Case: Princeton Pigs BUSN 6020

Case: Princeton Pigs
BUSN 6020

Princeton Pigs is a widget maker in Southern British Columbia established in 1970. It has grown over time by making high quality widgets and providing excellent customer service. The production plant is located in Kamloops and is operating near 100% capacity. Sales are concentrated with 1 large customer, Vancouver Vagabonds, under accounts receivable terms of net 60. Raw materials are purchased from a Vernon distributor under terms of net 60 with overdue accounts paying 8% per annum. Financing is from various sources one of which is Scotiabank under a 3 year term revolving line of credit of $5 million. Security for this financing is pledging inventory and accounts receivable as well as a $2 million personal guarantee by the owner-CEO Victoria Vavavoom. Scotiabank will lend up to 75% of accounts receivable, 30% of raw materials, 40 of work-in-process and 50% of finished goods inventory. The revolving line of credit must have a zero balance for at least 1 month of the year. Covenants with the loan include maintaining a current ratio of 1.5, cash flow coverage of 1.5 and a long-term debt to total capitalization ratio no more than 60%. No dividends are paid and all profits are reinvested in the company for growth. Scotiabank is concerned that Princeton Pigs is floundering financially speaking and is reviewing its performance over the last 4 years. Conduct a thorough financial analysis based on the 5 years of income statements and balance sheets provided as well as industry average benchmarks. Include in your report ratio analysis, common size analysis and index series analysis for 2006-2010 as well as cash flow statements for 2007-2010 plus an annual DuPont Identity ROE analysis. Your report should include a 2 page summary of your analysis. The date is January 2011.