Hill Country Snack Food Co. Case Study

Yangrui Liu

25873067

Yangrui Liu

25873067

cASE STUDY

HILL COUNTRY SNACK FOOD CO.

cASE STUDY

HILL COUNTRY SNACK FOOD CO.

Executive Summary

This report provides an analysis and evaluation of Hill Country Snack Food Co.’s business strategy and capital structure. Methods of analysis include horizontal and comparative analysis by studying financial ratios such as current ratios and net profit margin. All calculation can be found in appendices. Results of analysis show that this firm is a well-managed firm with low business risk and the optimal capital structure is debt representing 20% of total capital. Finally, considering the benefits brought from the financial leverage, the capital structure is recommended to change.

Company Overview

Hill Country Snack Food Co. (“HCSFC”) manufactured, marketed, and distributed snack food in U.S. with the corporate culture of risk-aversion and shareholder value orientation. Due to efficient operations, quality products and strong position, the firm enjoyed growth and success in past. HCSFC is currently an unleveraged firm while it is expected to have a more aggressive capital structure in the near future under strong recommendations from analyst conference.

Business operating Strategy

HCSFC is a well-managed company where all decisions are made to maximize the shareholder value with lowest uncertainty and cost control. One of the greatest component contributes to firm’s success is the tight cost control. From exhibit 1, HCSFC had 1364.6 million sales in 2011 which was smaller than that of SL (abbreviation of Snyder’s Lance) while net income of HCSFC was more than 2 times that of SL. Comparing to SL, HCSFC had more efficient cost control procedure. Another success factor is firm’s demonstrating position in the region where experiencing both population and economic growth. That’s why financial crisis happened in 2007 and 2008 had negative impacts on HCSFC’s operation. From Chart 1, sales growth rate in 2007...