This case study is about a manufacturing company that designs, customize, and manufacture connector that are used to reinforce wood joins for construction purposes. The company has a good reputation in the industry and among construction professional for its customized products, and is consider one of the leading companies in the industry by enjoying a 60 per cent market share, which had fallen from 70 per cent in recent years; however, since 2006 to 2008, the company has seen its net income fall from $1456 to $7, which have raised concerns about the overall performance of the company among its executives. After analyzing the company’s finances, I have concluded that there are three main reasons for company’s low performance: Poor investment management, competition in the industry, and low demand due to recession.
Universal connector is company that offers similar variety of products as strong tie, and it is a direct competitor for strong tie with a 30 per cent market share. Universal connector had adopt a very aggressive strategy to reduce its production cost and prices by closing several plants in the U.S and open new plants in china; putting great downward pressure on industry prices. As a response, Strong Tie had invested heavily into new equipment and machinery in an effort to automate its production process and reduce its labor cost; however, the results had not been what it was expected.
Even though strong tie had become a more efficient company by investing in plant, property and equipment, and by reducing its days in work in progress ratio from 7 in 2006 to 1 in 2008, the company has not become more effective. An analysis on the company’s financial ratios has shown that its fixed asset turnover ratio has decrease, its long-term debt has increase, its return on asset has also decrease, and the company is now holding less cash on hand. Therefore, the decision made by management to invest in new equipment has not yet pay