Business Development And Evaluation Of Debt And Equity Financing

1990 Words Apr 30th, 2015 8 Pages
Introduction
The Healthy Potion business (HP) specialises in producing and selling a unique drink called Healthy Potion, which includes cold water with some special concentrate from northwestern China. Recently the business has been developing well and making significant amount of profits. In order to maximise this return and minimise the risk of relying on the profit earned from one product, the business is willing to broaden their product range and have put aside $200 000 for this investment. This case study will give in an in depth strategic analysis for new business development and evaluation of debt and equity financing.

Strategic Analysis
In order for HP to continue receiving significant profits the SWOT analysis can be used to
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Similar to Coca Cola (2014) HP also faces the threat of water scarcity, as it is also one of their main ingredients. Rising population and pollution will affect HP’s sales negatively. Also since HP is profitable, many firms would be willing to enter this market meaning there is a high threat of entrants. HP also faces the imminent threat of competitors especially being in the beverage industry where there are already numerous firms.

Strategy for New Business Development
Diversifying Product Range
Currently HP sells one product, which generates all sales for them. This beverage’s demand also is affected by seasonal factors, as it is a cold beverage, resulting in consumer demand only being high in warm seasons. Due to this high risk, a strategy that can overcome this issue is for HP to diversify their product range. By investing some money into R&D (research and development) the business can produce a range of products that cater to many consumers and have high demand throughout the year. However, an issue with this strategy is the amount of time and money put into creating a large product range that may or may not sell as well as the healthy potion beverage. The outcome could result in losses for the business especially since R&D and advertising costs of the new product range are expensive and may be much greater than the profit attained by these extra products. Since HP is

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