Executive summary
The plastic company named CAN Joint Stock Company has been established for the period of three years. The typical feature about the firm is the third rank within the top best company in the industry. Indeed, there are achievements of top three in some areas, including: number of sale, with 11.032.457 units, market share with 22% for all products and $113.556 for the net income. Moreover, the company is also the leader in forecasting the sale volume with only 15,130 units error.
Following the Differentiation strategy, the company incessantly invests to gain the competitiveness for the two products. Thus, until the last quarter, CAN was the dominator in quality and catch a huge number of customers’ preference.
As regard to CAN’s operating activities, the firm keeps not only purchasing raw materials but also increase the units produced to serve consumer’s wants and needs. On the other hand, there is still problem occurred, such as, a lack of substance for manufacturing process, considerable growth in warehouse units and cost if there is large amount of forecast errors. In term of labor workforce and the working conditions, CAN company always create the best environment for workers, with about $15,000 investing in Human Resource Development. Consequently, the labor productivity can gradually developed from 250 for LEGO and 300 for BARBIE to 254 and 304 respectively. Ultimately, the firm’s operation is expanded with 15,100 units in plant capacity with the available of 64 workers .
In quarter 12, after significant fluctuation, CAN company is standing at the second position and has a trend of continuously develop. Therefore, each decision made and reflections were analyzed to help the manager gain more experiences. Additionally, both short-term and long-term plan will be indicate to consolidate the efficiency and precise of manager’s performance in the future.
Table of Content
1.Introduction 3
2. Overview of decision made in Team Simulation: 3
Quality: 3
Units to produce: 5
Human resource development (HRD): 6
Raw materials: 8
3. Overview of results: 9
4. Management reflection: 12
5. Future plan: 14
5.1. Short-term plan: 14
5.2. Long-term plan: 14
6. Conclusion: 15
7. References.……………………………………………………………………………16
8. Appendices……………………………………………………………………………17
1. Introduction
In the period of three years, CAN Joint Stock Company has been established and developed with two primary products, namely: LEGO construction toys and BARBIE dolls. During the operating process, our firm has faced up with many achievements as well as failures. As the production management of the company, this production report will be revealed to synthesize and analyze CAN’s manufacturing activities within 12 quarters. Moreover, there will be reflection on my own decision and its influences to the whole company. A variety of sections will be covered in this report, including: quality, units to produce, raw materials and Human resource development. Finally, the future purposes of production department will also be identified.
2. Overview of decision made in Team Simulation:
2.1. Quality:
As being mentioned in the Business Plan, our company decides to follow Differentiation strategy. In other word, we tend to make our products become special and distinct from the others. Therefore, we created higher quality at the beginning of the Team Simulation game. For each quarter, there was a significant increase in quality ( 5% from quarter 1 to quarter 6 and 10% from quarter 7 to quarter 12). This decision is quite different from our plan of improving only 5% in quality each quarter. For example, in the last two quarters, instead of growing from $5.2 to $5.3, LEGO toys’ quality was abruptly risen from $6.5 to $7.9. By following this decision, the firm can partially ensure that our quality is able to catch up with the whole industry.
Besides that, our decision of products quality is slightly the same to compare with the average industry, apart from quarter 12. In fact, instead of gaining a small amount of 5% in quality, we decided to dramatically invest twice times more than our first plan. As a consequence, in quarter 12, there is a huge adjustment for LEGO and BARBIE, from $6.5 and $5.0 to $ 7.9 and $6.8 respectively
The figure below will indicate our quality decision in both real situation and plan:
As can be seen from the two charts above, in spite of the significant changes in quality ( 10% for the last six quarters), our company still can not be the leader of product quality within the plastic industry. To be specific, we just nearly achieved the Differentiation strategy in product 1, while the product 2’s quality was low and uncompetitive. It is clear that we made a wrong choice when just gradually improve the two products’ quality by $0.1, without concerning about the market research’s results. On the other hand, we made such a correct decision in quarter 12. By improving more than 10% in quality, there was a positive effect to CAN’s performance, including: becoming the quality leader and being rated at the second position in the last quarter.
2.2. Units to produce:
In comparison with our project, the total number of units produced is fluctuated. In the first two quarters, we decide to follow the business plan. Conversely, between quarter 7 to quarter 11, CAN company decided to make a considerable reduction, from 16711 units to only 13370 units, in the number produced. The reason for this factor is that our firm had to face up with a large amount of warehouse, which should be rapidly sold to make the return on assets. To be specified, during this period, the warehouse stood at 2000- 5000 units. It was considerably negative with the plan that we would try to limit the stocked finished goods at only 2000 units in order to avoid the warehouse cost and depreciation charge. In addition, the units produced should also depend on the customers’ demand and loyalty to the company. For example, in quarter 8, so the total of goods manufactured had to bottom out to only 11714 units. The cause for this decision is that, there was a plummet in consumers’ purchasing requirement when CAN company was suited due to the dilemma of “Sexual harassment”. However, it is the right decision because we could limit the warehouse units and cost, so as to spend money on recovering the business in the next quarters. As far as the decision’s impact to the company is concerned, there was a slower speed in the operating activity. Indeed, we could not attain the goal of increasing units produced by 5-8% each quarter.
(Appendix 4)
To compare with the best company (company 3), it is the fact that CAN’s units produced varied considerably with company 3’s. In fact, their provision of finished goods incessantly increased during the period of three years, from 11,300 units to 19,000 units. In other words, they could serve more customers’ demand and reach higher sale volumes. On the contrary, the fluctuation in our units produced shows that both the two products can not attract as many customers as our best competitor do.
2.3. Human resource development (HRD):
(Appendix 5)
CAN company always considers workers as one of the most important elements in the operating activities. In the business plan, we had a tendency to invest much money on HRD in order to gain labor’s productivity. In contrast, as regard to the actual circumstance, our cash provision for HRD was not as high as the plan, except for the first two quarter. As can be seen from the chart, there is a slight change in the amount spent on HRD in reality, from $13,000- $16,000, while we planned to raise this expense between $15,000- $22,000. On the other hand, it is a correct decision because our firm had to spend money on other section, for instance: advertisement and product quality. Moreover, a crucial thing is that our company still creates the best environment for labor when comparing with the average industry
Although our company had a lower standard of HRD in the first four quarters, we still created the better working environment for the labor in the next 2 years. In fact, our investment to human resource is 15%-20% higher than the average industry. Therefore, it is obvious that our firm can attract more labor’s loyalty rather than most competitors.
