BSG Online 2017 - Winning Guides and Tips
Final Report - Samples - 002 - Part 3 of 3
SAMPLE 2 - PART 3 of 3
With respect to our employees well-being, our organization intends is to continue its practices of investing in employee-development and utilize a compensation model that encourages our employees to work hard, while simultaneously striving to be more productive and efficient. Hall of Fame also desires to be a good steward of the environment. Toward that end, it put in place responsible environmental policy that ensures that it will not engage in activity, or have relationship with any entity or individual, that may cause harm to the environment. It wishes to make all efforts to use products whose by-products will have no adverse effects on the environment. Lastly, Hall-of-Fame sincerely believes that every organization has a social responsibility to promote harmony within the community it exists. Consequently, its goal is to work closely with community for the purpose of promoting and support socially responsible behaviors by all actors with the larger community it operates.
Hall-of-Fame has been performing below investors’ expectation. In order to be more competitive and perform to the level that it should have been performing, there are a number of areas in which the company needs to improve on. Over the next five years, Hall-of-Fame will pursue strategies that will help it improve its financial bottom line. For example, the company will work toward improving its ROE. To do so, Hall-of-Fame has to improve on the effectiveness of its operation. It has to find ways to cut cost while ensuring that employees’ morale and productivity do not suffer. Hall-of-Fame needs to increase its current market share. In Yr 16, it ended up with the least market share in the wholesale segment It suffered high level of loss due to stock out.
With its revised strategy, the company will focus on offering lowest cost products with the intent of becoming the industry leader in private-label sales. In the next five years, Hall-of-Fame would like to be extremely competitive. Its aim is to gain increase its market share—through huge volume of sales—by selling its products at price well below its closet competitors ’price. Hall of Fame Shoes also wants to increase its market share in all regions for its private label and wholesale segment.
Furthermore, Hall-of-Fame will provide free shipping to all its customers. This, it believes, would compel more customers to purchase more athletic foot wears and thus further increases it volume of sales. To meet global demand and therefore prevents any further stock-out, Hall-of-Fame work hard to increase the production level at most of its manufacturing plants. The increase in production will have immediate impact on the company’s financial health. Moreover, the company must also try to improve on workers’ productivity. In Yr 16, it had 5% overall average reject rate which is a form of loss to the company. To improve workers’ productivity and thus reduce its reject rate, it will invest in six sigma training.
Although initially such an investment could an expensive one, but in the long run it would be of serious help to the company. Six-Sigma is a process that does not allow more than 3.4 defects per million opportunities. In trying to boost sales and get more customers, we would encourage the use of rebate. In Yr 16, Hall-of-Fame, among its competitors, had the least competitive rebate offer in all the regions it conducts its businesses. The purpose of using rebate is two-fold. Rebate does attract customers who otherwise may not have been willing to purchase a new product. Rebates is also used as a strategy to improve sales. In applying these strategies lay above, we believe that Hall-of-Fame will be well suited to become a prominent player in the athletic shoe industry.
In year 11, Hall of fame had an interest coverage ratio of 5.91 which is better than the industry average of 4.99. Consequently, Hall-of-Fame was generating sufficient revenue to satisfy its interest expenses than most of most its competitors. With a current ratio of 1.36, Hall of Fame was less likely to meet its current obligations compared to the other companies in the industry. The industry average for the current ratio was 2.26. In the same year, our Earnings per Share (EPS) was 2.8 which was above investors’ expectation of 2.67. Due to our inability to increase our net income and simultaneously buy back portion of company shares that were outstanding, our EPS continuously decreased to -3.44. We were able to recoup some of the losses suffered. In year 16, our EPS increased to 2.22. Although our EPS’ level was well below investors’ expectation, it, nonetheless, showed significant improvement.
Another important indicator of profitability is the return on equity (ROE). ROE indicates how much profit is generated with the investments that shareholders made. In year 11, our ROE was 16.9%, which was better than the industry expectation of 15.0. However, our ROE decreased to -22.1 in year 15 due to our inability to make profits and increase our net income. But in year 16, our ROE increased to 14.8%, which is about the 15% expected by the investors.
Our stock price also declined from 31.72 in year 11 to 19.72 in year 16. These stock prices were below the expectation of the investors. Our credit rating were below the investor expectation from year 10 through year 16. In year 11 our credit rating was B. However, it fell to C- in year 16.
Based on our performance in the market, we expect that a company that is doing very well will want to acquire or merge with us. It is true that our debt/equity ratio of 1.03% means that we are financing our operations through debt. In year 16, for instance, 50% of our operating was used to pay the interest expense on our debt. During year 16, we were able to meet our debt obligations and added $22, 048 to retained earnings.
Although our ROE at the end of year 16 is 14.8%, which is 0.2 percentage points below investor expectation of 15, we are now in a better position to be deemed a viable merger candidate. With our stock price of $19.72, an acquisition or merger with a more successful company will eventually yield better results for our shareholders. On the other hand, if our company is not acquired, or we do not get into strategic alliance with another company, we have gained significant experiences over the past years to turn the company around into making profits as indicated by our year 16 performance.
Five years Strategic Proforma Income Statement