Case Study of Massey-Ferguson
Case 1 Assignment
2012120252
Business School
Kim Dong Hwan
Massey-Ferguson case
- Net sales for Massey-Ferguson actually increased between 1979 and 1980. Despite this, net income and income from continuing operations both dropped sharply in 1980. Which item on the income statement was most responsible for this drop in income?
The most responsible for this drop in income is “Other interest expense” because difference of it between 1979 and 1980 is 101.1. It means that debt of Massey-Ferguson was increased. The reason why they chose to be financed by debt is their ambitions was doing program of acquiring assets and expanding operations. Especially, by 1978 Massey-Ferguson’s debt-to-equity ratio was 214% which was making massive loss. In order to respond this loss, they chose to take divestment program which is reducing the scale of operations. Massey earned more money in 1980 rather than in 1970 because of divesting strategy; however, it was impossible to solve the problem. It was for a shift to this problem.
- Why would the Canadian government have any interest in helping Massey-Ferguson refinance its debt?
The reason why Canadian government helped Massey-Ferguson refinance is both characteristics of Massey-Ferguson and political issue. First, Massey-Ferguson was founded in Canada, Ontario. This firm had made jobs since the firm was founded. A largest lender of Massey-Ferguson was The Canadian Imperial Bank of Commerce which is huge bank in the Canada, so ability of negotiation of the Canadian government was higher than other banks and countries.
In case of the Canadian Government, upcoming Ontario provincial election was main factor to help the firm refinance. The government needed to protect jobs. If the firm were bankrupt, jobs in the province would be decreased. Therefore, they chose to help Massey-Ferguson refinance.