2.4. Raw materials:
According to the chart above, it is clear that CAN company‘s actual raw materials is almost the same as our projected materials. In other words, we still follow our first strategy in buying exceeding raw materials. On the other hand, in quarter 11, our firm decided to purchase less than the planned amount of materials. The reason for this factor is that our amount of warehouse materials is 35% beyond the units planned to produce. Thus, in order to prevent from great warehouse cost, we chose to reduce the substance purchased to only 13,000 units for both products (including 8500 units for LEGO). Alternatively, we made a wrong decision when there is lack of materials utilized for operating activities in quarter 12. In fact, it created a disadvantage for the whole company’s performance in this quarter because our units produced of LEGO was restricted to only 10,495 units; while the firm proposed to release 11,000 units . What is more, after quarter 12, there was only 395 material units left in the warehouse. That means, we did not have enough material for expanding the producing progress. So, a significant number of 18,500 units should be purchased. Otherwise, our speed of operation will slow down, and we can lose sale to other competitors.
3. Overview of results:
( Appendix 7)
After 3 years of operating, CAN company reaches not only some achievements but also failures. To be specific, our firm reaches the primary target of ranking at the third position of the top three best companies with 64 points/100. Moreover, we gained 22% in our market share, just 3% less than the best firm. However, CAN company just earns $ 526,189 of the net income after 3 years operating, plus with 3.19% return on assets.
In contrast to the actual outcomes, based on the objectives set in the Business plan, our firm attains a greater success in the market share with 22% to compare with only 10% projected. Besides that, we face up with failures with the net income when our real income is merely equal to 57% of $908,156 in the project. In terms of return on assets (ROA), we planned to get 6%, which is twice more than the actual situation (3,19%).
a. The effect of production manager’s decision to the company in terms of Market share:
As being mentioned above, CAN company reaches 22% of the total market share (consisting of 22% for LEGO and 21% for BARBIE), which is twice more than our first target. As regard to the reason, product quality is concerned as the primary factor that leads to our market share percentage after three years. To be specified, by steeply improving the quality investment from $3.8 to $ 7.9 and $3.0 to $6.8, our company can consolidate the market position of top three best company, as well as gain more stakeholders’ preference and loyalty.
As can be seen from the two charts below, CAN company (company 4) has the almost similar quality with the other top two (company 3 and company 5). Conversely, in quarter 8, 9 and 11, our decision of quality development for LEGO was not effective enough to compete with the two best firms. Therefore, we achieved 7% less than company 4’s market share. Like product 1, BARBIE’s quality is slightly lower and can not make the real distinction, so there is only 21% attained.
All things considered, it is realized that although the firm attained greater market share than the first aim, our company can gain a better performance as well as shareholders’ attention if we concentrate more on quality. For further explanation, our decision using “more for more” strategy did not work well enough during the last 12 quarters, especially when our quality was not quite competitive and the price was set too high. (Appendix 1,2,3)
b. The effect of production manager’s decision to other departments:
It can be denied that the three departments of CAN company normally have separated work. To illustrate, marketing section focus on improving the firm’s images to public and the stakeholders; production department concentrates on the manufacturing progress and the human resource; while finance area concern about all company’s investment and revenue. However, there is relationship between production and the other departments.
To Marketing department:
In each quarter, the number of units produced is one of the foundations for marketing manager to forecast the sale. In fact, the marketing section can not predict the sale volumes to exceed the finished goods. Based on the Business plan, our firm decided that the sale forecast should be the same as the number of units produced. Moreover, both sale forecast of Marketing section and units to produce of Production should be based on the customers’ preference. Therefore, as the Production manager, if I do not catch up with the trend of consumers’ demand, the Marketing manager can make serious errors in the predicted sale and lead to the decrease in company’s overall performance. Fortunately, we created good communication between these two departments, so CAN company stands at the first position in terms of sale forecast.
To Finance department:
Finance department obviously plays an important part in providing money for any operating activities. To be specific, in production part, we need investment for many sections, for example: buying raw materials, plant capacity, salary for labor and human resource development. Therefore, it really affects to the Finance department’s decision of borrowing short- term loan in order to pay for our manufacture. If the Production department’s activities cost more than the cash available, Finance manager will have to face up with the emergency loan and we can lose an amount of cash on hand.
All in all, after three years of operation, CAN company has gained a positive situation within the plastic industry. Although we mostly got the third position, there are three quarters in which our firm was continuously ranked as number 1. Hence, it is obvious that CAN has the potential to attain greater success in the future. Besides our achievements, we also get some failure. Nevertheless, how the company solve and recover from the mistakes is more important. For further explanation, in quarter 8, we face up with a lot of difficulties when the firm suffered from negative influences of dilemma. The fact of being suited and lost $26,000 led to a loss in net income of $6, 123. Conversely, CAN company tried our best to attract and keep customers’ loyalty to our products. Consequently, in the last quarter, CAN was substantially recovered and reach higher income than even the best firm did (Company 3)
4. Management reflection:
After three years working, CAN company is ranked at the third position of the top three best company. On the other hand, it is the first time that we integrated into a huge market like plastic industry. Thus, apart from the achievements, it can not be denied that our insufficient experience can cause negative consequences to the whole firm’s performance. However, they will create valuable skills for us to do better in the near future.
