Massey Ferguson Ltd Essay

1936 words - 8 pages

The problems of Massey-Ferguson Ltd. arose from the wrong debt policy of the company. In order to understand financial problems of MF it is necessary to investigate product-market strategy of the company and its financial policy, analyzing the financial statements of MF Ltd over some period of time and comparing them with other companies in the industry.The product-market strategy of MF had the following features that had negative impact on financial health of the company:Lack of alignment between production sites and markets, which involved on a regular basis problems of currency fluctuations. For example MF's Perkins, which is located in UK, exported 86% of its products, and over 50% of them were exported to MF's subsidiaries and affiliates, which means that if the British pound rises the cost of goods sold for MF will increase.Marketing and product development efforts mainly were concentrated overseas. So, trying to improve the situation in the North American market the company in 1975 and 78 introduced new range of tractors, having heavily spent on R&D and marketing. The expenditures occurred and sales failed, MF had to borrow again to run its activities, as a result the financial position worsened.Massey-Ferguson as a multinational company operating on the farm and industrial machinery market faced such risks as:Political risk, mainly in the countries of the third world. During 1970s several governments with whom MF had dealings were overthrown because as a result of coups or civil unrest.Business risk: seasonality of sales, poor weather.Economic risk: currency fluctuations, decline in prices and incomes (in North American farm market), monetary restrictions (in some Latin American countries)Financial risk. The company is highly leveraged (80% of the capital structure are debts in 1980). It is going to bankruptcy because of inability to pay debts and to continue the business.Analysis of statements of three companies shows that the product-market strategy of Massey-Ferguson Ltd. and Deere&Company suggested increase in sales and market share applying more aggressive financial policy. In distinguish from these two companies International Harvester was more abstinent in its market strategy (Pls. see Appendix 1 and notes).In this case attracts attention the short-term financial policy of Massey-Ferguson Ltd. and Deere&Company. Because aggressive financial policy suggested increase in sales over the years, it caused necessity to increase inventory and to apply more flexible account receivable policy.Thus, both companies have relatively high ratio of current assets to sales (Pls. see Appendix1 and notes). Using given data for Massey-Ferguson Ltd. it is possible to analyze some trends in current assets of the company (Pls. See Appendix2 and notes). As you can see from the table in the appendix, inventory was growing steadily over ten years. Accounts Receivable were also at a high level. For example, in period from 1976-1980 accounts...

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