Financial Overview of Under Armour, Inc.

Company Background

Under Armour is an American sports clothing and accessories company. Under Armour is a supplier of casual apparel and sportswear. The global headquarter of Under Armour is located in Baltimore, Maryland. The firm has started offering footwear in the year 2006. The European headquarters are in Amsterdam’s Olympic Stadium while the additional offices are in Hong Kong, Jakarta, Indonesia, China, Canada, Toronto, Denver and Guangzhou. Under Armour was established in the year 1996. Kevin Plank is the founder of Under Armour. Under Armour is one of the leading providers of high-performance sports, and there are almost 1400 employees working in Under Armour.

The Under Armour is traded on the New York Stock Exchange, and the ticker symbol of the Under Armour is UA. The name of Auditing firm is “PWC”, Price Water House. The goal of the firm is to assist the Board of Directors of Price Water house is to monitor along with the integration in the process of financial reporting, internal control system and the financial statements and reports of the firm. The firm has to maintain the legal and regulatory requirements and the performance of the firm for the global international audit function. The qualification, performance and independence are also the purposes and the responsibility of the firm, along with the compensation and responsibility of the appointment for outside auditors

Under Armour is a sportswear firm which is built a leading brand name in the emerging market for the hi-tech athletic gear. The synthetic fibre is being used by the firm in the apparel for the marketing of its products for the enhancement of performance that are alternatives to traditional cotton or mesh gear as Under Armour gear are designed to get away moisture along with the regulation of body temperature. Under Armour had expanded its retail offering along with the rapid financial growth. More merchandizing breaks down with the market along with the reliance for the distribution for the third party. There are a number of accessories produced by Under Armour such as football, gloves, golf, eyewear bags and socks. All seasonal products, like heat gear and cold gear, is also offered by Under Armour. Under Armour’s main competition comes from large and well-established apparel and footwear companies, such as Nike and Adidas. These companies have international appeal and resources to match. The closing price of the stock on Friday, March 1st 2013 was $49.46 on the New York Stock Market.

Developments Relating to the Company
Although some may believe that the demand for sportswear apparel, footwear and accessories varies within each season, it is not this way. Demand for these products is surprisingly stable throughout the year, and through the years that follow it. Under Armour’s apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along three different gear lines: HEATGEAR, COLD GEAR, and ALLSEASONGEAR. These three different gear lines incentivize and push athletes to pursue a sports-based life throughout the year, regardless of the weather and to go through them with the best equipment and gear possible. Other factors that influence the demand for Under Armour’s sportswear apparel, footwear and accessories is the strong brand equity and awareness that their products deliver. When sports figures, teams, and other illustrious legends in the sports industry use Under Armour products, the demand for these products increases.

Finally, Under Armour’s Power in Pink Program, UA Freedom™ and other events sponsored by Under Armour increase the demand for their products. In addition to technologies created by Under Armour Inc. to provide professional and top-of-the-line sportswear to athletes throughout every season and climate, the company has also had significant technological advancements in the industry. An example that completely illustrates this point is Under Armour’s 39 Fitness and Heart Rate Monitor, the first-of-its-kind performance heart rate monitor for athletes. Under Armour’s technology, propaganda and product quality have increased the company’s size and net worth over the past few years. In the Annual Report of 2008, the company reported net income of 38,229,000. In last year’s (2012) Annual Report, Net Income was an outrageous 128,778,000.

This indicates a growth rate of 336% per cent. I believe that this trend is going to resume and that Under Armour will continue to grow. Additionally, Under Armour’s Income Statement indicates a gross margin percentage of 51.7%, 49.6%, 49.1% for 2010, 2011 and 2012 respectively. The gross margin percentage is useful for determining the value of incremental sales and to guide pricing and promotion decision. We can observe that over the years the percentage slowly decreases. With this percentage, we can predict that this trend will continue.

Understanding the Annual Report and 10K

  • As of December 31, 2012
  • Total assets = $1,157,083
  • Cash & cash equivalents = 341,841/1,157,083 = 0.29543 = 29.543%
  • Accounts receivable, net = 175,524/1,157,083 = 0.15170 = 15.170% Inventories = 319,286/1,157,083 = 0.27594 = 27.594%
  • Prepaid expenses & other current assets = 43,896/1,157,083 = 0.37937 = 37.937% Deferred income taxes = 23,051/1,157,083 = 0.01992 = 1.992%
  • Total current assets = 903,598
  • Property & equipment, net = 180,850/1,157,083 = 0.15630 = 15.630% Intangible assets, net = 4,483/1,157,083 = 0.00387 = 0.387%
  • Deferred income taxes = 22,606/1,157,083 = 0.01954 = 1.954%
  • Other long term assets = 45,546/1,157,083 = 0.03936 = 3.936% Total = 134.143%

Three largest assets: Prepaid expenses & other current assets, Cash & cash equivalents, Inventories

What method of depreciation does your company use?
Straight-line depreciation method is used for all property and equipment over the estimated useful life of the assets; 3 to 10 years for furniture, office equipment and software and plant equipment, and 10 to 35 years for site improvements, buildings and building equipment.

What method does your company use to value its inventory?
First-in, first-out (FIFO) is used to value its inventory.

  • Turnover Ratio 2012 = 955,624/319,286= 3.993
  • Turnover Ratio 2011 = 759,848/324,409 = 2.342

Inventory turnover increased by 1.651 from 2011 to 2012, indicating a higher turnover, which indicates a 70% increase in sales.

  • Total Assets = $1,157.083
  • Total Liabilities = $340.161
  • Total Stockholder’s Equity = $816.922
  • Accounting Equation: 1,157.083 (A) = 340.161 (L) + 816.922 (SE)
  • Liabilities % of Assets: (340.161/1,157.083) x 100 = 29.40%
  • SE % of Assets: (816.922/1,157.083) x 100 = 70.60%

For Under Armour, total liabilities as a percentage of total assets is 29.40%, while total SE as a percentage of total assets is 70.60%. This shows that the company’s stockholders’ equity is its primary source of funding for assets and that the company is largely financed by investments from shareholders and through the sale of its stock. This also indicates that the company is not experiencing a great amount of debt, and there are large support and income from investors for the company’s endeavours. In addition, the greatest changes in the company’s Statement of Stockholder’s Equity were Additional Paid-in Capital and Retained Earnings, which both increased significantly increased from the previous year’s balance. There was only a slight decrease to the number of shares of Class B Convertible Common Stock issued and large increases to all other accounts, which shows healthy growth of the company’s SE and continued investment.

