Case Summary:
Baldwin Bicycle Company has long history in manufacturing bicycles. Currently, they receive a Challenger deal from Hi-Valu. This proposal contains some special requirements such as to have larger inventory, sell at lower price, and have “Challenger” name on bicycle tires. Suzanne Leister, marketing vice president of Baldwin Bicycle Company, is considering whether or not to accept this proposal. The issues are listed below:
The Relevant Cost of Manufacturing a Challenger Bike | Cost analysis | The Relevant Cost of Working Capital Investments | Relevant cost analysis | The Relevant Erosion Charge | Profit analysis | The Incremental Return on Investment | Ratio analysis; incremental ROI | The Major Cash Flow
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The incremental return on investment is 22.45%, from the calculation of $423,038.27/$1,884,211.73. It indicates that this Challenger Deal is profitable.
Revenue [25,000*92.29] | $2,307,250.00 | Cost: | | COGS [69.20*25,000] | $1,730,000.00 | One-time Added Cost | $5,000.00 | Working Capital Investment | $63,363.83 | Erosion Cost | $85,847.90 | Total Cost | $1,884,211.73 | Profit | $423,038.27 |
5. The Major Cash Flow Implication of the Challenger Deal
On Average, a bike would remain in regional warehouse for two months, and the payment is in the following 30 days when bicycles are sold. This indicates that there are 4 times cash inflows each year. The estimated cash inflow is $2,307,250. The cash outflow that is associated with the inventory is 25,000*83.90*3/12, which is $524,375.
6. Baldwin’s Financial Situation at the end of 1982
The return on equity indicates how well managers are employing the funds invested by the firm’s shareholders to generate returns. Baldwin has a return on equity of 0.08, which indicates that the funds invested in the company have relatively low return. Baldwin’s the return on sales, which is 0.02, shows the profitability of the company’s operating activity. It indicates that Baldwin’s profit is relatively low. Moreover, the return on asset is low as to be 0.03.
The liability to Equity
Net Sales – totaled $4,485,000.00 for year 6, and grew +33.3% or $1,495,000.00 between years 6 to 7.
Return on Equity measures how much net income is generated per dollar invested in the company by stockholders and investors. Again we see the same downward trend. It went down by 6% from 18% in 2011 to 12% in 2012.
|This is a report of the company named JayHsquared which contains decisions made |JayHsquared |
Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard
* Return on Sales (ROS) – ROS is the percentage of each dollar of sales that is left as a profit. For example if a company has $100 in revenue and $20 in profit, at the end of the period they have a ROS of 20%. ROS is best used when compared to other companies within the same industry. This is because different industries can have different levels of ROS depending on the competitiveness level. Competiveness can drive prices down overall in the industry, which will drive down ROS for all companies. A high ROS can indicate premium pricing in the industry or great efficiency where as a low ROS can be an indicator of financial trouble such as a company slashing prices just to garner
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I. Rate of Return on Total Assets: Measures the company’s profitability relative to total assets. A percentage increment for Company G, from 12.30% to 13.68% (2011-12) keeps them above industry benchmarks (8.60% and 12.30%). Rate of Return on Total Assets represents strength for Company G.
This report has been prepared to analyze the current costing method at Competition Bikes, Inc. (CBI) and provide a recommendation for improvement. To support this analysis, the differences between traditional based costing and activity based costing will be examined, along with the benefits and drawbacks for each method. A cost-volume-profit evaluation with break-even analysis for both sales units and sales dollars for the CarbonLite and Titanium bike lines will also be provided.
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From the article it seemed that Baldwin Bicycle Company competed somewhere between a cost leader and a differentiator.
As you can see in the graph below, the only cash outflows from the company in year 7 will come from debt financing, with about an $11M outflow from buying back the building from Frank Thomas,
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The return on equity conveys the profits of the company as a rate of return on the amount of owners' equity. ROE uses average owners equity over the specified time period and net income. Historically a ROE of between 10% and 15% were considered average. Recently higher rates in growth industries have been greater.
o Knott estimated that 25,000 units per year would be sold; further, he speculated that a unit would sit in the warehouse, on average, two months, although Hi-Valu would purchase units in the warehouse for four months automatically. BBC’s current inventory turnover ratio is 2.92, or approximately 4 months. Although Hi-Valu is a discount chain and would likely have a higher inventory turnover than BBC, which sells only through