At the beginning of operating activities, our company targets to consider good cooperation among the three departments as the essential foundation. Conversely, we just work well in the first four quarter, when three managers collaborate to assist the firm’s position gain from rank three to rank one. In addition, we also try our best to resolve some mistakes so as to make the firm recover in year 3 and stand at second level in quarter 12. Besides that, within year 2, from quarter 5 to quarter 8, CAN company fell into such a hard circumstance due to the conflict between three departments. In fact, in quarter 5, the finance manager hoped to decrease the interest paid by borrowing no short-term loan, which led to our problem with emergency loan. Or, marketing manager still forecast high sale volume despite the strong influence of dilemma in quarter 8. This factor made the warehouse units and cost significantly increase. On the other hand, in the last 4 quarters, our sale as well as income soared again. It is because we experienced that the only way to resolve conflict is to improve the cooperation among three departments. Instead of working separately, we joined together to identify the best solution. This is really match with the theory about Collaborating style of “Conflict management style” of McShane and Travaglione (2007, p.393), “ problem solving tries to find a mutually beneficial solution for both parties”. For instance, when Production manager decides to improve the product quality by $1.5, she should ask both the marketing and finance manager. If the price set by marketing section is lower, she should reduce a small amount of quality investment to fit with the price. Moreover, she should also concern about manufacturing cost in order to suit with the short-term loan of $ 500,000 borrowed by finance manager. If being the head of the company, I tend to be strict in communicating activity of each department so as to encourage them to work cooperatively.
In the case of being the production manager of CAN company, I often try my best to promote my team members by creating a friendly and better working conditions for them. Although I changed my goal of developing the product quality by 10% in the last 4 quarters, I still ensure to have a restriction in overtime working for my labor. Inevitably, I have to face with ethical dilemma of “Sexual harassment”. From this dilemma, I experienced that when managing ethics, “managers and other employees face many situations in which there are no right or wrong answers” ( Hellriegel, 1995, p.14). When I kept the valued workers, I could promote them and remain the whole productivity but also had trouble with lawsuit. Furthermore, I will have more careful observation and serious punishment if any labors make a mistake again.
Frankly speaking, after the period of 3 years, I have experienced a lot from my role as Production manager. Indeed, I know how to treat my subordinates in the right way, or how to handle conflict with other departments. Despite my normal mistakes, I recognize that finding the suitable way to recover from them is much vital so as to work effectively. Therefore, for the long term period, I will not only continue to efficiently control my own performance but also gain better perspectives by synthesizing others’ opinion.
5. Future plan:
5.1. Short-term plan:
Objectives:
• At the beginning of year 4, our company plans to increase the product quality to $11 for product 1 and $8 for product 2. Moreover, we will incessantly improve by 15% in the following quarters, in order to make the products unique and most competitive in the plastic industry.
• Expanding the number of units produced from the first quarter of year 4, including 12,000 units of LEGO and 9,800 units of BARBIE. In addition, the firm will rise these number by approximately 10%-15% per quarter, with the purpose of satisfying more customers’ demand. It is expected that about 40.000 units of both products will be sold within year 4.
• Restrict the manufacturing cost by 10%-15% by getting discount from suppliers ( for example, purchasing 15,000 units during five quarters, from the second quarter of year 4 to get 15% discount/ quarter)
• Investing 10% more on human resource development every quarter, from $16,000 to $17,000 , so as to improving better working condition for labor and gain the productivity by 5% each quarter. At the end of year 4, the labor productivity is hoped to be 305 (LEGO) and 370 (BARBIE).
Strategies:
In year 4, as production manager of CAN company, I still intent to follow the Differentiation strategy so as to attract more customers’ loyalty to our products. By gaining the quality by 15% each quarter, I hope our products will be well-recognized, as well as promote our company to develop but with the lower speed. In other words, we will reach the Cash Cow situation in the BCG Growth-Share Matrix ( Kotler, 2005, p.37). For further explanation, in year 3, our two products start to recover from the decline period and catch more consumers’ attention. Consequently, in year 4, replacing for strongly pushing the number of units produced, we will concentrate more on quality and improve the company’s images with regard to expanding large market share.
5.2. Long-term plan:
Objectives:
Buying 15000 units raw material of each product by every 2 quarters in order to get the quantity discount. Moreover, we tend to invest mostly on product quality; plus with increase the quality of Lego by 2 and Barbie by 1 each quarter. There will be no plan for expanding the plant capacity, however CAN will pay for human resource development at least $30,000 every quarters
Strategies:
It can be seen that our company cannot compete with company 3 and 5 in the area of medium price and medium quality. Instead of offering the same kind of product, CAN will target at the upper class customers only. Our product’s quality will be higher than all companies in the market which is likely to be chosen by the upper class consumers, who only want to purchase luxurious products.
6. Conclusion:
In conclusion, after the period of three years, CAN Joint Stock Company has identified most accomplishment and problem met, with the purpose of gaining worthy experiences for the next operating process. Actually, the manager successfully synthesized all decisions and understood their whole effects to the company. Moreover, these factors can encourage the manager to make more suitable decisions within the next quarters. It is also realized that apart from individual’s action, the relationship among three departments is considerably vital so as to assist the CAN firm achieve higher performance in the future.
7. References
Anderson, P, Beveridge, D, Scott, T & Hofmeister, D 2003, ‘Making Decisions’ in Threshold Competitor: A management simulation Version 3.0, Prentice Education, New Jersey, pp. 54-73.
Hellriegel, D, Slocum, JW & Woodman, RW 1995, Organizational Behavior, 7th edn, West Publishing Company, New York.
Kotler, P, Amstrong, G, Swee, H, Siew, M, Chin, T & K.Tse, D 2005, Principles of Marketing: An Asian perspective, 11th edn, Pearson Education South Asia, Singapore.