The 10K report differs from the Annual Report in that it is an official document that must be filed with the SEC (Securities and Exchange Commission), and is expected to be entirely transparent, quantitative/qualitative data. The annual report is an informal document that provides a more general insight, and content can vary from company to company based on the message the company is trying to spread to its shareholders or whoever else may be viewing. For Under Armour, this is limited to important company officers, specific financial information it wants to share (including the Balance Sheet, Income Statement, and Statement of Stockholder’s Equity) as well as a broad and all-encompassing marketing pitch that emphasizes the value of the company (as well as encourages future investment). In contrast, the 10K contains a comprehensive financial blueprint of the company as defined by mandatory regulations, and include additional information such as executive compensation and legal proceedings.

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The Financial Detective

PAPER: We believe that Company I represents the Smaller Producer of printing papers and Company J represents the World’s Largest Market of Paper. Being the world’s largest paper maker indicates having a larger inventory, more current assets (esp. since it owns timberland and several facilities), and higher cost of goods sold than other paper makers. The inventory for Company J (10. 9) is larger than the inventory for Company I (8. 8); the current assets for Company J (32. 6) are higher than that for Company I (27. 2); and the cost of goods sold for Company J (82. 9) is higher than that for Company I (75. ). We also expect that, as the world’s largest paper maker, their products will move on the marketplace better than a smaller producer of paper. Thus, Inventory Turnover should also be higher. Here, Company J (7. 11) has a larger inventory turnover than Company I (6. 75). Receivables turnover, which tells how many times accounts receivables have been collected in a given period, should be higher for the world’s largest paper company than it would be for a small producer of specialty paper. Company J’s (11. 64) receivables turnover is higher than that for Company I (8. 68).

The facts also state that the world’s largest maker of paper has been rationalizing capacity by closing inefficient mills, implementing cost-containment initiatives, and selling nonessential assets. This implies that the company would have a larger asset turnover ratio than other paper companies. Company J (1. 20) has a larger asset turnover ratio than Company I (. 73). It is probable that since the small producer of paper has most of its product marketed under branded labels, that it would have a higher value of Intangibles, such as trademarks, than the larger company.

Here, Company I (14. 6) has an intangibles value that is significantly higher than Company J’s (1. 9) intangible value. Based on the above analysis, we believe that Company I is the small producer of printing, writing and technical specialty papers, and that Company J is the world’s largest maker of paper, paperboard, and packaging. RETAIL: From the financial ratios and the notes attached, it is apparent that Company N is the rapidly growing chain of upscale discount stores while Company M is the firm known for its low prices, breadth of merchandise and volume riented strategy. ASSETS Receivables: Company M has lower receivables of 1. 4 compared to company N with 17. 0 and this reason is to the fact that company N offers credit to qualified customer as a means of marketing strategy. Inventories: Company M has higher inventories of 24. 5 compared to company N with 16. 7 and this reason it attributed to the strategy company M adopts. Company M has a wide breadth of merchandise and volume oriented strategy amount to this high inventories on the balance sheet. Intangibles: There is a 93. 3% difference compared to company N with low intangibles. This reason is due to the operational strategy company M adopts. Company M possesses either or all of these following; Goodwill, Partnership rights or Patent rights. Analyzing the information provided accurately, one or more of the of the aforementioned rights exit because for company M to sell some products at very low prices, there must be an existing kind of memorandum of understanding between the producers and company M. LIABILITIES & EQUITY Deferred Taxes: Company M has deferred Taxes of 3. with company N having O. From the information of company M provided, it is possible that the deferred tax is an evidence of capital gains that might have risen from the proceeds of divestments of several non-discount department-store businesses. Debt in Current Liabilities: Company M is 75. 4% high than company N’s Debt Current Liabilities. This can be as a result of the lease contract entered by company M. Depending on the lease agreement; Company M might have an overdue payment for the lease for a period within a year. INCOME STATEMENT

Depreciation: It is understandable why company N has a high depreciation than company M and this is due to the reason that M is a lease copy therefore no depreciation is paid for leasing except a rental payment. There is an exception when the lease is a finance lease. Net Income: Company N strategies pay off because shareholders of any company want to maximize their investment or returns. Company N is making almost double of company M’s net profit, and also considering the fact that company N is making 85% of company M sales. MARKET DATA

Beta: Companies in the same industries usually have different betas, one of the reasons this can happen is the kind of financing or debt equity ratio. The higher the debt equity ratio the higher the beta: this shows why company N has a higher beta compared to company M that has a lower debt equity ratio. Dividend Payout: Company M has a higher payout ratio of 31. 12%. Reason why company N might have a low payout ratio can be attributed to investment in future projects with positive NPV due to the rapidly growing chain of upscale discount stores.

ASSET MANAGEMENT Receivables Turnover: This shows the degree of realization in accounts receivables. Company N has a lower turnover rate, a lower rate implies that receivables are being held longer and the less likely they are to be collected. Also there is an opportunity cost of tying up funds in receivables for a long period of time. Company M is 29 times higher than company N. From the above analysis, it is obvious that financial ratios of companies in same industries can never be the same but can only be similar.

The kind of strategy and technology a company adopts tells a lot about differences in financial ratios. COMPUTERS: We believe that Company E is the company focused exclusively on mail-order sales and Company F is the company that sells a highly differentiable line of products. In this industry one company focuses exclusively on mail-order sales of built-to-order PCs, including desktops, laptops, and notebooks. Besides the company allows its customers to design, price and purchase through its web site.

In contrast the other company has a retail strategy intended to drive traffic through its stores. With regards to the SGA expense, as well as depreciation, we can assume that the company resulting with the highest values is of course the one having more stores compared to the one conducting most of its transactions on an online basis. In this case the high value of 23. 1 in selling, general and administrative expense and the high value of 1. 8 in depreciation belonging to company F fit the description of the company with more retail stores.

Another important financial data confirming this finding is the intangible data. From the Exhibit 1, the company E has a value of 0 in intangibles which is not surprising due to its business orientation. Company E is an assembler of PC components manufactured by its suppliers, therefore not having any claim of ownership of intangibles. On the other hand, the intangible value of 1. 2 of company F is due to the fact that company F has a variety of proprietary software products. In addition, the price to book ratio is lower for Company F (5. 3) than for Company E (17. 46). This is in line with our analysis because the facts state that the retail store has a declining market share, so the lower price to book ration would match the description for a company with a lower market share. Based on our analysis above, we believe that company E is the company focusing exclusively on mail-order sales of built-to-order PCs, and company F is the company having an aggressive retail strategy intended to drive traffic through its stores. NEWSPAPERS:

We believe that company P is the diversified media company that generates most of its revenues through newspapers sold around the country and around the world and that Company O is the firm that owns a number of newspapers in relatively small communities throughout the Midwest and southwest. We believe this because Company P has a larger amount of current assets (other and total) and net fixed assets than CompanyO. Company P operates in not just the United States but it also operates in countries all around the world, which it means it will have a lot of assets than Company O.

