Peng Plasma Analysis Essay Example

to this point Charlie had not introduced a new product that had a major effect in four years. He estimated that it would take Rmb 200MM in order to do so. This investment would have to be partly subsidized by operating activities. But currently the cash flows from operating activities are declining even if the company ceased large investing activities (capital expenditures). Therefore, the company is not able to fund any capital expenditures without outside funding.

Our recommendation would be for Charlie to search out a larger firm that could potentially acquire Peng Plasma Solutions. This will give Charlie a large amount of capital that can be used for the innovation to stay competitive. But in order to become attractive for acquisition, Peng will need to collect the outstanding receivables on more timely basis, secondly cut costs where possible to increase margins (i.e labor costs), thirdly focus cash outflows towards liabilities and less on equity(i.e. pay short-term debt instead of dividends). We believe with these recommendations Peng Plasma would be able to reach the 20% ROIC mark and become an attractive candidate for outside investors.