NAME STUDENT ID
Dhrubo Ahamed 112 192 001
TONKA
Md. Mustakim Uddin Mishu 112 193 064
CORPORATION
Satta Ranjan Das 112 193 061
Tonka Corporation is the fifth largest toy company in the United Stated
It’s best known for traditional line of sturdy metal toy
The company diversified into other products
INTRODUCTION Tonka reviewed between 3000 to 4000 new toy ideas each year
Sales were increasing over 1985 and 1986
In 19986 company issues 1 million shares in the market
The company objective was to increase the product lines to the point
The US economy has been
experiencing growth in various
aspects since 1980, such as real
GNP growth, disposable income,
unemployment, consumer price
index.
YEAR REAL DISPOSABLE UNEMPLOYMENT CHANGE IN AVERAGE
GNP PERSONAL RATE CONSUMER PRIME
GROWTH INCOME PRICE INDEX LENDING
RATE
ECONOMY 1984 6.8 10419 7.5 4.3 12.04
ANALYSIS 1985 3 10622 7.2 3.6 9.93
1986 2.9 10947 7.0 1.9 8.33
Development in real gross
national product went down, but
unemployment and interest rates
and real disposable per capita
income rose by 2% in 1986.
PORTER’S FIVE FORCE MODEL
Threats of New Entrants : LOW
INDUSTRY Threat of Substitute : MODERATE
ANALYSIS Competitive Rivalry: MODERATE
Threat of Suppliers: LOW
Threat of Buyer: MODERATE
Liquidity Ratio 1986 1985
Current Ratio 251.59 165.95
Profitability Ratio 1986 1985
Gross Profit Margin 46.012 45.706
Operating Profit Margin 15.44 17.342
Net Profit Margin 7.6005 7.9787
Return on Total Asset[ROA]
RATIO Earnings per Share
14.061
290.74
15.815
297.26
ANALYSIS Leverage Ratio 1986 1985
Debt Ratio 39.281 58.394
Long term debt Ratio 5.1702 6.5693
Debt to Asset Ratio 39.281 58.394
Debt to Equity 64.694 140.63
Equity Multiplier 164.69 239.77
Interest Coverage Ratio 1060.5 1005.6
Strength
Diversified
Product Line
Largest market
share
High investment
for product Weakness
Lack of wide
research &
SWOT development distribution
Low quality of
products
Opportunity
Scope to develop
ANALYSIS Less innovative
ideas
High market
opportunity Threat
Low product life
cycle
Too high
competition
Inflation in local
market
Small Product Life Cycle
Revenue from one product
Business Risk Less innovative ideas
Lower market share than competitors
2.96
Financial Risk
1.11 1.1
1984 1985 1986
Number Year Financial Risk
1 1984 2.964285714
2 1985 1.110429448
3 1986 1.104109589
Product life cycle is short so that product declined so fast in the market
Demand was lower due to higher price charging and lower brand image
Lack of new technology
Problem Statement There was a trend toward consolidation in the toy industries.
Only basic and technology-enhanced toys did well in mid 1980s.
The industry was unable to produce any new and exciting category of
products.
Current capital structure
Alternative Course
20% debt to total capital
40% debt to total capital
60% debt to total capital
COGS 8%
Advertising Expense 4%
Sells, general and administrative 5%, operating cost will increase
by 10% Depreciation 10%
of Fixed Asset
Sales growth rate 8%
Assumption Operating working capital 15% of sales
Terminal Growth rate of FCFF is 5%. WACC is 12%
Cash, Account Receivable, Plant, Inventory will grow at 8%
Accounts Payables, Accruals will grow at the rate of 25%
Additional Fund needed will be financed by Bond
Other expenses 5%
PV of FCFF $1,644.24
FIRM VALUE $1,689.04
Value of Debt 16.7
Capital Structure Value of Preferred Stock Value of Equity $1,672.34
Number of Shares 7.67
Value per Share 218.04
PV of FCFF $1,644.24
FIRM VALUE $1,689.04
20% Debt on total Value of Debt 22.7
capital Value of Preferred Stock Value of Equity $1,666.34
Number of Shares 7.38
Value per Share 225.79
PV of FCFF $1,644.24
FIRM VALUE $1,689.04
40% Debt on total Value of Debt 45.7
capital Value of Preferred Stock Value of Equity $1,601.11
Number of Shares 6.37
Value per Share 251.35
PV of FCFF $1,644.24
FIRM VALUE $1,689.04
60% Debt on total Value of Debt 67.8
capital Value of Preferred Stock Value of Equity $1,557.90
Number of Shares 5.47
Value per Share 284.81
Alternative action Value Per Share
Existing Capital 218.04
20% debt 225.79
Recommendation 40% debt 251.35
60% debt 284.81
The recommendation that Tonka corporation would take 40% to
carry out the business operation as per the conservation policy
that will help them to stay in the long run with competitive
advantage.
Thank You