FINANCIAL STATEMENT ANALYSIS ASSETS RECEIVABLES:Company P is higher than Company O and this can be attributed to the fact that company P has an international presence. This will result to a huge customer base compared to Company O. higher customer base would yield more credit sales. result to its revenues all over the world in the sense that it will have a lot of customers and there can be delays in monetary transactions. Since its business has international presence it can adopt a business strategy of offering a high volume of credit sales to customers.

INVENTORIES: The two companies are at par have the same ratios. This means that there is an equal amount of goods and services available in the stock of both companies. INTANGIBLES: Company O has a higher intangibles value than company P because although company O is a smaller company it has acquired a Customer good will, employee morale, increased bureaucracy, and aesthetic appeal than company P which is a more diversified media company. DEBT MANAGEMENT TOTAL DEBT/TOTAL ASSET:Company P has a higher ratio compared to O.

Most of company’s total debt are short term financed and this is to say that in the next period, the company can have a lower total debt to total asset ratio compared to company O. Based on this current standing it shows that 26. 81% of company’s P asset is financed by debt. INCOME/EXPENSES NETINCOME: Company O is almost likely to succeed more than company P in its operations because of its decentralized decision making and administration. Looking closely at the net income figure of both companies, company O net income is higher than company P net income.

EBIT AND NET PROFIT MARGIN: Company O has a higher EBIT because the company is more profitable than company P. Company P has a lower net profit margin value than company O which indicates a low margin of safety, higher risk, and that a decline in sales will erase profits and result in a net loss. Company O is better in this aspect because of the adopted business of decentralized decision making and administration, which led to better success in its operations. MARKET DATA

DIVIDEND PAYOUT: Company O has a higher ratio than company P which means it has a higher percentage of earnings paid to its shareholders in dividends. The shareholders of company O are benefiting better from the company than the shareholders of company P are. The reason for this could be that company P may be trying to invest in a project that is preventing it from paying shareholders adequate dividends BETA: Company P has a higher value which means a higher expected return of a stock or portfolio which is correlated to the return of the financial market as a whole than company O.

PRICE/EARNING RATIO: Company O has a higher ratio than P. Over the years smaller firms have performed better in terms of returns. Shareholders of company O are willing to pay more for the shares today in anticipation of great prospects of returns in the future. ASSET MANAGEMENT RECEIVABLES TURNOVER: Company O has a higher turnover value because it has a higher number of number of times that account receivables are collected during in a period than company P. LIQUIDITY

CURRENT RATIO AND QUICK RATIO: Company O has a better and higher value of the two ratios than company P so it means that company O has more current assets and cash equivalents to cover its liabilitie when due than company P. Based on our analysis above, we believe that company P is the diversified media company that generates most of its revenues through newspapers sold around the country and around the world and that Company O is the firm that owns a number of newspapers in relatively small communities throughout the Midwest and Southwest

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Installation of the Activity-Based Costing System

Super Bakery was formed in the 1980’s during a time when the barrier to entry into the baked goods industry was limited. They started the company using the industry’s standards and following them very strictly. The first four years of Super Bakery were not profitable and management knew they had to make changes so the company could succeed. They first changed their customer base and focused on school cafeterias. They had to make a unique product that would be approved by the USDA (Davis and Darling, 1996).

The master chef created a donut recipe that surpassed USDA standards and the company was able to break into the institutionalized food market. Super Bakery also refrigerated and shipped their products nationally. This provided them a competitive advantage over their competitors. As a virtual corporation the decision to contract major parts of the company to other business reduced their fixed overhead and gained very high return on equity and net assets.

With all of these changes Super Bakery management still found inefficiencies with the amount of control they had over the costing of the outsourced parts of the company. They chose to implement an activity based costing system to figure out where the improvements could be made. As opposed to a normal ABC system, they used their database to assign costs to specific customers and to their outsourced contractors provided service to the customers. The cons for the ABC were the matrix design of figuring out specific cost drivers, it also was an expensive system to implement.

The pros to ABC seemed to outweigh the cons. ABC allowed Super Bakery to track profitability of each individual customer and track the performance of the outsourced contractors. Management was able to identify that the key cost driver was not the dollar amount of each order but the amount of orders placed by each client. This cost driver helped management determine which customer cost more because of time spent processing multiple small orders as opposed to one large order (Davis and Darling, 1996).

It is very interesting and insightful the way this company’s management use the ABC system. We completely agree with Super Bakery’s implementation of the ABC system. The company has benefitted greatly from the information gathered by their databases. First, they were able to narrow down the shipping companies from 12 to 3 companies who provided the best price and arrived at the correct times to their customers. Secondly, the ABC database provides them with information to decide whether or not to give brokers extra incentive money to a particular client or not.

The ABC system also helps their customers who make their payments on time by reducing their price because Super Bakery does not need to absorb the interest cost of late payees (Davis and Darling, 1996). These are just a few of the ways Super Bakery created a much more efficient and leading company. The ABC system they implemented has helped create a high level of customer satisfaction and also has provides them with an accountability system for their outside contractors.

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Finance Director

Lack of proper corporate governance can be a disaster for campanies. In recent years, major Australian companies such as HIH, One. tel and Harris Scarfe failed under dramatic and high profile circumstances. As a result, executive and non executive directors from each of these companies have spent time in jail. They were vastly different companies, operating in different industries, and failed for very different reasons. However, there was one common link between them. All had poor corporate governance. In this paper, I would like to take the One.

tel collapse as one example and analyse how it went collapse through its poor corporate governance. One. Tel’s business One. Tel was was established by Jodee Rich and Brad Keeling in1995. Its business grew rapidly and expanded into Europe and the USA. One. Tel had 2. 4 million customers world-wide including 500,000 in the United Kingdom. One. Tel came to do business reselling Optus Mobile Phone Services, reselling Telstra Local and Long Distance International Calls, reselling Telstra internet services, selling pre-paid phone cards for long distance calls, and set about but did not complete constructing a mobile phone network of its own.

A huge expansion of activities and liabilities was involved in constructing the network, including contracts committing expenditure of more than $1. 1 billion with lucent Technologies. The Group associated with One. Tel employed 3000 workers throughout the world and had many subsidiaries. In 1999 News Ltd and Publishing and Broadcasting Ltd made investment around $1 billion in One. Tel Impact of One. tel’s collapse The collapse of One. Tell was the 4th biggest corporate collapse in Australia. One. Tel was placed in administration and subsequently into liquidation in May 2001 with estimated debts of $600 million. One.

Tel’s 1,400 workers, who were owed a total of $19 million in accrued entitlements were dismissed. Problems in the structure of One. tel One. Tel’s rapid expansion was way beyond its financial capacity coupled with its misguided management decision. It was also badly hit by the changes in the European network providers and more generally, One. Tel was caught up in the international collapse of dotcom ventures. The company’s high risk, low yield strategy, with generous incentives for new customers could not be sustained in the small Australian market which had six mobile phone providers – the second largest number of any country in the world.

