MH Case - Manufactured Homes, Inc. Manufactured Homes, Inc....

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Manufactured Homes, Inc. Manufactured Homes, Inc. is a retail seller of low cost mobile homes to low income families in the southeastern United States. The company has focused on a growth through acquisitions strategy and by mid-1987 they had emerged as a leader in the mobile home retail business. Over the past few years sales have grown at an extremely high rate, with revenues reaching over $120 million in 1986. The high growth has continued into 1987, Manufactured Homes’ has reported revenues of over $148 million for the first 9 months of the year. While this high sales growth makes the company an attractive investment opportunity, we must examine its full financial condition before we can determine if it is suitable. There are several areas of concern. If we examine the margins for the period 1984 through 1986 we see both the NOPAT and Net margins declining to 3.35% and 1.92% respectively in 1986 (see attachment #1). During the same period we also see all 4 expense categories measured as a percent of sales increase. The first 9 months of 1987 show improvements to both margins and expenses. However, these figures are based on unaudited financial statements so we must use caution when weighing their importance in our analysis. The analysis of both margins and expenses we would conclude management has not been able to maintain profitability and control costs during the high growth. Another area of concern is inventory; from 1985 to 1986 inventories have increase 49%. One specific area of concern is the 140% increase in the inventory of used manufactured homes. We would believe this is due to the
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This note was uploaded on 06/22/2008 for the course ACCT 824 taught by Professor Cataldo during the Spring '08 term at Suffolk.

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MH Case - Manufactured Homes, Inc. Manufactured Homes, Inc....

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