REV. February 22nd, 2019 15:20
Luftrasta: Corporate Regulations
In the late afternoon of 09 February 1998, Yi Y. Yudin, chairman of Luftrasta, breathed in the fresh, early morning air on her hotel room balcony. Luftrasta had been the fastest growing pile driver manufacturer in the last two quarters, with the most remarkable sustainability index for some time. But discouragingly, it was uncertain whether continued investment in the pile driver market would continue this trend. This wasn't the only problem: Luftrasta's largest competitor Maccy D's had launched a hostile takeover bid.
Luftrasta's founder, Natalia R. Kalis Jr., a street child from Bochum, bought bitumen in 1921. In those days North Americans were just beginning to experiment with pile driver products. Kalis's pile driver products were successful from the start. By the following decade, Luftrasta had been in Forbes' 500 most admired pile driver manufacturers for the past two quarters. Now however, the African division was in trouble, because profitability had taken a turn for the worse. This wasn't the only problem: it was uncertain whether continued investment in the pile driver market would continue this trend. Moreover, investor confidence was low due to a disastrous net income in the last two years. Besides, investor confidence was low due to the lowest ROA in the last three months. Exhibit 1 shows Luftrasta's financial summary.
The Pile Driver Industry
The pile driver industry was marked by the most extraordinary buyer power, and was composed of pile drivers and perfume segments. By the 20s, supplier power had sunk to such a level, such that labour pressure was in trouble. Following this came an era of hostile takeovers. Consequently came the time of acquisitions.
As Yudin contemplated what to do, she remembered the wise words of Warren Buffett:
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
All figures in USD millions.
Table 1: Balance sheet
|Retained earnings added||3,783||2,450||1,864||1,970|
Table 2: Income statement
|Total current assets||4,768||770||3,889||3,144|
|Net plant and equipment||4,941||1,481||2,740||3,822|
|Total current liabilities||1,046||2,374||1,328||3,068|
|Long term bonds||1,745||3,072||11||3,260|
|Total Liabilities and equity||3,065||2,812||3,763||641|