745 million in 2000 and the low value of $15.737 million in 1998
The operating profit also fluctuated between $21.250 million in 1997 to a negative 17.591 million in 2000
The net income followed a constant descendant trend, decreasing from $12.368 million in 1997 to -$26.393 in 2001 (Keystone Workbook, Historical Common Size Income Statements)
Relative to financial ratios, the following must be considered:
All ratios of operational analysis are larger than the industry averages, meaning that the company operates at high levels of quality and performance
With the exception of payable turnover and cash conversion cycle, all resource management ratios are superior to the industry averages, meaning that Keystone is fairly able to use its resources and transform them into money
Profitability ratios are equal or below the industry averages, meaning that the company is less able to generate earnings in comparison to the costs it incurs
Investment returns are also inferior to the industry averages, meaning that Keystone is less able to use the attracted investments to generate money
Liquidity ratios are higher than industry averages, meaning that the company is better able to honor its short-term commitments than other players within the steel industry
Financial leverage ratios are significantly over the industry average, revealing a growing risk for Keystone to find itself in an impossibility to pay its debts, and as such face bankruptcy.
5. Analysis and Recommendation Relative to the Proposition
The current proposition refers to the offer to purchase 54% of Keystone's interest and become as such the largest owner. The financial figures imply an estimated investment of $3.54 million, with a possibility of gaining access to more than $300 million in earnings. Nevertheless, considering that the company follows the sustained decline in revenues commenced five years ago, the actual gains could be highly decreased. Additionally, the current promise of $300 million earnings could not be sustainable once debts are paid. Nevertheless, keeping aside what...
Advantages and Disadvantages of Controlling a Publicly Traded Organization
Being the major shareholder at a publicly traded company implies a wide series of advantages as well as disadvantages. Some of the most important ones are succinctly presented below:
Advantages:
More money can be attracted through the issuing of new stocks, increasing premiums on old stocks or conversion of stocks
The payment of dividends can be delayed until the company registers sufficient profits, action which is impossible in cases when funds are attracted through debt
Disadvantages:
Shareholders are entitled to a certain percentage of the company's earnings, meaning that the final profits are reduced
The profits distributed in the form of dividends are legally perceived as income, rather than debt, and are as such subjected to taxes
The shareholders reveal an increased ability to interfere within the decision making process
7. Final Recommendation
Based on the analysis conducted, it becomes obvious that the opportunity presented is in fact a highly risky one. It is even more so challenging when the fund possesses limited expertise in sharing income and control with stockholders and when the current climate of the steel industry is not a favorable one. Nevertheless, Keystone Consolidated Industries reveals numerous strengths, materialized primarily in its performances, observable in terms of financial ratios analysis. This analysis recognizes the limitations of Keystone, but presents them in light of all challenges facing the industry. Pending this assessment, the final recommendation is that of purchasing the 54% interest in Keystone. The main reasons behind this decision revolve around the proven capabilities of the company, its recent investments in infrastructure development and the bright looking future of the industry.
