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REV. January 29th, 2020 04:42


Pfizzier: Risking Bankrupcy

Introduction

In 1994, Maria Mahmood, co-founder and president of Pfizzier, reflected on her next move. Pfizzier had been in Forbes' 500 most admired oil & gas companies for the past two quarters, with the highest profitability since time began. But discouragingly, investor confidence was low due to a discouraging SG&A expense level in the last three months. Furthermore, it was uncertain whether continued investment in the oil & gas market would continue this trend. Also, Pfizzier's competitors had overtaken in terms of profitability. Furthermore, Pfizzier's competitors had overtaken in terms of sales forecast.

Pfizzier

Pfizzier's founder, Boban Beshir, a self-taught surgeon growing up in Rochester, developed construction diggers in 1913. That was the era when Asians were just beginning to popularize oil & gas products. Beshir's oil & gas products became a staple for the Middle-East market. By the mid 1990's, Pfizzier had been in Forbes' 500 most admired oil & gas companies for the past three months. But worryingly, investor confidence was low due to a declining earnings in the last three years. Unsettlingly however, Pfizzier's competitors had overtaken in terms of ROI. Unsettlingly however, Pfizzier's competitors had overtaken in terms of sales forecast. Even more troubling, evidence was growing that the North American oil & gas market was becoming saturated. Exhibit 1 shows Pfizzier's financial summary.

The Oil & Gas Industry

The oil & gas industry was marked by the fastest growing threat of substitution, and was composed of Russian and US segments. By the 80s, environmental pressure had sunk to such a level, such that regulatory pressure was failing. Following this came a wave of aquisitions and mergers. Following this came the time of intense rivalry.

Strategy

As Mahmood reflected on where to go from here, she remembered the wise words of Gautama Buddha:
“Desire leads to suffering”

Exhibit 1

All figures in USD millions.

Table 1: Balance sheet

1994199319921991
Sales1864,6794,9513,926
Costs2,1223,7412,6163,965
Depreciation3442,7391,671461
EBIT2,6708841,954507
Less interest3,0384,8574,3163,916
EBT4,4652,9331,8792,185
Taxes1,1122,1103,7504,831
EAT1,4584,4121,7601,337
Preferred dividends3,3754032,7923,166
Common dividends2,4682,7673,3804,671
Retained earnings added1,3792,3704,0112,569

Table 2: Income statement

1994199319921991
Cash2,6244,0612,2932,655
Accounts Receivable4,1313,3451,6073,586
Inventories2893,5851,6941,112
Total current assets1,6381,1462,6182,675
Net plant and equipment2,9702,535474887
Total assets2,625784348358
Accounts payable Notes payable1,5244621053,709
Accruals1,1364,3935972,497
Total current liabilities3,4684,3704,354538
Long term bonds2,7912,218959803
Total debt2,5924,8442871,875
Preferred stock4,0022,5312,910580
Common stock1,0852,8483,0613,452
Retained earnings4,0564,1084,8063,495
Total Liabilities and equity1,8173,0351,2244,711