Hey,
I received a question as part of a case for a biscuit manufacturer which was struggling with profitability
"Is there too much debt on the balance sheet? What short and long-term levers can we use to reduce the debt?
My response was as follows:
We can check the DSCR, ICR and Debt:Equity to check how leveraged the balance sheet is. Ratio below 1.2 for DSCR would indicate that we are highly leveraged. Obv taking into account that the PE investor may have loaded on debt to expand the business would need to be taken into consideration.
In terms of levers, the following were suggested:
Short term:
Sale of collateral (including aged inventory)
Divestment
Medium-long-term:
Strategic investor to increase equity
Refinance
Any suggestions to improve this answer? Obv one would have been to increase profitability to improve cashflow but the main prompt was that the business is struggling with profitability.