D'Leon Inc. Case Study

Contents

Section I: Introduction 1

Section II: Financial Analysis 2

Internal Analysis and Consequences of Expansion 2

External Analysis and Investor’s Perspective 3

Section III: Ratio Analysis, Comparison, Interpretation, and Recommendations 5

The Importance of Ratios 5

Liquidity Ratios 5

Asset Management Ratios 5

Solvency Ratios 7

Profitability Ratios 7

Market Value Ratios 8

Section IV: DuPont Analysis’s of 2008 and 2009: A comparison 8

DuPont Analysis 2008 8

DuPont Analysis 2009 9

Section V: Recommendations on Policies 9

Collection Policies 9

Production Policies 10

Accounting and Finance Policies 10

Section VI: Conclusion 11

Appendix – Balance Sheet 12

Appendix – Classified Balance Sheet 13

Appendix – Balance Sheet / Trend Analysis / Common Size 14

Appendix – Income Statement 15

Appendix – Income Statement / Trend Analysis / Common Size 16

Appendix – Statement of Stockholder’s Equity 17

Appendix – Statement of Cash Flows 18

Appendix – Ratio Analysis 19

Appendix – Free Cash Flows 20

Appendix – Net Working Capital 21

Appendix - DuPont 22

Bibliography 23

Section I: Introduction

D’Leon is a small, snack food manufacturer based in North Florida that specializes in high-quality pecan and other nut-based products sold in the snack foods market. In 2007, D’Leon’s president, Al Watkins, made the decision to expand into the national market and compete with brands such as Frito-Lay, Eagle, and other major snack-food companies. Watkins believes the superior quality of his snack food products allow D’Leon to charge a premium price for its products. Watkins also believes the expansion will greatly increase sales, profits, and stock price.

In the expansion, D’Leon doubles plant capacity, opens new sales offices, and launches an expensive advertising campaign. Post-expansion performance is unsatisfactory. Sales are not up to the forecasted level and costs are higher than projected. As a result of these...