McShane, S & Travaglione, T 2007, Organizational Behavior on the Pacific Rim, 2nd edn, McGraw-Hill Irwin, Australia
8. Appendices:
Appendix 1: Quality of Product 1
Appendix 2: Quality of Product 2
Appendix 3: Price
Price Prod 1
Company Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Quarter 7 Quarter 8 Quarter 9 Quarter 10 Quarter 11 Quarter 12
Company 1 62 65 66 75 73 69 71 71 76 78 78 78
Company 2 60 64 67
Company 3 66 67 70 72 74 75 78 78 79 80 80 80
Company 4 66 69 71 72 73 74 76 77 79 80 83 85
Company 5 67 66 68 73 76 78 78 79 80 84 84 84
Company 6 64 64 65 67 70 74 75 76 79 81 81 82
Average 64.2 65.8 67.8 71.8 73.2 74 75.6 76.2 78.6 80.6 81.2 81.8
Price Prod 2
Company Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Quarter 7 Quarter 8 Quarter 9 Quarter 10 Quarter 11 Quarter 12
Company 1 49 52 50 65 58 51 51 55 58 59 59 59
Company 2 50 48 54
Company 3 49 50 51 53 55 56 57 58 58 60 60 60
Company 4 49 53 54 56 57 58 59 60 61 62 64 66
Company 5 49 50 52 54 56 58 59 61 62 64 66 66
Company 6 48 50 51 53 53 55 56 58 60 62 62 65
Average 49 50.5 52 56.2 55.8 55.6 56.4 58.4 59.8 61.4 62.2 63.2
Appendix 4: Human resource Development
Company Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Quarter 7 Quarter 8 Quarter 9 Quarter 10 Quarter 11 Quarter 12
Company 1 10000 15000 15000 20000 5000 5000 5000 10000 10000 20000 15000 15000
Company 2 10000 12000 12000
Company 3 10000 15000 20000 25000 25000 25000 20000 20000 20000 20000 20000 20000
Company 4 10000 12000 13000 15000 13000 15000 15000 15000 15000 15000 16000 16000
Company 5 15000 15000 11800 10000 10000 10000 10000 10000 10000 10000 10000 10000
Company 6 10000 11000 15000 17000 15000 11000 8000 7000 10000 11000 12000 10000
Average 10833.3 13333.3 14466.7 17400 13600 13200 11600 12400 13000 15200 14600 14200
Appendix 5: Decisions of units to produce
Appendix 6: Cost parameters
Cost Parameters
Product 1 Product 2
Raw Material 8.00 12.00
Raw Material Warehouse 1.00 2.00
Finished Goods Warehouse 2.50 1.50
Television Ad Minutes 5,000 Mkt Research-Product Price 5,000
Newspaper Ad Column Inches 1,000 Mkt Research-TV Ads Minutes 5,000
Magazine Ad Pages 3,000 Mkt Research-Newspaper Ads 3,000
Workers' Quarterly Wages 4,000 Mkt Research-Magazine Ads 4,000
Hiring Costs per Worker 2,000 Mkt Research-Product Quality 2,000
Layoff Costs per Worker 500 Mkt Research-Unit Sales 5,000
Administrative Expenses 12,000 Mkt Research-Market Demand 10,000
New Plant Cost per Unit 45 Manufacturing Overhead Rate 50
Short-Term Loan Rate 10.0 Mortgage Interest Rate 9.0
Short-Term Investment Rate 5.0
Appendix 7: Overall performance of 5 companies after 12 quarters
PTS PTS PTS FORECAST PTS OVERALL
Comp Sales AWRD Income AWRD ROA AWRD ERRORS AWRD PTS RANK
1 8,144,589 13 -118,131 -6 -0.67 -2 45,695 3 8 5
2 T T T T T T T T T T
3 12,554,800 20 * 986,452 50 * 6.32 20 * 19,991 8 98 1
4 11,032,170 18 526,189 27 3.19 10 15,130 10 * 64 3
5 11,348,480 18 833,874 42 5.29 17 26,939 6 83 2
6 7,749,300 12 317,202 16 2.93 9 18,998 8 46 4
7 T T T T T T T T T T
8 T T T T T T T T T T
9 T T T T T T T T T T
Showing posts with label Management Report. Show all posts
Showing posts with label Management Report. Show all posts
Tuesday, April 12, 2011
Management Report-Finance Department-A Free Essays
I. EXECUTIVE SUMMARY
URSULAFC Ltd. has been operating in the plastic industry for 3 years of manufacturing and distributing helmet (product 1) and plastic table (product 2). Overall, the company had to confront with many challenges and difficulties in the market, competing against strong competitors. As a result, UFC’s recent performance is not very favorable. This suggests that the company should review the operation in the 3 manufacturing years.
In this report, Finance manager is going to present the company’s performance, the whole finance’s decision, reflection on performance and suggest several advises to help the company being out of risky period.
Specifically, all the aspects of finance department will be taken into account. For instance, finance ratios, which are the Key Performance Indicators (KPIs), will be analyzed in order to approximately figure out the finance position of the firm.
After examining all finance’s decision, the report reveals that UFC is now in a critical circumstance which needs to be changed by new strategy mentioned in the recommendation.
CONTENTS
I. Executive summary 1
II. Overview of company’s performances 4
III. Overview of finance’s decisions 6
IV. Result analysis 8
Profitability ratios 9
Leverage ratios 10
Liquidity ratio 10
V. Performance reflections 11
VI. Recommendations 14
VII. References 15
VIII. Appendixes 16
Cost Parameters 16
Marketing and Finance Limits and Time Lags 17
Production Limits and Time Lags 18
Other graphs 19
II. OVERVIEW OF COMPANY’S PERFORMANCES
After running the business for 3 years, at the end of quarter 12, UFC got the rank 5, 9% of the market share and had the downward sloping trend. The table and figure below show the overall information of UFC.
Comp Sales Income ROA Forecast errors Rank
1 12,396,288 -1,684,827 -6.61 145,120 9
2 8,875,634 -825,065 -5.06 48,729 7
3 18,710,810 287,506 1.69 95,056 2
4 14,441,580 -457,288 -1.55 82,670 6
5 18,722,720 500,493 2.46 63,017 1
6 14,127,160 -465,391 -1.17 105,587 5
7 18,395,050 122,278 1.19 91,362 4
8 20,159,970 200,278 1.91 73,663 3
9 9,949,220 -1,911,118 -7.84 145,617 10
10 12,989,290 -819,017 -3.66 92,237 8
Table 1: Overall industry performance
The company’s performance can be divided into 3 parts, fluctuated part, developed part and regression. Firstly, from quarter 1 to quarter 4, the company’s sales and net income fluctuated. In comparison with the average industry, except quarter 3, the company sales and net income were slightly smaller. In addition, in quarter 2 and especially in quarter 4, the company had made big losses while the average industry had high income*. Due to the poor performance, UFC after 4 quarters stood at the rank 9 over 10 competitors.
