Key Events/Case Synopsis
National Fabricators Inc. is a company that specializes in the manufacturing of lockers, school furniture, toilet partitions, steel shelving, and is now currently owned by Tom Kruger after buying out $75,000 of shares from shareholders in 1992. The industry is very competitive as costs are rising and prices being cut while the economy declines at the same time. As the president of National Fabricators, Tom Kruger needs to bring the company back on its feet in order to generate profits and reduce its losses of $480,315 and outstanding bank loans of $784,000. Tom Kruger also predicts that sales would fall as much as 10% during the 1994 fiscal year due to government cutbacks on medical and educational spending as
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• The company has the opportunity to grow in various markets and aquire new customers such as malls, hotels, offices, and motels not only in Canada but as well as the United States.
Threats:
• Tremendous price and wage competition in a recurring industry will lead to additional losses in profits.
• The highest risk for National Fabricators is the three companies which are dominating the industry that have the investment ability to control industry standards and requirements, which could lead to a decrease in profits.
• Due to the long term contracts from the government it is impacting the company’s cash flow in a negative trend.
Historical Financial Analysis
• Sales fluctuate due to the frequently cyclic nature of the industry but they aim to remain above 3 million annually.
• In 1993 cost of goods sold being 90% of sales and 9.6% gross profit of sales. Company’s lack of ability to manage inventory and lack of cash forced them to order from more expensive (12-15%more) warehouse than steel mills.
• Net profit margin has been negative and no major patterns over the 9 year period on net profit since the trend of the industry is based mostly on economic factors, and whether or not they secure contracts. Due to high percentage of COGS they are only left with a net profit of $980 or
Although the company did show an increased gross profit of $8,255,000 with $6,358,000 less Net Sales in 2013 versus 2012, that increase is due to the reduction in product Cost of Goods Sold by $14,613,000. Since increases in product price will negatively affect sales, one of management’s primary goals is to keep prices stable. This objective is achieved through implementation of cost cutting programs, investing in more efficient equipment, and automation of more steps in the production process.
Cost of goods sold in store 3 was 58.5% of sales in 2011 and in 2012 it dropped to 50.3%. This is odd because sales and inventory had increased from 2011 to 2012. When sales increase costs of goods should rise respectively. If a business is becoming more profitable the inventory generally doesn’t increase considerably. This increase in inventory could be due to obsolescence. All of these factors don’t add up to an increase in sales.
Profitability ratios are functions of both the industry and a company’s position within the industry. The boundaries are set by the operating characteristics of the industry, within these boundaries profitability ratios are determined by a player’s relative position. Gross profit margin should stay constant or increase because cost of goods sold should be a constant percentage of sales or should decrease as the company’s price increases and/or volume discounts. Gross profit margin was slightly favorable stable at 28%. The horizontal analysis information showed that sales had been averagely increased by 26% from 2001 to 2003.However the operating cost had been averagely increased by 27%.
will remain a difficult competitor in maintaining good quality and also compete with the low
Support: The inventory increase in 1997, YOY, was 58%. Additionally, the COGS to revenue ratio reduced from to 72% in 1997. This combination of increase in inventory and reduction in COGS as a percentage of revenue seems to indicate that the fixed costs may have been spread over a larger base through over production, thereby causing the COGS to reduce. This may be a cause for concern and could be a potential red flag.
The threat of substitutes being strong and the large amount of competitors offering relatively undifferentiated products makes it difficult for industry members to make attractive profits
The company shows increase in profits for the year 2012, when it is estimated at 10.43%. The Gross Profit for the year 2011 was 9.09%, which is considerably lower than the average 11.85 %. The Gross Profit Margin ratio is regarded as ‘a test of the
This factor of other firms venturing the market with low prices will finally lead the existing firms in industry to incur very big losses and this will force them to adjust, by lowering their
The company, with operations in the USA, Canada, the United Kingdom, Mexico, China, and Israel, and franchises in places as diverse as South America, the Caribbean, and Asia,
The gross profit margin for CC is right around the industry average. Although the numbers seems to be decent, the costs of goods sold are too high. Next, looking at the operating profit margin, the numbers don’t look as great as they should. The numbers are low compared to the industry average in years 2001, 2004, and 2005. This may indicate that CC should look into their prices and costs. In 2001 the net profit margin was very low compared to the industry average. I am assuming this is due to the major expansion. It is also important to look more deeply into the numbers though because the net profit margin is lower compared to the industry average in all of the years. Once again CC should look into their costs and how efficient they are converting sales into actual profit.
Even though the company showcased lower than expected revenue, the company remains profitable which can be measured with the Return on Assets (ROA) ratio. The software/infrastructure industry has an average ROA of 8.18% compared to F5’s ROA of 15.9%. This indicates that for each dollar invested in assets, the company generates on average 15.9 cents in profit. The Return on Sales (ROS) of a company allows investors to see how much profit the company is generating per dollar of sales. F5’s ROS is 18.3% which means that they earn 18.3 cents for every revenue dollar resulted in profit. F5’s asset turnover is 0.865 compared to the industry’s average of 0.41 which dictates that they generate 0.865 in revenue for every dollar invested in assets. In order to do an even deeper analysis for F5, I looked at the Gross Profit Margin (GP %) and found that F5’s Gross Margin is 83.33% compared to the industry’s average of 63.73 percent. This means F5 earns 83 cents on the dollar in gross margin.
The company intends to setup a new branch in Toronto by the end of this financial year. The firm has confidence in their solid base of customers despite the slow growth indicators experienced in the industry. With its increasing number of medium sized corporations as clients, the company has felt the pressure and this has necessitated the firm expansion
Since the issue of the company’s declining profit margin has arisen, the company has been dealing with both macro and micro problems within the organization. On the macro level, the company need to deal with their operational goals since this is the issue at hand. The company’s profit margin has decreased as a result of not focusing on their operational target. Before implementing the project, Mr. West needs to take into consideration all the pros and cons of
THREATS • Price wars with competitors • Stricter health and technical standards • Reduced benefits • Competition
In the U.S. the motor industry employed in 2008 around 880,000 workers that is around 6.6% of the manufacturing workforce and this include workers who put cars together to the workers who assembles the motors for these vehicles, since the turn of the decade the automotive industry has managed to eliminate 435,000 of manufacturing jobs that is equal to 3.3% of all manufacturing jobs that existed in 2008.