1.5 Assessment of expansion proposal;
In short proposed expenditure would greatly impact on net profits and could leave company vulnerable. ( see fig. 4.5.6& 7 ) Alt Ausee Ice Cream receive almost half of it’s net profits from overseas. But this has been helped by a favourable exchange rate and new products which have sold well. Both of these are subject to change and are not completely within control of Company. There is no evidence of more products being launched which could replace any of the present ones, all of which are subject to the product life cycle curve. There is no evidence to contradict that present “new” products could have reached “saturation point “. There are the very real possibilities of costs being added to via pay-rises, legislation, shipping costs, increased marketing and inflation. In the absence of such information it is impossible to justify the expenditure via a “ rigorous analysis of future sales & profits “ as required to do by the terms of reference of this report.
1.6 Other Management options
Investigate option of leasing vs. buying thereby reducing capital outlay.
Initiate further, more thorough examinations of the future e.g. use of reliability analysis to determine more accurately if the risk is acceptable. All possible uncertainties must be accounted for where possible.
Change of company structure e.g. raising of capital via limited company share issue.
Further Market research & Research and Development into new products and Markets.
Further examination of up-to-date storage techniques. This would help utilise under capacity in leaner months and may even negate the need for capital out-lay
Sub-contracting of work during peak periods.
Competitors ….. what are they doing ? Why ? How ?
Set up an ad-hoc committee to look into the expansion proposal with representatives from all dept.`s
..
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Conclusions / recommendations The proposed expansion cannot be allowed to proceed on the basis of current information available as this could jeopardise future profitability. Also present information is inconclusive and requires further clarification. In the short term some of the options listed in section 1.6 should be assessed and in particular leasing of necessary equipment and sub-contracting. This should be followed up by the additional methods out-lined in order to gather more detailed information before any final decision is reached. For the benefit of company development it is recommended that all necessary information be gathered within next three months at which time senior management should make a final decision and report back to appropriate employees.
1.8 Graphs , Charts, Comments and relevant data.
Chart source; Excel 97 Basic skills Muir, 1997 unit 5, page 67 to 79.
COMMENT; Graph shows steady growth in sales for both Great Britain and Germany. GB and Ger both increase by over 39% from 99/00 to 01/02. Based on this past performance ( which represents annual summaries ) future looks positive for continued sales increases.
NB Based on 60% / 40% split of sales between GB & Ger resp.
FIG 1 Source Data
Chart source; Excel 97 Basic skills; J Muir, 1997,unit 12, page 149 to 160
COMMENT; Trend line indicates strong “ positive “relationship between time and sales, i.e. this would indicate that sales look set to continue to increase. Strength of the relationship has been reduced by seasonal figures which have the affect of giving a low R2 value ( 0.097 in this case ) Important factor is that there is a “slope”
FIG.2 source data
Chart source; Excel 97, further skills, J Muir; Unit 9, pages 129 to 139
COMMENT; Using forecast trend functions ( which account for variations such as seasonal factors in historical data ) FIG. 3 gives estimated sales figures for quarters 13 to 16 inc. ( see below )
This indicates sales volumes will grow over next 12 months but this growth will be more conservative than before allowing for previous seasonal variations e.g. historical low= 68, high = 247.
FIG. 3 source data
FIG. 4
FIG. 4;
Chart source; Excel 97, further skills, J Muir; Unit 9, pages 129 to 139
COMMENT Despite only representing 40% of sales Germany contributes higher % of £`s generated. This is mainly due to the higher mark-up for same goods sold in Germany contribute. Also means that company is reliant on Germany for approx 46 to 48% of £`s generated.
Source data for FIG. 4
Chart source; Excel 97 Basic skills; unit 12, page 149 to 160
COMMENTS; Profits subject to great fluctuation i.e. low = -£505,200 to high of £1457,600. Assumes variable & fixed costs and exchange rate remain unchanged. Again profit growth forecast ( but conservative )
Source data for FIG. 5
Chart source; Excel 97 Basic skills; unit 5, page 67 to 79
COMMENT; Due to increased fixed costs estimated that profits will be reduced by almost 40% in first year. This assumes sales volumes and exchange rate remain unchanged.
Source data for FIG.6
Chart source; Excel 97 Basic skills; unit 5, page
COMMENT; Exchange rate fluctuation will have a major affect on net profits. i.e. 20 to 25 % decrease. If combined with comparison with increased fixed costs then affect could be decrease of over 50% in net profits
Source data for FIG. 7
