Hill Country Snack Foods Co. Case Analysis

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Strategic Alternatives & Alternative Evaluations

An alternative strategy for Hill Country Food Snack would be a change in capital structure by introducing debt. By introducing debt there are pros and cons for it.

Pros:

- Debt is less expensive than equity

- When using cash you earn no interest rate

- Tax reduction on interest rates

- Avoiding debt and depending on equity reduces return on equity

- Lower cash and increase debt will show return on equity

Cons:

- Loose independence

- Change the traditional structure of the company

- Taking risks when their current structure still shows a low sales growth from year to year.

As shown below table one will show the current financial date based on the companies current structure.

Table 1

Current Capital Structure: No Debt

Expected

Expansion

EBIT

$151,300,000

$219,800,000

Interest

0

0

Net Income

$151,300,000

$219,800,000

ROE

19.39%

28.18%

EPS

$4.47

$6.49

As shown below table two shows the recommendation for the new financial structure for the company.

Table 2

Proposed Capital Structure: Debt = $2 million

Expected

Expansion

EBIT

$151,300,000

$219,800,000

Interest

39,196,000

39,196,000

Net Income

$112,104,000

$180,604,000

ROE

19.32%

31.13%

EPS

$3.77

$6.08

Hill Country Food Snacks will be using the debt capital to create new products and expanding products lines. Being able to finance new project will give the company the opportunity to achieve client’s needs and what in a more practical and efficient way. By adapting the structure the company will be able to do many more things without financing internally.

Strategic Profile and Case Analysis Purpose

CEO Howard Keener has run Hill Country Food Snacks Inc. for the past 15 years. During the years Keener has been approached by different people and asked him why has he ran the company without any debt for the past 15 years. Shareholders have continuously tried to convenience him that by introducing debt into their finances the company would grow sales in a much faster way. He always believed that a slow but risk free growth was better than a fast growth with risk. The way CEO has ran the company has been thinking only on the shareholders value and what shareholders would benefit from. As Keener is reaching retirement the company is going through a tough period as they don’t know who would replace Keener and how the company would be ran.