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Deluxe Corporation which was one of the largest players in printed paper checks industry in
USA, is now facing declining growth because of alternative payment options like credit cards,
debit cards etc. Because of easy availability and accessibility of Internet, the popularity of these
alternative modes of payment have been increasing rapidly, which has led to declining market
share for printed checks industry. There has been a decline of around 1-3%. Due to this decline,
they had diversified from their core business but not shut it completely. In order to mitigate from
the revenue growth decline, complete reorganization was done to reduce operating expenses.
The company had had many rounds of share repurchase, so the only option now left with them
was that of debt financing. The current debt level calculated with debt ratio (operating
income/debt service) was approximately 1.87, which indicates that Deluxe was below required
level for any rating category. The market was matured that was indicated by intense price
competition. The market decline may also be a result of consolidation of banking sector.
Following financing requirements are recommended- working capital, capital asset repurchases,
acquisitions, repayment of outstanding debt, constant payment of dividends, securities
repurchase.
Based on the 5-step DuPont Analysis the ROE is increasing, which is a positive factor. This is
not reflected in the calculation of ROE using the direct formula. Debt to Equity is decreasing
while the equity is increasing and the total debt (long- and short-term) is constant.
Balance sheet
Cash $ 9.60 $ 124.30 $ 243.10 $ 365.80 $ 493.00 $ 625.40 130.56%
Working capital $ 116.60 $ 118.20 $ 120.10 $ 122.50 $ 125.20 $ 128.20 1.91%
Net fixed assets $ 151.10 $ 151.10 $ 151.10 $ 151.10 $ 151.10 $ 151.10 0.00%
Total assets $ 277.30 $ 393.60 $ 514.30 $ 639.40 $ 769.30 $ 904.70 26.68%
Debt (long and short-term) $ 161.50 $ 161.50 $ 161.50 $ 161.50 $ 161.50 $ 161.50 0.00%
Other long-term liabilities $ 37.00 $ 37.00 $ 37.00 $ 37.00 $ 37.00 $ 37.00 0.00%
Equity $ 78.70 $ 195.20 $ 315.80 $ 440.90 $ 570.80 $ 706.20 55.09%
Total capital $ 277.20 $ 393.60 $ 514.30 $ 639.30 $ 769.30 $ 904.60 26.69%