Kootenay Bicycle Company
Feb 13, 2007
Kootenay Bicycles (Kootenay) build custom frame or bike in a large metropolitan area in western Canada since 2002. Although sales have been steadily increasing since inception, it has not been successfully translated to profits. Signs of operational inefficiencies, lack of financing and limited expandability limits its growth.
This report analyzes Kootenay’s current strategic alternatives, with a diagnosis of the company at all levels to formulate the best strategic direction the company should undertake. As a result, the following strategic options were considered and Kootenay is recommended to: •…show more content… External Environment Multiple alternatives have surfaced for Kootenay including facility expansion, financing and channel distribution. These opportunities can assist Kootenay to address the growing demand in Canada and North American for high-quality customized frame bicycle market. Externally, Kootenay must compete with the low cost mass-manufacturer, custom bike makers at all levels and unexpected demands in the market.
Financial Analysis As shown in Exhibit, profitability has been a concern to Kootenay - gross margins are below industry average of 28-50% for its complete bike products (Entrée; -0.83%, Dlux; 7.76%, and Ultra;-6.73%) where materials have represented a high percentage of the costs (58 – 74%). Selling frame alone has shown stronger profitability (23.33%) but overall returns needs to be improved (ROA/ROE are -14%/-22%). Activity ratio has shown the benefit of order-to-make or no overstocking of selling products (inventory turnover is 13.07 days) but Kootenay has an extended collection period (18.96 days). Its shortage of cash ($780) discourages any short-tem obligations. As for its coverage ratios, a large part of the equity is financed through owner’s investment. Also, the allocation of 100% salary to direct labour cost has masked any labour that should be regarded as manufacturing overhead.
Mission Statement & Owners’ Preference Currently, Kootenay does not have a