Posted: May 1st, 2016

What is the most effective balance sheet?

4.
You have recently taken a position as CFO of High Tech Corporation, a manufacturer of consumer electronics. The industry is widely regarded as one of the more stable across the economic spectrum and offers good long-term growth prospects. In addition to High Tech Corp., there are several other well-capitalized competitors, and each company commands roughly identical market shares. Each competitor has highly efficient manufacturing processes and operates at virtually identical margins. In your new position as CFO, your incentive compensation plan is primarily driven by ROPI. High Tech Corp. has historically been ROPI neutral while its peers in have been ROPI positive.
High Tech Corp. Industry Peers
Net operating profit margin (NOPM) 12.0% 12.0%
Working Capital as % of NOA 20.0% 15.0%
Debt to market value of equity (%) 0.0% 34.0%
Cost of Debt 4.0% 4.0%
Cost of Equity 9.0% 10.0%
WACC 9.0% 8.0%

Using the provided information, suggest and explain two specific and IMMEDIATE actions for High Tech Corp. to achieve positive ROPI.