The in the business model of the company was that the telecom services were offered to subscribers at lower than the price the company was paying for them itself. It could only survive as long as it could raise new capital investment more rapidly than it was burning money. There is a number of factors that led One. Tel’ to collapse. Each factor is discussed in details below. Focus on sales volume while operating at a loss Figure 1 shows One. Tel’s sales revenue and profit after tax in 1999 and 2000 respectively. The firm’s sales revenue showed successive growth to reach $653.

4 million in 2000 which is about double of the sales revenue of the previous year. However, this dramatic increase in the sales revenue did not result in higher profitability. One. Tel’s profit dropped from $7 million to -$291 million between 1999 and 2000. The reason is simply because the company was focusing on increasing sales rather than making profit. Surprisingly, while the company is making a loss of $291, One. Tel’s top six executives were paid a total remuneration of $1,595,000. Furthermore, $6,904,000 were given to each of the two executive directors as a performance bonus. Issue of shares to cover up deficit

One. Tel has been also investing in current and non-current assets at an increasing rate in all the years it operated. Its cash expenditure for acquiring current and non-assets went up to $87. 5 million and $614. 9 million respectively in 2000. One. Tel’s ever increasing investments in tangible and intangible assets and its deepening cash deficit in operating activities were financed by issuing both debt and equity. It issued equity capital of $430. 3 million and $818. 8 million in 1999 and 2000 respectively and raised $58. 9 million and $139. 8 million of debt in 1999 and 2000 respectively.

It could only survive as long as it could raise new capital investment and debts more rapidly than it was burning money. Inappropriate board structure The board of directors is the ultimate decision making body of an organization and is responsible for major investment, financial and operation policies, and strategic directions of the company. It also provides an important supervisory role of company executive management. Moreover an audit committee and other board committee such as remuneration committee also play important role as a component of corporate governance. It is quite doubtful that One.

Tel had a proper board structure. For the year 1997-98, One. Tel had four members in the board with two joint managing directors (chief executive officers) and two non-executive directors of whom one acted as the chair of the board. All board members were subject to election each year except one of the managing directors. This ensured that at least one of the existing managing directors remained as one of the CEOs for all times. One. Tel never had a regular, designated chair in the board. In 1997-98, one of the managing directors was appointed as the chair for one of the eight meetings held in the year.

In 1998-99, the non-executive chair attended seven of the ten board meetings held in the year, but presided over only four meetings. Of the remaining six meetings, four were presided by a managing director, one presided by another managing director and one presided by the finance director and company secretary. Thus, there are serious questions about the role and efficacy of the board chair as a non-executive director. During 1999-2000, John Greaves who had been the non-executive chair since May 1995, attended all 12 board meetings during the year but presided over 10 of the 12 meetings.

Jodee Rich, one of the managing directors presided over one meeting and then the finance director presided over another meeting. Further, the largest two investors in One. Tel, James Packer and Lachlan Murdoch attended nine and seven of the 12 board meetings in 1999-2000, respectively. Thus, corporate governance practice in One. Tel suggests excessive influence of the CEOs in the board, dual role played by the CEOs and inadequate monitoring of board activities by the non-executive directors and inadequate participation in the board meetings by the major shareholders.

All these are reflections of weak corporate governance structure at One. Tel for all the years it operated. At the end of June 1999, One. Tel’s board comprised eight members which included five non-executive directors. The Audit Committee of 1997-98, 1998-99, and the Finance and Audit Committee of 1999-2000, Remuneration Committee of 1999-2000 and Corporate Governance Committee of 1999-2000 were all comprised of the same two non-executive directors, Rodney Adler and John Greaves, who had close links with the CEOs. This is despite the fact that One.

Tel had three other non-executive directors at least for part of 1998-99 and for the whole of 1999-2000. Manipulation of financial report One. Tel was hiding its losses in early years by adopting non-conservative accounting policies. The real performance and financial condition of One. Tel has been hidden away from the major shareholders by their ‘too much dependence’ on the CEOs for information and presumably by non-attendance of a few board meetings. As late as 30 March 2001, One. Tel board meeting was told that ‘everything was fine’. Even later than that, on 1 May 2001, One.

Tel’s cash crisis was simply termed as ‘timing issue’. Improper billing systems Although sales revenue had been increasing each year, enough cash was not being collected to finance the aggressive corporate expansions. One. Tel’s hunger for building a large customer base too quickly by offering cheap call rates and offering credit to customers without stringent credit checking may have brought allegedly lower quality customers who were very slow in making payments, if not defaulted on their debts. Its accounts receivables were building up and in 1999-2000, only 55% of the new sales revenue were collected within the year.

One. Tel was getting massive sales as it cashed in on the deal with optus. The company rode high on this with no real thought for the consequence and the pull back of funds from Optus that would eventually come when those customers failed to pay. Entrance to existing market The company’s high risk, low yield strategy, with generous incentives for new customers could not be sustained in the small Australian market which had six mobile phone providers, the second largest number of any country in the world. One. Tel initially started its business as a re-seller of mobile telephone services.

By 1997, it decided to build its own mobile network. It undertook a very aggressive strategy of expanding into new markets without consolidating its position in the existing markets. To fuel its growth of market share, it was even undercutting Telstra, the largest competitor and the market leader in the Australian telecommunications market. External auditor The audit function has been a crucial part of ensuring the fair representation of company financial statements. However, One. Tel and its external auditor failed to place proper auditing. From 1997 to 2000, One.

Tel was audited by the same firm, BDO Nelson Parkhill. The auditor issued unqualified audit opinions for all these years. In January 2001, One. Tel switched it auditor to Enrst ; Young, who complained to the senior management that provisions for bad debts were too low. The 1998-99 financial statements of One. Tel are a case in point on the company’s accounting practices. Submission of the full accounts to the ASIC revealed that the company had deferred $48 million of expenditure and a loss of more than $40 million had been concealed (Barry, 2002).

Subsequently, the ICAA examined the One. Tel financial reports and identified 48 items of concern. Both the audit partner, Steven La Greca, in charge of One. Tel and BDO Nelson Parkhill were reprimanded by the ICAA’s disciplinary committee and were fined $48000. The committee also concluded that the audit report was in breach of the Corporations Law, Australian accounting standards and Australian auditing standard Regal proceedings against One. Tel and its directors ASIC launched civil penalty proceedings against some directors and officers of One.

Tel for breache of the statutory duty of care and diligence under section 180(1) of the Corporations Act 2001. The proceedings initially brought by ASIC were against four defendants, arising out of the collapse or on-sale of overseas subsidiaries. However, The New South Wales Supreme Court eventually dismissed ASIC’s civil proceedings against Jodee Rich and the company’s Finance Director, Mark Silbermann in November 2009 while the other two directors, Keeling and Greaves were subject to a disqualification from being a director for ten years and four years, and liable to pay compensation of $92 million and $20 million respectively.