Secondly, indentifying and analyzing the problem, the board of director had made several adjustments in order to revive UFC’s image and re-build the consumer goodwill. Those adjustments brought may changes in UFC’s performance, and UFC first time came to the top 5 company. From quarter 5 to quarter 8, UFC always achieved the positive incomes and a bit high rate of ROA. For instance, net income in quarter 5 was 43.674 which was more than 4 times increase in comparison with the previous quarter, then UFC reached a peak in quarter 7 with $81.535 of income, 3,91 of ROA and stood at rank 2 after the giant JayLean at that time. However, there were several of fluctuations that led the company cannot perform well in the following year.
Ultimately, by making some wrong decision, UFC failed to compete with the other top companies in spite of standing at rank 5 overall. In quarter 9, the company’s net income declined steadily from $38.803 last quarter to $3.019. Afterward, UFC continuously fell without control and lost it position from rank 3 in quarter 9 to 6, 7 and 10 in quarter 10, 11 and 12. The company’s incomes had reached the inverse record with -103.097, -246.124, and -302.649 in the last 3 quarter. If there are no strongly reformations, the company will possibly go bankrupt.
Quarter Sales Net income Ranking Market share Industry sales avg. Industry income avg.
1 558.952 2.982 8 9,3 603.058 16.371
2 477.912 -2.643* 10 7,1 669.184 16.021
3 816.360 14.199 5 10,7 707.710 9.258
4 585.086 -12.780* 8 6,9 844.456 10.708
5 1.150.660 43.674 6 11,5 995.997 16.175
6 1.210.410 17.696 8 10 1.207.582 36.110
7 1.606.330 81.535 2 12,3 1.305.830 1.124
8 1.621.620 38.803 5 9,6 1.696.025 18.673
9 1.794.590 3.019 3 13,4 1.339.992 -78.761
10 1.722.240 -103.097 6 8,9 1.945.582 -127.841
11 1.697.990 -246.124 7 8,5 1.996.188 -188.304
12 884.960 -302.649 10 5,9 1.512.381 -234.809
Table 2: Quarterly UFC’s performance
III. OVERVIEW OF FINANCE’S DECISIONS
1. Short-term loan decision
The short-term loan is the amount of money the company needs to cover the operating activities such as the cost of marketing and production. The interest rates for short-term loan is 10.0 however, if actual requirement is higher than requested, the company has to pay a penalty of double the normal interest rates. In terms of short-term loan decision, UFC did not control and balance its operating activities. Hence, UFC needed to depend too much on short-term loan, for instance, the company’s short-term loan granted from quarter 5 till the end was $700,000. In addition, UFC finance department made almost wrong forecast, therefore the company have to pay double interests than normal.
Quarter Short-term loan granted Actual short-term loan required Short-term interest expense
1 230.000,00 197.296,00 7750
2 333.333,00 354.738,00 5750
3 500.000,00 405.854,00 17737
4 300.000,00 428.408,00 12500
5 700.000,00 813.585,00 22491
6 700.000,00 893.884,00 42713
7 700.000,00 1.037.005,00 46929
8 700.000,00 1.104.676,00 54443
9 700.000,00 856.150,00 57996
10 650.000,00 880.271,00 44948
11 700.000,00 1.118.576,00 46214
12 700.000,00 1.783.431,00 55929
89172
Table 3: short-term loan decisions
2. Long-term loan decision
Long-term mortgages are funds the company need for investments such as buy plan capacity. All of the mortgages requested will be accumulated and the new mortgage requests are also added to present mortgage retirement. Basically, UFC did not request much mortgages, the company almost request a bit smaller amount than its short-term loans. Therefore the interests UFC need to pay each quarter were quite less than short-term interests. However, by buying huge number of plant capacity and making losses too much in the last 3 quarter, UFC needed to use a huge number of mortgages in order to reduce the penalty of short-term loan rates. For instance, UFC had requested continuously $90.000, $180.000 and $300.000 in quarter 9, 10 and 12; especially $600.000 in quarter 11 when the company had just suffered from the first big loss in quarter 10. This issue led the company’s liabilities to be bigger and the company will go bankrupt if it cannot afford to repay these loans.
Quarter Mortgage requested Mortgage interest Mortgage retirement
1 103.500,00 5.400,00 10.000,00
2 - 7.493,00 13.320,00
3 - 7.193,00 13.320,00
4 180.000,00 6.893,00 13.320,00
5 - 10.643,00 18.922,00
6 - 10.218,00 18.992,00
7 135.000,00 12.829,00 22.808,00
8 - 12.316,00 22.808,00
9 90.000,00 11.803,00 22.808,00
10 180.000,00 15.790,00 28.071,00
11 600.000,00 18.533,00 32.948,00
12 300.000,00 31.292,00 55.630,00
36.795,00 65.405,00
Table 4: Long-term loans
IV. RESULT ANALYSIS
In general, UFC performed virtually the same as industry average. These graphs below indicate the quarterly income of UFC which is quite fluctuated. Quarterly the company’s incomes were below the average of industry. This is the result of not having clear strategy in business plan. Since quarter 6, although UFC got the income above the industry average, the net incomes of UFC has decreased dramatically followed closely to the market trend.
Figure 1: UFC’s quarterly income
Figure 2: UFC’s Total income
PROFITABILITY RATIOS
Figure 3: UFC’s quarterly ROA
ROA ratio measures the ability of the company to convert resource into bottom line profit. In general, the industry average of ROA divided into 2 periods. In the first 8 quarters, this figure was positive, which reflected the bright stage of the plastic market. Nevertheless, in the rest quarters, the situations became worse for the whole industry including UFC. After quarter 8, ROA of the industry fell sharply from 1.12 to -5.1 whereas UFC’s ROA declined slightly from 1.83 to 0.15. However, the company could not keep performing well in quarter 10 and the ROA of the firm has become negative. Since that time, it continued falling significantly to about -10 at the end of year.
LEVERAGE RATIOS
Figure 4: UFC’s debt ratio
The debt ratio measures the proportion of the firm’s assets financed with non-owner funds. As the graph indicates, UFC’s debt ratio has been increasing during 3 years of operating. Recently, the total liabilities have been greater than total assets of the company, which may result in the worst situation that is bankrupt.
LIQUIDITY RATIO
Current ratio determines the ability of the firm to meet its short-term financial obligations. This figure shows that in every quarter, UFC always has financial ability to finish the firm’s short-term duty such as paying sufficient salary for employees, utilities fee, etc.
