Page 66 - Plastics News November 2025

IN THE NEWS
♦ Working Capital Strains: Tariffs can inflate
inventory costs, tying up cash for longer du-
rations. Investors factor this into their valu-
ations, often discounting the value of com-
panies with high inventory requirements in
tariff-exposed categories.
♦ Risk Perception and Discount Rates: Height-
ened trade risks can increase a buyer’s re-
quired rate of return, effectively reducing
the present value of future cash flows. This
results in lower valuations, stricter covenants,
or demands for indemnifications.
♦ Deal Structuring Complexity: Tariffs intro-
duce another layer of diligence and negotia-
tion. Buyers may insist on contingent pricing
(e.g., earnouts) or representations and war-
ranties specifically addressing potential tariff
escalations.
Bottom Line: A company’s ability to quantify
and mitigate tariff exposure directly influences
buyer confidence and, by extension, the trans-
action price.
A Practical Framework for Modeling Tariff Ex-
posure
To accurately gauge the financial impact of ex-
isting or potential tariffs, plastics manufacturers
should adopt a systematic modeling approach.
By identifying and tracking the impact of tariffs,
businesses can present a more accurate view of
underlying profitability to boards, lenders, buy-
ers, and investors.
This clarity helps stakeholders differentiate be-
tween structural operating costs and extraordi-
nary, policy-dependent expenses that may not
66 PLASTICS NEWS
persist over the long-term. Below is a proposed
framework:
Baseline Mapping
1. Catalog all imported raw materials, compo-
nents, and machinery subject to tariffs.
2. Identify the Harmonized System (HS) codes
for each item and document corresponding
tariff rates.
3. Determine the volume and value of each im-
ported item.
Cost-of-Goods-Sold (COGS) Analysis
1. Integrate current tariff rates into your COGS
breakdown to calculate the immediate im-
pact on unit cost.
2. For purchases of imported machinery and
equipment, first amortize tariff costs across
the expected equipment lifespan to arrive
at a monthly or annual tariff cost, and then
factor those costs into overhead or machine
hour rates.
Scenario Planning
1. Baseline Scenario: Reflects existing tariffs
and known trade policies.
2. Moderate Escalation: Models tariffs increas-
ing by 5–15% on certain materials.
3. Worst-Case: Evaluates significant tariff hikes
or expanded coverage to key trading part-
ners.
Sensitivity Testing
1. Vary assumptions for foreign exchange
rates, shipping costs, and supplier pass-
November 2025