Things can be learnt The collapse of One. Tel highlights the importance of good corporate governance, in particular, the need for an effective board of directors for monitoring management, the need for independent, non-executive directors for making a board effective and curbing the excessive influence of the CEO and the strategic importance of managing cash flows, in particular collection of accounts receivable. One. Tel is also a lesson for large investors. Large investors should always participate actively in the management of the firm.

A major shareholder cannot take the risk of relying on other shareholders to provide valuable information on management activities and corporate performance. There is also a lesson for all firms that a desire to grow too fast too soon could be a recipe for a disaster. This is an old reminder to all living firms. Moreover, One. Tel was pricing its services below cost even on a cash basis, which is unsustainable in the long run. Conclusion Through this study, I have identified how One. Tel went collapse. It is obvious that there was lack of focuses on business basics, that is to make a profit rather than increasing sales volume.

In addition, poor governance of board structure in One. Tel reduced the chance of problems being detected by the board of directors soon enough to save the firm from financial distress. One. Tel had always consumed cash at an alarming rate, and it had always been an act of faith to believe it could outlast its deep pocketed rivals like Telstra, Optus and Vodafone. Bibliography Barry P. , 2009. ‘Who Wants to Be a Billionaire? The James Packer Story’ Plessis, J. D. J. Hargovan, A. Plessis, J. D. J & Bagaric, M. , 2009. ‘Principles of Contemporary Corporate Governance’. Cambridge University Press. One. Tel case study [DVD]. CPA Australia.

Williams, P. , 2007. ‘How to Turn Your Million Dollar Idea Into a Reality’. Wrightbooks. Sievers, B. Brunning, H & Gooijer, D. J. , 2009. ‘Psychoanalytic Studies of Organizations’. Karnak Books Psaros, J. , 2009. ‘Australian Corporate Governance’. Pearson. Cook, T. , 2001. ‘Collapse of Australia’s fourth largest telco adds to growing list of corporate failures’. World Socialist Web Site. ASIC media release. Available at: ; http://www. asic. gov. au/asic/asic. nsf/byheadline/One-Tel+file? opendocument; Monem, R. , 2009. ‘The Life and Death of One. Tel’. Griffith university. One. Tel. , 2000, Annual Report. One. Tel, Sydney.

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Finance Case

1. Even though sales have been increasing, why is Best Electronics in such a cash flow crunch?

The poor cash position of Best Electronics is highly attributed to a lack of planning of their cash movement. It could also be caused by the lenient credit terms or the poor collection practices of the company. In some months, the firm’s purchases which is 80% of their gross sales cannot be sustained by their cash collections. This resulted to a negative balance in their cash account and their overdrafts.

2. What does the firm need to do as soon as possible?

 The firm needs to address their cash flow problems through better planning and adapting of control measures. They need to prepare financial budgets and forecasts to enable them allocate their funds properly.

3. Prepare the collections worksheet. Which month has the greatest amount of cash inflows?

December has the highest cash inflow amounting to $808,350. Please see Excel worksheet.

4. Prepare the disbursements worksheet. Which months seem to be hit by the highest amount of cash outflows? Why? Can this trend be changed?

The firm is expected to disburse $919,000 in December. This is the highest amount of cash outflow for the entire year due to the payment of purchases and taxation. Because of this, the firm is looking at a deficit for the month amounting to 44,500.

Sales are at its peakest in December. Quarterly taxes are also paid during this time. These are circumstances that are beyond the control of Mark. What he can do, however, is to prepare for these disbursements with enough cash balance to meet the requirements for this month whether it be additional loans or infusion of capital.

5. How should the depreciation expense he treated in the cash budget?

 Depreciation should not be considered in the cash budget since these expenses do not involve actual cash outflow. The purchase of assets that are to be depreciated, however, should be included when making cash budgets since these would entail actual cash disbursement.

6. Which month seems to be particularly vulnerable to cash deficits? Which months have the greatest surpluses?

The months of September and December are the most vulnerable to cash deficits. On the other hand, the first four months of the year have the greatest surpluses with February as the highest.

7. If the cash balance outstanding is -$2,000, help Joe develop a cash budget for Best Electronics for the next twelve months. How can Mark use the cash budget to minimize cash shortages and plan for the future?

Please see the Excel worksheet for the cash budget.

A cash budget is a powerful tool in managing a business’s seasonality. It serves as a critical indicator of the firm’s ability to meet its obligations, especially the current ones. Cash budgets also help identify which periods need additional funds in order to plan for options to meet the requirements. Likewise, it can also point out which months have surpluses and enable the firm to plan for savings.

Based on the attached cash budget, Mark can already identify which months have the high cash outflows and which months have cash surpluses. With this information, he can plan and adjust his schedule of purchases and not just use next month’s sales projection as a basis.

Mark can also review and strengthen the efficiency of their credit and collection practices. It is obvious that a 40-30-30 allocation is not enough to meet the firm’s cash requirements on certain months.

8. How can a be built in? How much of a minimum cash balance seems warranted? What can the company do with the excess cash that is generated in some months?

A minimum cash balance can be maintained based on the firm’s cash budget. It should be enough to cover the company’s monthly fixed costs which includes the employees’ salaries, debt payments, other expenses and taxes. Aside from these expenses, the firm should also allocate a certain percentage to cover for the seasonality of their purchases.

To maximize the firm’s cash surplus on certain months, Mark can opt to invest it in short-term time deposits or other investment bonds. However, he can also use the extra cash to stock on their inventory to serve as a buffer for month’s with high sales.

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Capsim Report

I. Executive Summary Erie Corporation has been founded in 2011 with the mission is to provide both reliable products for low-technology customers including Traditional and Low End segments; and premium- technology oriented customers including High End, Performance and Size segments. This business plan is written so as to provide the board of directors a detailed picture about the company’s strategies as well as the direction how we can implement these strategies. The plan consists of three parts.

The first part is about the corporate objectives and strategy. In detail, at the end of year three, Erie aims to be one of the two leading companies in the market with a net profit of $10,000,000 and 25% of market shares of the whole industry. In addition, the company’s management expects to gain at least 30% of contribution margin for each product, to reduce 60% to 70% of total labor costs and 11. 8% of total material costs. Erie’s strategies are niche cost leadership and niche differentiation.

In particular, while products in Traditional and Low End are oriented to operate under the niche cost leader, products in three remaining segments including High End, Performance and Size are aimed to follow the niche differentiator strategy. This is because while price is the most considerable criterion of customers in Traditional and Low End segments, this does not matter to the other three segments’ consumers as long as the products offered are premium-technology.