Figure 5: UFC’s current ratio
V. PERFORMANCE REFLECTIONS
The poor performance of the company overall can be clarified in several factors, they are
First of all, in the 1st and 2nd year, the breakeven points (BEP) of UFC’s product is quite high especially the BEP for product 2, in some cases the BEP for P2 were higher than sale volumes; those made the company’s losses. This issue directly led to the company’s income to be low even the sale volumes were quite high. Identified the issue, Finance manager suggested production department should invest more on Human resources development to improve the productivities of UFC’s workers that will make the cost of production be lower. The problem had been step by step solved since quarter 5 when UFC’s BEP for both products were lower than the industry average (figure 6 and 7).
Figure 6: Breakeven point for P1
Figure 7: Breakeven point for P2
Secondly, UFC was completely wrong when decided to expand the company from quarter 9. Within the company, production department settle on buying huge number of plant capacity together with investing quite much in human resources development and hiring workers. For instance, in quarter 9, production department hired 17 workers, bought 2000 plant capacity, 8 workers and 4000 plant capacity in quarter 10, 26 workers and 3500 plant capacity in quarter 11. This wrong decision caused the company lots of troubles. First of all, although plant capacity and workers’ productivity were high, the company’s breakeven point was high, too due to the extremely high of labor cost, improvement and sales and administration cost.
Quarter UFC Industry Avg.
P1 P2 P1 P2
9 12967 13503 12313 11042
10 10572 18821 15130 19497
11 16408 18870 21602 19419
12 17680 13774 22083 25604
Table 5: UFC and industry breakeven point last year
In addition, UFC had to face with the awfully high rates of interest in both long-term and short-term (table 3 and 4). This directly resulted in low, even negative income the company actual suffered.
Thirdly, marketing and production department did not co-operate efficiency that led to the company sale volumes to decrease dramatically. Production department tried to follow the cost of leadership strategy that the more units were produced, the less COGS the company got. This is also extremely risk because, if the company does not sell almost of products within the quarter, it will have trouble with warehouse costs; low net income due to little revenue cannot cover the huge cost of productions. On the other hand, marketing department did not follow the market trends. Current market demands were less in product 1 and more in product 2. However, UFC continued producing both products with a huge number in order to lower the COGS and expected more profit. In addition, in quarter 12, consistent with the assist from finance that reduce advertising expenses together with lower the price by $4 to $5/unit, the company’s income will achieve more than $200.000. In fact, the company’s price were extremely competitive in comparison with the 1st ranked company (table 7); nevertheless, UFC has suffered the biggest loss since established with approximately 800,000 of sale volumes, -9.39 of ROA and $-302,649 net income.
Quarter 9 10 11 12
P1 P2 P1 P2 P1 P2 P1 P2
Forecast 18000 13800 13700 18500 20000 16000 28050 19000
Actual demand 16582 8225 6866 17247 7910 14822 4460 8246
Price 74 69 75 70 76 74 69 70
TV ads. 4 2 8 10 15 10 9 9
Newspaper ads. 88 70 88 99 90 90 84 60
Magazine ads. 10 10 8 10 29 29 30 20
Table 6: Marketing decision and actual
Quarter 12 UFC Plastino
P1 P2 P1 P2
Forecast 28050 19000 15660 20000
Actual demand 4460 8246 9314 20558
TV ads. 9 9 10 10
Newspaper ads. 84 60 99 99
Magazine ads. 30 20 45 50
Price 69 70 73 74
Sales 884960 2159920
Income -320694 56362
Table 7: quarter 12, UFC vs. Plastino
To conclude, the ineffectively cooperating between managers in UFC and making too many wrong analysis and evaluation in market cause UFC’s poor performance. UFC actually need a new strategy to revive and develop in the future.
VI. RECOMMENDATIONS
Initially, due to the current market trend, UFC as others competitors should stop or reduce producing product 1. This product has become “dog” in the BCG matrix, and then it will be eliminated soon.
Secondly, according to BCG matrix, from now on, product 2 has been the “star”, and possibly become “cash cow” shortly. Therefore, the company should invest more on this product.
Thirdly, stop producing product 1 will reduce the company’s revenue. To maintain the company’s revenue and develop, UFC might prepare for introducing a new product for example, toys for children or mobile phone plastic case. However, the company should do market research strictly and cautiously to avoid risks.
Finally, at the moment, UFC is requiring immediately a new strategy of running business to revive and develop. In addition, the company also needs much more funds to cover the recent losses and return to manufacture well. Therefore, the broad of director should appeal for investments from shareholders and promise to provide well-dividend repaid.
VII. REFERENCES
Anderson, P, Beveridge, D, Scott, T & Hofmeister, D, 2003, Threshold competitor, Prentice Hall, New Jersey
URSULAFC Ltd. has been operating in the plastic industry for 3 years of manufacturing and distributing helmet (product 1) and plastic table (product 2). Overall, the company had to confront with many challenges and difficulties in the market, competing against strong competitors. As a result, UFC’s recent performance is not very favorable. This suggests that the company should review the operation in the 3 manufacturing years.
In this report, Finance manager is going to present the company’s performance, the whole finance’s decision, reflection on performance and suggest several advises to help the company being out of risky period.
Specifically, all the aspects of finance department will be taken into account. For instance, finance ratios, which are the Key Performance Indicators (KPIs), will be analyzed in order to approximately figure out the finance position of the firm.
After examining all finance’s decision, the report reveals that UFC is now in a critical circumstance which needs to be changed by new strategy mentioned in the recommendation.
CONTENTS
I. Executive summary 1
II. Overview of company’s performances 4
III. Overview of finance’s decisions 6
IV. Result analysis 8
Profitability ratios 9
Leverage ratios 10
Liquidity ratio 10
V. Performance reflections 11
VI. Recommendations 14
VII. References 15
VIII. Appendixes 16
Cost Parameters 16
Marketing and Finance Limits and Time Lags 17
Production Limits and Time Lags 18
Other graphs 19
II. OVERVIEW OF COMPANY’S PERFORMANCES
After running the business for 3 years, at the end of quarter 12, UFC got the rank 5, 9% of the market share and had the downward sloping trend. The table and figure below show the overall information of UFC.
