Option #2: Analysis of Alternative Production Scenarios
Go to the SEC’s EDGAR database to find a company’s current 10-K form. Do not use a 10-K filing that was not filed in the current year. (For example, choose a company’s 12/31/2017 10-K filing, filed in 2018.)
The SEC’s EDGAR database is located here: https://www.sec.gov/edgar/searchedgar/companysearch.html (Links to an external site.)
Use the ‘Company Search’ to locate your company. Then, enter ’10-K’ in the ‘Filing Type’ box to find the latest filing.
Read the 10-K and use it to calculate the following ratios. Be sure to clearly label and show your calculations and reference the information from the 10-K in APA format.
Please choose a nationally recognized company for providing high-quality services or products. Management is concerned that the company is not fully exploiting its brand power. Imagine that Company’s production managers are concerned because their productive capacities are not operating at near full capacity. Management is currently considering a proposal to offer a new line of affordable new products or services.
Those in favor of the proposal (including the vice president of production) believe that, by offering these new products or services, the company could attract a clientele that it is not currently servicing. Also, it could operate its plants at full capacity, thus taking better advantage of its assets.
The vice president of marketing, however, believes that the lower-priced (and lower-margin) product or service would have a negative impact on the sales of existing products or services. The vice president believes that the equivalent of 20% of current year’s sales of the new low cost product or service will be from customers that would have purchased the more expensive product but switched to the lower-margin product or service because it was available. (This is often referred to as cannibalization of existing sales.) Top management feels, however, that even with cannibalization, the company’s sales will increase and the company will be better off.
Instructions:
Current Year’s data are available in the 10K you retrieved. Please calculate Proposed Results Amounts and fill out the table below as indicated.
A)
|
(In thousands) |
Current Results |
Proposed Results without Cannibalization |
Proposed Results with Cannibalization |
|
Sales Revenue |
Current year’s sales $…… |
$….Increase of 30% from current year’s sales |
$….Increase of 10% from current year’s sales |
|
Net Income |
Current year’s net income $……… |
$… Increase by 8% from current year’s net income |
$….Same as current year’s net income |
|
Average total assets |
$….(Beginning Assets Balance + Ending Assets Balance)/2 |
$…Same as current year’s Average Total Assets |
$…Same as current year’s Average Total Assets |
B) Identify the chosen company, its products/services and simulate or create a lower margin product or service for it. Do not determine price, cost or margin for the product; just name and describe it.
C) Compute your chosen company’s return on assets, profit margin, and asset turnover; both with and without cannibalization of the new product or service.
D) Discuss the implications that your findings in parts (A, B and C) have on each Executive’s assessment of
performance and final decision.
E) Are there any other options that the Company and Executives should consider? What impact would each of these alternatives have on the above ratios?
Show your work for your submission. The written portion of your assignment should be four pages in length with document and citation formatting. Your calculations are not included in the page requirement of the written portion of your assignment.
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