To implement this strategy effectively, Erie should operate under the direction like this, besides revising products to meet customers’ expectation; the company set up a relatively low price for products in Traditional and Low End segments and vice versa for products in the three remaining segments. Simultaneously, the company will invest on capacity and automation gradually for all segments. This will bring to Erie a competitive advantage over other competitors in terms of long-term cost savings.

In addition, maximum second shift capacity may be run as much as possible and a significant amount of money will also be spent on promotion and sales budgets so as to capture the highest possible percentage of market shares. Furthermore, Erie is willing to make losses at least in the first two years because in the remaining years of the simulation, when higher capacity and automation are ready as well as Human Resources and Total Quality Management functions are applied, Erie will become more competitive in the market and hence can make profit as the production costs will be minimized.

Secondly, specific objectives, key performance indicators and strategy which are followed strictly the corporate objectives of all departments including R&D, Marketing, Production, Human Resources and Total Quality Management will be also set out. Finally, a back-up plan which might be utilized when there is trouble in the operation of the company’s products is also prepared. Under this plan, the failed product will be remained for two years instead of stopping its operation immediately so as to sell its remaining inventory and wait for the new product to be finished and could be sold to the market.

Table of Contents Executive Summary 1 Introduction 4 Corporation Objectives & Strategies 4 1. Corporation Objectives 4 2. Corporation Strategies. 4 R&D Department 5 1. Objectives 5 2. KPIs. 5 3. Strategies. 5 Marketing Department 6 1. Objectives 6 2. KPIs. 6 3. Strategies. 7 Production Department 8 1. Objectives 8 2. KPIs & Strategies. 8 3. Strategies. 9 Human Resource Department 10 1. Objectives 10 2. KPIs & Strategies. 10 TQM Department 11 1. Objectives 11 2. KPIs & Strategies. 11 Finance Department 12 1. Objectives 12 2. KPIs & Strategies. 2 3. Strategies. 12 Back-up Plan 13 Conclusion 14 Reference 14 Appendix 15 II. Introduction Sensor industry is more likely an oligopoly because the products are high technological including cameras, biometric devices and labs-on-a-chip. In addition, there are only six firms dominating the market and the total demand for the whole industry remains stable which means that new firms cannot enter into the market. Furthermore, year after year, while customers’ expectations are becoming higher and higher, the products are getting older and price ranges are stricter.

This indicates such a challenge for all companies in the market. A critical successful factor which can assist all companies to overcome this difficulty is that each company should choose an appropriate strategy to follow so as to succeed and become more competitive in the market. Recognizing this fact, Erie has chosen two strategies including niche cost leadership and niche differentiation that are appropriate for each types of segments. In this business plan, these strategies will be examined in depth and detailed actions of all Erie’s departments which are followed these strategies are also sketched out.

III. Corporation Objectives and Strategies 1. Corporation Objectives By the end of year 3, Erie will: * Be one of the two leading companies in the sensor industry * Achieve net profit of $10,000,000 * Obtain at least 25% of market shares of the whole industry * Gain at least 30% of Contribution Margin for each product * Reduce at least 70% of the total labor costs and 11. 8% of total material costs 2. Corporation Strategies According to customers’ buying criteria of Traditional and Low End segments, prices are deemed to be the most considerable factor.

In fact, respectively, the price ranges of Traditional and Low End take up approximately 23% and 53% over other criteria such as position and reliability. In other words, customers are willing to purchase low-tech products as long as their prices are relatively low. As a result, Niche Cost Leadership seems to be the most appropriate strategy for these two segments. On the other hand, prices are the most insignificant buying criterion in High End, Performance and Size segments. No matter how high the prices are, customers in these segments are more preferable to high-tech product.

In particular, for the High End and Size segments, ideal position occupies 43% and products’ ideal age is 29%. Furthermore, reliability is the most important consideration to customers in Performance segment. Hence, Niche Differentiation is a proper alternative for these three segments. IV. R&D Department 1. Objectives * Meet customers’ expectations in all segments * Control R&D budgets for products in Traditional and Low End segments as low as possible * Continuously update products’ positions for High End, Performance and Size segments every year . KPIs * Keep R&D costs for in Traditional and Low End segments maximum at $1,000,000 * Invest minimum $1,500,000 for revising products in High End, Performance and Size segments 3. Strategies a. Traditional and Low End segments For these two segments, Erie decides to invest slightly and annually in performance and size while decrease the mean time before failure (MTBF) of products in year 1. After that, MTBF will be remained stable during the first three years. | EAT| EBB| | Year 1| Year 2| Year 3| Year 1| Year 2| Year 3|

Performance| 5. 7| 6. 4| 7. 1| 3| 3| 3. 2| Size| 14. 3| 13. 6| 12. 9| 17| 17| 16. 8| MTBF| 16000| 16000| 16000| 14000| 14000| 14000| Table 1: R&D investment for Traditional & Low End segment for the first three years b. High End, Performance and Size segments So as for customers to perceive the differentiation of our products in these three segments, performance, size and MTBF should exactly meet the customers’ expectations. Therefore, Erie decides not to launch the products in the first year.

Since second year, when the products appear in the market, they will be revised annually in order to appeal to be younger in customers’ perception | Year 1| Year 2| Year 3| | ECHO| Performance| 8| 9. 8| 10. 7| Size| 12| 10. 2| 9. 3| MTBF| 23000| 24000| 24000| | EDGE| Performance| 9. 4| 11. 4| 12. 4| Size| 15. 5| 14. 6| 13. 9| MTBF| 25000| 27000| 27000| | EGG| Performance| 4| 5| 6. 1| Size| 11| 8. 6| 7. 6| MTBF| 19000| 20000| 20000| Table 2: R&D investment for High End, Performance and Size segment for the first three years V. Marketing Department 1. Objectives * Increase sales of 5 segments by 10% each year Increase demand over 10% each year * Reach above 25% of market shares for Traditional and Low End segments, and above 20% for High End, Performance and Size segments at the end of year 3 * Keep the sales forecast error of 5 segments fluctuate between 5% – 10% during three years 2. KPIs * Keep the price of products of Traditional and Low End segments lower than the average price of their price ranges; the ones of High End, Performance and Size higher than the average price * Remain the same prices of all products for the first three years, then slightly decrease all prices from $0. to $1 after year 3 * Maintain customer awareness and accessibility of 5 segments from 95% to 100% * Keep the forecast errors for 5 segments not higher than 200,000 units for Traditional and Low End segments; 50,000 units for High End, Performance and Size segments every year 3. Strategies a. Pricing Strategies * Traditional & Low End In a product life cycle, the introduction stage starts when development is complete and ends when sales indicate that target customers widely accept the products.

The marketing strategies are ‘fully implemented during the introduction and should be tightly integrated with the company’s competitive advantages and strategic focus’ (Ferrell & Hartline, p210, 2008). Therefore, during the first three years, in light of cost leadership strategy, Traditional and Low End segments will be followed the penetration pricing approach, which is setting relatively low initial prices, so as to maximize sales, gain widespread market acceptance, and capture large market shares quickly.

