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Consultancy Report for Portsmouth Leather Company - Essay Example

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Summary
The report highlights the financial feasibility of an offer made by Eastern Express to Portsmouth Leather, which pertains to a tender for the manufacturing of executive briefcase and travel case. The management will need to acquire financing facility from any bank in order to fulfill the order. The finance charges are not incorporated in the cash-flow forecast…
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Consultancy Report for Portsmouth Leather Company

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Portsmouth Leather is one of the renowned names when it comes to selling trendy and high fashion executive briefcase and travel case. The company portray strong financial outlook as during the last financial year the profit of the company increased by 10% to an impressive £ 1,800,000. Following its marketing strategy of exploring new market, the company participated in the Frankfurt International Trade Fair. Eastern express, after being impressed by the quality of the company’s commodities in the fair, approached with an offer.

The following report identifies the problems which the company is likely to face and the corresponding solutions to such problems. Portsmouth Leather needs to have additional finances in order to be capable of producing additional briefcases and travel cases. As per the cash-flow forecasted by the management, the company requires £ 495,000 to finance the tender. The company has not incorporated, in the forecasted cash flow, the finance charges on the financing.

Another problem that the company is likely to face is the fact that it does not have the additional production capacity to cater the tender. The company currently produces 2,000 units per month, but in order to acquire the tender, the company will be required to produce an additional 2,200 units per month for three months.
The company needs to negotiate the overtime with the workforce. In addition, the company needs to bargain the cost of raw material with the supplier in order to increase its contribution margin....
The company needs to negotiate the overtime with the workforce. In addition, the company needs to bargain the cost of raw material with the supplier in order to increase its contribution margin. Negotiating the price of the tender is also significant. POSSIBLE SOLUTIONS AND THEIR STRENGTHS AND WEAKNESSES Solution 1 In order to finance the project, the company needs to acquire short term running finance facility from a bank or any other financial institution. Since the project is of a short term nature, obtaining a short terms running finance facility would be much beneficial rather than acquiring a long term facility. The plus point in acquiring a short term financing facility is that the company would be required to pay mark-up at a lower rate as compared to that if a long term facility would have been acquired. The company can also raise finance through issuance of shares in the market. The advantage of raising shares in the public market is that the company will avoid the finance charge, which it would have paid on the financing facility. Issuance of capital significantly improves the gearing of the company and strengths its equity. The disadvantage of raising finances through issuance of share capital is that it takes comparatively longer time for the existing and prospective share holder to subscribe to the shares and transfer their money to the company. Moreover, the statutory requirement regarding the floating of shares in the stock market is far more intricate as compared to the procedure involved in the sanctioning of a financing facility. Solution 2 The company’s current production capacity will not allow it to produce additional units unless it somehow increase its production capacity or shift its resources towards manufacturing items ...Download file to see next pagesRead More
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