Kelly Services Inc
This case is really focusing on the issue of a company that needs to consider taking on debt. Kelly Services Inc. is going through a period were they are going through some major expansion. With major expansion needs the urge to find investors. When you find investors you need to take on debt, the good thing about debt is you are able to generate profit without having to put a dollar down. So if the debt increases, yes he will be leveraged, but through the company leveraging it gives it the opportunity to generate more of a return in the long run. It says the pay out ratio is 28 percent.
For the cases of Olsten and Volt, you can see that Olsten has no debt. Having no debt means the returns you are going to receive are going to be a lot lower For instance Olsten has 0 debt financing and as you can see there returns are the lowest of the three companies. On the other hand Kelly also has 0 debt but there forecasting for growth is a lot lower then Volt the reason being because they do not have the financing to take on investments that can grow their company in the future. On the other hand when you look into Volt’s statements they have the highest debt with still good net worth, but it has the highest level of growth for future advancement. So what this shows is a company that has the highest leverage won’t only have a good return on investment it will also show a favorable path for growth within the future. Another interesting thing to look at is the return on sales. Even though Volt put up a negative figure for one of it’s terms for sales it still had a relatively high net worth. This can mainly be attributed to the way they leveraged their by taking on debt.
His lesson on business leverage in law school was wrong. Reason being if you leverage your firm you are able to get a higher return on investment just like anything else. Leveraging your firm takes on risk and the more risk you take on the higher the return you will receive. Another beneficial factor of leveraging your firm is being able to invest investors money instead of your own. So when you make profit you are making your profit off of not your own risk, but the risk that someone else was taking to put into your company. So through leveraging you are minimizing your risk for potentially having the greatest return.
Through the data that was given it really put me on the fence whether taking on leverage was a beneficial thing or not. There is data that is going to back up both claims, but I think being leveraged definitely outweighs being unlevered. You can really understand this through Volt’s company’s information because it shows that you can show a net worth being positive even having negative figures on return on sales return on assets return on capital and return on equity.