It means that, in order to comply with the low cost strategy, the prices of the segments are set below the average of their price ranges. In particular, the price of Eat, which dominates Traditional segment, is established at $21. 5 per unit compared to $25 of the average price, whereas the one of Ebb, which takes up majority of sales of Low End segment, is set at $18 compared to $20. (Refer to appendix 1b: Pricing Forecast for further details) This approach is suitable for these two segments because of two main reasons.

The first reason is that the segments’ customers are price sensitive since prices outweigh such other elements as ideal position and reliability. The other one is due to the fact that R&D expenses are relatively low as customers do not pay much attention on the segments’ characteristics. * High End, Performance & Size Unlike to Traditional and Low End segments, High End, Performance and Size segments are pursued differentiation strategy; hence, price skimming approach seems to be an appropriate alternative.

The rationale behind price skimming is to intentionally set high prices relative to competitors, thereby skimming the profits of the top of the market, recovering the high R&D and marketing expenses associated with developing new products. In other words, the prices of these three segments will be set above the average of price ranges and should be, at least, obtain the contribution margins of 30%. In detail, the prices of Echo, Edge and Egg is respectively set at $39, $34. 5 and $34. 5 for High End, Performance and Size segments compared to the average prices of $35, $30 and $30 of each price ranges. Refer to appendix 1b: Pricing Forecast for further details) b. Promotion and Sales Strategies Percentage of products’ awareness and accessibility, which reflect the number of customers who know the existence of a company’s products, and who can easily interact with the company, are determined respectively by each product’s promotion and sales budgets. In order to increase demand up to 10%, our company, therefore, initially invests $3,000,000 in promotion budgets during the first two year, and $2,200,000 in sales budget of Eat and Ebb during three years because customer accessibility requires long time investment to achieve 100%.

Since year 3, when customer awareness achieves over 100%, the investment in the promotion budgets will be scaled back to $1,500,000. For Echo, Edge and Egg, since they will be launched in the second year, there are only $1,500,000 invested in promotion budgets, and around $1,100,000 to $1,500,000 spent in sales budgets in the first year. However, when they are ready for sales, their promotion budgets will be increased up to $3,000,000, whereas their sales budgets will be invested up to $2,200,000 in the second year so as to encourage customers’ demand. (Refer to appendix 1d: Promotion and Sales Budgets for further details)

VI. Production Department 1. Objectives: * Achieve a proper plant utilization * Control production costs effectively 2. KPIs By the end of year three, Production manager aims to: * Keep plant utilization ratio from 90% to 130% to minimize machine downtime cost and expensive 2nd shift charge * Decrease labor costs for all segments by 60% to 70% * Maintain overtime ratio at 0% * Minimize inventory carrying costs at maximum 25% of total production per year 3. Strategies a. Automation Due to the fact that each rate of automation will decrease labor costs by 10%, Erie will increase automation in all segments.

Even though the costs of automation are high, this is such a short-term aspect. In long-term, the improvement in automation will bring a greater benefit because costs spent on automation just incurred once while the reduction in labor costs is annual. Therefore, Erie plans to raise automation rating for all segments so as to achieve rate at 7 for Ebb and 6 for all other segments in year 3 as set out in table below: | Year 1| Year 2| Year 3| Eat| +1| -| +1| Ebb| +2| -| -| Echo| +1| -| +2| Edge| +2| -| +1| Egg| +2| -| +1| Table 3: Production investment in automation level for 5segments the first three years b. Capacity

Using an efficient amount of capacity can help the company to achieve economic of scale as well as to be consistent with the pricing strategy as set out by Marketing department. Furthermore, in order to satisfy higher demands as well as to follow sales forecasts of Marketing department, production manager plans to buy 600 units for Ebb; 300 units for each of Edge and Egg in year two. After that, in year three, 500 units of capacity will be purchased for Eat and Ebb. This will also help Erie achieve plant utilization ratio objective as mentioned above. | Year 1| Year 2| Year 3| Eat| -| -| 500| Ebb| -| 600| 500| Echo| -| -| -| Edge| -| 300| -|

Egg| -| 300| -| Table 4: Production investment in capacity for 5segments the first three years Additionally, in case that there is a restriction for purchasing capacity like limitation in the maximum investment or unexpected increase in sales, second shift of capacity will be utilized as much as possible to maximize sales. At the same time, using second shift workers will also be chosen instead of first shift workers with overtime. The main reason is that while second shift workers are paid the same wage rate of addition 50% as first shift workers work on overtime, second shift ones are more efficient as they are not as tired.

Moreover, the employee turnover rate is lower which can help Erie to keep talent workers and reduces future recruiting costs. Relying on second shift workers, Erie will also achieve its goal which is to keep overtime ratio at 0%. VII. HUMAN RESOURCE DEPARTMENT 1. Objectives The department intends to: * Increase Productivity Index by 5% * Lower Turnover Rate to 7. 5% in year 3 2. KPIs and Strategies: Erie plans to invest $4 million for Recruiting Spend and 40 training hours in both year 2 and 3 in order to support Production department reducing labor cost.

However, 5% turnover rate is unavoidable annually because of retirement, relocation and weeding out poor workers. | Year 2| Year 3| Recruiting Spend ($000)| $ 4,000| $4,000| Training Hours| 40| 40| Table 4: HR investment in recruiting and training for workers the first three years VIII. TQM DEPARTMENT 1. Objectives By the end of year 3, Erie proposes to: * Reduce material costs by 11. 8%, labor costs by 14% and administrative costs by 60% * Shorten the length of time required for R&D projects to complete by 40% * Increase demand by 14. 4% for the product line 2. KPIs and Strategies

For each initiative, Erie is planning to invest $1,500,000 in a 3 year cycle. In particular, in year 3, 4, 6 and 7, $1,500,000 will be invested in each initiative; while in year 5 and 8, there is only $1,000,000 budgeted for each initiative. The firm chooses an investment of $1,500,000 because expenditures beyond $ 4 million over 2 or 3 years in each initiative will lead to the diminishing returns. | Year 3| Year 4| Year 5| | Year 6| Year 7| Year 8| Process Management Budgets| | CPI Systems| $1,500,000| $1,500,000| $1,000,000| Vendor/JIT| $1,500,000| $1,500,000| $1,000,000|

Quality Initiative Training| $1,500,000| $1,500,000| $1,000,000| Channel Support Systems| $1,500,000| $1,500,000| $1,000,000| Concurrent Engineering| $1,500,000| $1,500,000| $1,000,000| UNEP Green Programs| $1,500,000| $1,500,000| $1,000,000| | TQM Budgets | | Benchmarking| $1,500,000| $1,500,000| $1,000,000| Quality Function Deployment Effort| $1,500,000| $1,500,000| $1,000,000| CCE/6 Sigma Training| $1,500,000| $1,500,000| $1,000,000| GEMI TQEM Sustainability Initiatives| $1,500,000| $1,500,000| $1,000,000| Table 5: TQM investment in each initiative during 8 years IX. Finance Department 1. Objective By the end of year three: Avoid emergency loan * Achieve the cumulative profit between $15,000,000 to $20,000,000 * Utilize debt in investment effectively 2. KPIS * Maintain the leverage between 1. 8 to 2. 8 * Achieve the ROE ratios between 15% to 25% * Maintain closing cash position at around $12,000,000 to $15,000,000 each year * Maintain working capital day from 30 to 90 days 3. Strategies a. Emergency loan: In order to finance the maximum investment in the capacity and automation of the first three years, the highest amount of stocks and bonds will be issued in year 1 and continue to be considered issuing since year 2 in case of cash shortage.