Comp Sales Income ROA Forecast errors Rank
1 12,396,288 -1,684,827 -6.61 145,120 9
2 8,875,634 -825,065 -5.06 48,729 7
3 18,710,810 287,506 1.69 95,056 2
4 14,441,580 -457,288 -1.55 82,670 6
5 18,722,720 500,493 2.46 63,017 1
6 14,127,160 -465,391 -1.17 105,587 5
7 18,395,050 122,278 1.19 91,362 4
8 20,159,970 200,278 1.91 73,663 3
9 9,949,220 -1,911,118 -7.84 145,617 10
10 12,989,290 -819,017 -3.66 92,237 8
Table 1: Overall industry performance
The company’s performance can be divided into 3 parts, fluctuated part, developed part and regression. Firstly, from quarter 1 to quarter 4, the company’s sales and net income fluctuated. In comparison with the average industry, except quarter 3, the company sales and net income were slightly smaller. In addition, in quarter 2 and especially in quarter 4, the company had made big losses while the average industry had high income*. Due to the poor performance, UFC after 4 quarters stood at the rank 9 over 10 competitors.
Secondly, indentifying and analyzing the problem, the board of director had made several adjustments in order to revive UFC’s image and re-build the consumer goodwill. Those adjustments brought may changes in UFC’s performance, and UFC first time came to the top 5 company. From quarter 5 to quarter 8, UFC always achieved the positive incomes and a bit high rate of ROA. For instance, net income in quarter 5 was 43.674 which was more than 4 times increase in comparison with the previous quarter, then UFC reached a peak in quarter 7 with $81.535 of income, 3,91 of ROA and stood at rank 2 after the giant JayLean at that time. However, there were several of fluctuations that led the company cannot perform well in the following year.
Ultimately, by making some wrong decision, UFC failed to compete with the other top companies in spite of standing at rank 5 overall. In quarter 9, the company’s net income declined steadily from $38.803 last quarter to $3.019. Afterward, UFC continuously fell without control and lost it position from rank 3 in quarter 9 to 6, 7 and 10 in quarter 10, 11 and 12. The company’s incomes had reached the inverse record with -103.097, -246.124, and -302.649 in the last 3 quarter. If there are no strongly reformations, the company will possibly go bankrupt.
Quarter Sales Net income Ranking Market share Industry sales avg. Industry income avg.
1 558.952 2.982 8 9,3 603.058 16.371
2 477.912 -2.643* 10 7,1 669.184 16.021
3 816.360 14.199 5 10,7 707.710 9.258
4 585.086 -12.780* 8 6,9 844.456 10.708
5 1.150.660 43.674 6 11,5 995.997 16.175
6 1.210.410 17.696 8 10 1.207.582 36.110
7 1.606.330 81.535 2 12,3 1.305.830 1.124
8 1.621.620 38.803 5 9,6 1.696.025 18.673
9 1.794.590 3.019 3 13,4 1.339.992 -78.761
10 1.722.240 -103.097 6 8,9 1.945.582 -127.841
11 1.697.990 -246.124 7 8,5 1.996.188 -188.304
12 884.960 -302.649 10 5,9 1.512.381 -234.809
Table 2: Quarterly UFC’s performance
III. OVERVIEW OF FINANCE’S DECISIONS
1. Short-term loan decision
The short-term loan is the amount of money the company needs to cover the operating activities such as the cost of marketing and production. The interest rates for short-term loan is 10.0 however, if actual requirement is higher than requested, the company has to pay a penalty of double the normal interest rates. In terms of short-term loan decision, UFC did not control and balance its operating activities. Hence, UFC needed to depend too much on short-term loan, for instance, the company’s short-term loan granted from quarter 5 till the end was $700,000. In addition, UFC finance department made almost wrong forecast, therefore the company have to pay double interests than normal.
Quarter Short-term loan granted Actual short-term loan required Short-term interest expense
1 230.000,00 197.296,00 7750
2 333.333,00 354.738,00 5750
3 500.000,00 405.854,00 17737
4 300.000,00 428.408,00 12500
5 700.000,00 813.585,00 22491
6 700.000,00 893.884,00 42713
7 700.000,00 1.037.005,00 46929
8 700.000,00 1.104.676,00 54443
9 700.000,00 856.150,00 57996
10 650.000,00 880.271,00 44948
11 700.000,00 1.118.576,00 46214
12 700.000,00 1.783.431,00 55929
89172
Table 3: short-term loan decisions
2. Long-term loan decision
Long-term mortgages are funds the company need for investments such as buy plan capacity. All of the mortgages requested will be accumulated and the new mortgage requests are also added to present mortgage retirement. Basically, UFC did not request much mortgages, the company almost request a bit smaller amount than its short-term loans. Therefore the interests UFC need to pay each quarter were quite less than short-term interests. However, by buying huge number of plant capacity and making losses too much in the last 3 quarter, UFC needed to use a huge number of mortgages in order to reduce the penalty of short-term loan rates. For instance, UFC had requested continuously $90.000, $180.000 and $300.000 in quarter 9, 10 and 12; especially $600.000 in quarter 11 when the company had just suffered from the first big loss in quarter 10. This issue led the company’s liabilities to be bigger and the company will go bankrupt if it cannot afford to repay these loans.
Quarter Mortgage requested Mortgage interest Mortgage retirement
1 103.500,00 5.400,00 10.000,00
2 - 7.493,00 13.320,00
3 - 7.193,00 13.320,00
4 180.000,00 6.893,00 13.320,00
5 - 10.643,00 18.922,00
6 - 10.218,00 18.992,00
7 135.000,00 12.829,00 22.808,00
8 - 12.316,00 22.808,00
9 90.000,00 11.803,00 22.808,00
10 180.000,00 15.790,00 28.071,00
11 600.000,00 18.533,00 32.948,00
12 300.000,00 31.292,00 55.630,00
36.795,00 65.405,00
Table 4: Long-term loans
IV. RESULT ANALYSIS
In general, UFC performed virtually the same as industry average. These graphs below indicate the quarterly income of UFC which is quite fluctuated. Quarterly the company’s incomes were below the average of industry. This is the result of not having clear strategy in business plan. Since quarter 6, although UFC got the income above the industry average, the net incomes of UFC has decreased dramatically followed closely to the market trend.
