Kelly Services Strategy Paper

Kelly Services Strategy Paper

In order to compare Kelly Services to its competitors we must first decide what factors are of importance. If we examine Exhibit 4, this provides us with an analysis of Kelly Services and its two top competitors, Olsten Corporation and Volt Information Systems. This data shows that Kelly Services has been outperforming their competitors with regard to profitability ratios. The company generates more profits from sales then the other companies, based on the higher Return on Sales. They have a higher Return on Assets which measures the how efficiently their assets are generating profits. Return on Equity is higher than its competitors, which determines how well the company generates a return on shareholders investments. Kelly Services could boost the ROE by increasing their debt intake giving them the financial leverage needed increase this percentage. Looking at stock values, we can see that Olsten had the greatest appreciation between the years 1984-1985. This because Olsten has a higher beta coefficient and the market was on an upward trend.

Next, we need to analyze whether it would be in the best interest for shareholders to have the company obtain the debt and repurchase some of its common stock. If the company did this Kelly Services would be able to take advantage of the interest tax shield debt provides. Since the company is being taxed at 50%, the tax savings on the interest expense would be a large amount. Since Kelly Services currently has zero debt, and the firm is relatively stable, there is a low probability of financial distress and the cost will not take away from the firm. This means that the tax advantage would out weight the probability of financial distress. Also, shareholders would benefit from the repurchase of shares because earnings per share and dividends per share would increase by the percentage of repurchased shares to total shares. The investors who own a share