • Managing operating costs • Obtaining financing at as low cost as possible • Managing working capital and maintaining good liquidity to absorb cost increases • Achieving a high inventory turnover • Maintaining competitive prices • Hedging the risk of rise in crude oil prices • Obtaining long term production contracts from manufacturers to ensure stable revenue
Risks
• Shortage of labor, which can add cost pressure • Foreign currency risk • Rise in crude oil prices, since a significant portion costs were derived from plastic resins made from oil derivatives • Average net profit margins were likely to drop as a result of increase in raw material costs and labor shortages • Influence of technology on traditional toy purchases by children • Global economy – people spend less on toys if there is a recession • Raw material cost – silver is an increasing cost item, they bought a silver mine company to offset costs of
Assignment: Toy Story Summary
Main problem – loans will become due and they might need short term financing
Questions:
1. How does Smart Union make money? What are the key success factors in Smart Union’s business? What are the major risks the company is exposed to?
Smart Union is engaged in the manufacturing and trading of recreational and educational toys and equipment for OEMs, such as Mattel, Hasbro, and Megablocks. The company has diversified product classes including hard and electronic toys, soft toys, educational and recreational products, and sports products. The company’s major product line was hard and electronic toys, followed by educational and recreational products. Smart Union has a vertically and horizontally integrated operation which offers one-stop production capabilities encompassing design, model fabrication, tooling, different processes of manufacturing, assembly, and packaging.
Key success factors • Managing operating costs • Obtaining financing at as low cost as possible • Managing working capital and maintaining good liquidity to absorb cost increases • Achieving a high inventory turnover • Maintaining competitive prices • Hedging the risk of rise in crude oil prices • Obtaining long term production contracts from manufacturers to ensure stable revenue
Risks
• Shortage of labor, which can add cost pressure • Foreign currency risk • Rise in crude oil prices, since a significant portion costs were derived from plastic resins made from oil derivatives • Average net profit margins were likely to drop as a result of increase in raw material costs and labor shortages • Influence of technology on traditional toy purchases by children • Global economy – people spend less on toys if there is a recession • Raw material cost – silver is an increasing cost item, they bought a silver mine company to offset costs of