Figure 1: UFC’s quarterly income
Figure 2: UFC’s Total income
PROFITABILITY RATIOS
Figure 3: UFC’s quarterly ROA
ROA ratio measures the ability of the company to convert resource into bottom line profit. In general, the industry average of ROA divided into 2 periods. In the first 8 quarters, this figure was positive, which reflected the bright stage of the plastic market. Nevertheless, in the rest quarters, the situations became worse for the whole industry including UFC. After quarter 8, ROA of the industry fell sharply from 1.12 to -5.1 whereas UFC’s ROA declined slightly from 1.83 to 0.15. However, the company could not keep performing well in quarter 10 and the ROA of the firm has become negative. Since that time, it continued falling significantly to about -10 at the end of year.
LEVERAGE RATIOS
Figure 4: UFC’s debt ratio
The debt ratio measures the proportion of the firm’s assets financed with non-owner funds. As the graph indicates, UFC’s debt ratio has been increasing during 3 years of operating. Recently, the total liabilities have been greater than total assets of the company, which may result in the worst situation that is bankrupt.
LIQUIDITY RATIO
Current ratio determines the ability of the firm to meet its short-term financial obligations. This figure shows that in every quarter, UFC always has financial ability to finish the firm’s short-term duty such as paying sufficient salary for employees, utilities fee, etc.
Figure 5: UFC’s current ratio
V. PERFORMANCE REFLECTIONS
The poor performance of the company overall can be clarified in several factors, they are
First of all, in the 1st and 2nd year, the breakeven points (BEP) of UFC’s product is quite high especially the BEP for product 2, in some cases the BEP for P2 were higher than sale volumes; those made the company’s losses. This issue directly led to the company’s income to be low even the sale volumes were quite high. Identified the issue, Finance manager suggested production department should invest more on Human resources development to improve the productivities of UFC’s workers that will make the cost of production be lower. The problem had been step by step solved since quarter 5 when UFC’s BEP for both products were lower than the industry average (figure 6 and 7).
Figure 6: Breakeven point for P1
Figure 7: Breakeven point for P2
Secondly, UFC was completely wrong when decided to expand the company from quarter 9. Within the company, production department settle on buying huge number of plant capacity together with investing quite much in human resources development and hiring workers. For instance, in quarter 9, production department hired 17 workers, bought 2000 plant capacity, 8 workers and 4000 plant capacity in quarter 10, 26 workers and 3500 plant capacity in quarter 11. This wrong decision caused the company lots of troubles. First of all, although plant capacity and workers’ productivity were high, the company’s breakeven point was high, too due to the extremely high of labor cost, improvement and sales and administration cost.
Quarter UFC Industry Avg.
P1 P2 P1 P2
9 12967 13503 12313 11042
10 10572 18821 15130 19497
11 16408 18870 21602 19419
12 17680 13774 22083 25604
Table 5: UFC and industry breakeven point last year
In addition, UFC had to face with the awfully high rates of interest in both long-term and short-term (table 3 and 4). This directly resulted in low, even negative income the company actual suffered.
Thirdly, marketing and production department did not co-operate efficiency that led to the company sale volumes to decrease dramatically. Production department tried to follow the cost of leadership strategy that the more units were produced, the less COGS the company got. This is also extremely risk because, if the company does not sell almost of products within the quarter, it will have trouble with warehouse costs; low net income due to little revenue cannot cover the huge cost of productions. On the other hand, marketing department did not follow the market trends. Current market demands were less in product 1 and more in product 2. However, UFC continued producing both products with a huge number in order to lower the COGS and expected more profit. In addition, in quarter 12, consistent with the assist from finance that reduce advertising expenses together with lower the price by $4 to $5/unit, the company’s income will achieve more than $200.000. In fact, the company’s price were extremely competitive in comparison with the 1st ranked company (table 7); nevertheless, UFC has suffered the biggest loss since established with approximately 800,000 of sale volumes, -9.39 of ROA and $-302,649 net income.
Quarter 9 10 11 12
P1 P2 P1 P2 P1 P2 P1 P2
Forecast 18000 13800 13700 18500 20000 16000 28050 19000
Actual demand 16582 8225 6866 17247 7910 14822 4460 8246
Price 74 69 75 70 76 74 69 70
TV ads. 4 2 8 10 15 10 9 9
Newspaper ads. 88 70 88 99 90 90 84 60
Magazine ads. 10 10 8 10 29 29 30 20
Table 6: Marketing decision and actual
Quarter 12 UFC Plastino
P1 P2 P1 P2
Forecast 28050 19000 15660 20000
Actual demand 4460 8246 9314 20558
TV ads. 9 9 10 10
Newspaper ads. 84 60 99 99
Magazine ads. 30 20 45 50
Price 69 70 73 74
Sales 884960 2159920
Income -320694 56362
Table 7: quarter 12, UFC vs. Plastino
To conclude, the ineffectively cooperating between managers in UFC and making too many wrong analysis and evaluation in market cause UFC’s poor performance. UFC actually need a new strategy to revive and develop in the future.
VI. RECOMMENDATIONS
Initially, due to the current market trend, UFC as others competitors should stop or reduce producing product 1. This product has become “dog” in the BCG matrix, and then it will be eliminated soon.
Secondly, according to BCG matrix, from now on, product 2 has been the “star”, and possibly become “cash cow” shortly. Therefore, the company should invest more on this product.
Thirdly, stop producing product 1 will reduce the company’s revenue. To maintain the company’s revenue and develop, UFC might prepare for introducing a new product for example, toys for children or mobile phone plastic case. However, the company should do market research strictly and cautiously to avoid risks.
Finally, at the moment, UFC is requiring immediately a new strategy of running business to revive and develop. In addition, the company also needs much more funds to cover the recent losses and return to manufacture well. Therefore, the broad of director should appeal for investments from shareholders and promise to provide well-dividend repaid.
VII. REFERENCES
Anderson, P, Beveridge, D, Scott, T & Hofmeister, D, 2003, Threshold competitor, Prentice Hall, New Jersey
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