Alliance Concrete Executive Summary

Alliance Concrete Executive Summary

The economy in which the read-mix industry operates may have a potential potential slowdown. Despite Alliance’s success and potential growth, the company is facing with a difficult decision to

choose between renegotiating debt obligations, postponing long overdue capital improvement, or reducing the dividend payment to National. Being a ready-mix concrete company , Alliance’s obligation is to have their product deliver to the customers on time. However, the main issue of Alliance Concrete is the negligent to upgrade their old equipment which cost the company $2.6 million and two-week shutdown. Thus, Alliance needs to focus on improving operating efficiencies by investing i nvesting in capital improvement. Capital Improvement 

Spend $2 million on expenditures before the start of the year so the risk of break down is less than 50%.

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Since forecasting the balance sheet for 2006 shows Alliance EFN’s is about $14 million, the company can borrow an additional $14 million from the bank to make the balance sheet balance.

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With the $2 million on expenditures spent in 2005 plus the additional $14 million mil lion borrow from the bank for 2006, the company can be be able to fulfill the $16 million planned on capital expenditure.

Capital improvement can save the company on unexpected cost and long-term shut down. Moreover, since Alliance’s customers are sensitive to delivery times, improvement on capital

can save Alliance from losing loyal customers as well as their reputation. Other necessary solutions: Renegotiate with the bank

In order for Alliance Concrete to finance the additional money for capital investment, they need to present these forecast data to the bank: 

The forecast of 2006 leverage ratios:

o

Debt to prior year EBITDA of 2.67 which is less than the prior year of 2.80 shows that Alliance’s additional finance will not exceed three times the prior year’s

EBITDA. o

Interest coverage of 4.53 to show that Alliance is able to pay its annual interest charges without issue.

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Since the bank may be concern about the recent real estate slowdown that may have effect Alliance, the company can present: o

Upward trend in gross margin and net margin suggests that Alliance is profitable in which its revenues is able to cover its operating expenses and yield profit.

o

Upward trend in Return on book assets and Return on book equity suggest that Alliance is efficiently manage its assets to generate earnings.

Skip the dividend pay out to National

Since Alliance is considered as a financial benefit to National’s portfolio by their

representatives, it is wise that National let Alliance retain the $3 million to invest in its capital improvement. This way Alliance can be able to do long-term business more efficiently without worrying about equipment break down which would cost the company more. Conclusion

Alliance Concrete should not be negligent in improving its equipment. The company priority is to invest in capital improvement so that they can be able to operate more efficiently without having any break down. Also, National as a parent company should not pressure Alliance in paying out dividend but instead help Alliance by providing more funds so that the company can be able to invest more in its capital. This way, Alliance will be able to continue as financial benef it to National’s portfolio of holdings.