In addition, to sustain the loss in the first two years for capturing the market shares, a maximum amount of current debt will be borrowed in the first year. This in turn could avoid a 7. 5% of penalty for the emergency loan. After that, our company will continue to borrow a sufficient amount of current debt with the purpose to maintain our cash position at around 12,000,000 to $15,000,000. Besides, the credit for account receivable is set at 30 days so as to have a sufficient amount of cash to avoid emergency loan. b. Leverage

The purpose of maintaining the leverage ratio is not to use too much retain earnings for funding the growth and avoiding a high amount of debt which can lead our company to a financial risk because of a significant amount of interest expense. In order to keep an appropriate leverage ratio, the total amount of debt will only be considered in the worst case. However, if the leverage is too high, the production investment needs to be scaled back. c. Cumulative profit So as to achieve the above expected cumulative profit, firstly, the day of working capital needs concerning and maintaining from 30 to 90 days.

This in turn can protect our company from a risky position if problems occur as well as help us achieve a higher productive rate. Secondly, the expenditure for HR and TQM will be carefully calculated. Finally, the account payable policy is set at 30 days which will minimize significantly suppliers’ material withholding. Hence, our company’s profit can be improved in case of stock out because of lacking materials. X. Back-up plan Most companies have to confront with several unexpected and difficult situations during operating period.

One of these difficulties could be that some companies might collapse as losing their ability to continue to compete with other competitors in some products. The reason for this would be that they no longer make enough sales to cover costs which lead to a decrease in market shares and an extreme financial loss as well. Therefore, in order to avoid this situation, Erie has developed a back-up plan in case that one of our products suffers serious loss. According to the BCG matrix, it is believed that Traditional and Low End segments might be in the ‘harvest’ stage since year 5.

This is because these two segments have dominated a large proportion of market shares. Moreover, their growth rates start to decrease significantly for a long time of being operated in the sensor market. As a result, our company intends to adopt the exiting strategies when these segments begin to make relatively small profits or suffer serious loss. Instead, our company decides to develop and launch a new product which will be followed the differentiation strategy like High End and Performance segment since these segments are just in the ‘hold’ stage at that time, hence can catch up with other competitors’ products.

XI. Conclusion In conclusion, relying on the application of such strategy, Erie’s products will be high-recognized in the market as they are revised regularly and efficiently. In addition, through the advantage of an initially significant investment, the company could become more competitive in the market as its production costs are minimized. Furthermore, by accepting a little bit of risky at about the first two years, Erie will gain a competitive advantage over other competitors in terms of long-term cost savings and hence could provide cheaper products and increase sales in later years. XII. Reference * Ferrel.

O. C. & Hartline. D. M. 2008, Marketing Strategy 4e, South- Western Cengage Learning, the USA. XIII. Appendix 1. Marketing Forecast a. Sales Forecast | Year 1| Year 2| Year 3| Eat| 2,000,000| 2,200,000| 2,420,000| Ebb| 2,200,000| 2,420,000| 2,665,000| Echo| 430,000| 475,000| 525,000| Edge| 350,000| 385,000| 425,000| Egg| 400,000| 440,000| 485,000| b. Price Forecast | Year 1| Year 2| Year 3| Eat| $ 21. 5| $ 21. 5| $ 21. 5| Ebb| $ 18| $ 18| $ 18| Echo| $ 39| $ 39| $ 39| Edge| $ 34. 5| $ 34. 5| $ 34. 5| Egg| $ 34. 5| $ 34. 5| $ 34. 5| c. Sales Revenue Forecast | Year 1| Year 2| Year 3|

Eat| $43,000,000| $47,300,000| $53,030,000| Ebb| $39,600,000| $43,560,000| $47,970,000| Echo| $16,770,000| $18,525,000| $20,475,000| Edge| $12,075,000| $13,282,500| $14,662,500| Egg| $13,800,000| $15,180,000| $16,732,500| d. Promotion & Sales Budgets | Promotion Budget (000)| Sales Budget (000)| | Year 1| Year 2| Year 3| Year 1| Year 2| Year 3| Eat| $3,000| $3,000| $1,500| $2,200| $2,200| $2,200| Ebb| $3,000| $3,000| $1,500| $2,200| $2,200| $2,200| Echo| $1,500| $3,000| $3,000| $1,500| $2,200| $2,200| Edge| $1,500| $3,000| $3,000| $1,100| $2,200| $2,200| Egg| $1,500| $3,000| $3,000| $1,100| $2,200| $2,200| . Production Plan PROUCTION PLAN Year 1 – 2011| | Eat| Ebb| Echo| Edge| Egg| NA| NA| NA| Total| Units sales forecast| 2000| 2200| 430| 350| 400|  |  |  | 5380| Inventory on hand| 189| 39| 40| 78| 62|  |  |  | 408| Production schedule| 1800| 2200| 400| 300| 340|  |  |  | 5040| Production after Adj. | 1782| 2178| 396| 297| 337|  |  |  | 4990| Margins|  | 2nd shift production %| 0%| 57. 10%| 0%| 0%| 0%|  |  |  |  | Labour cost/unit| $8. 22 | $8. 26 | $9. 39 | $9. 39 | $9. 39 |  |  |  |  | Material cost/unit| $10. 96 | $7. 63 | $15. 53 | $15. 45 | $13. 3 |  |  |  |  | Total unit cost| $19. 18 | $15. 89 | $24. 92 | $24. 84 | $22. 62 |  |  |  |  | CM| 10. 8%| 11. 7%| 36. 1%| 28. 0%| 34. 4%|  |  |  |  | Physical plant|  | Total| 1st shift capacity| 1800| 1400| 900| 600| 600|  |  |  | 5300| Buy/sell capacity| –| –| –| –| –|  |  |  |  | Automation rating| 4| 5| 3| 3| 3|  |  |  |  | New automation rating| 5| 7| 4| 5| 5|  |  |  |  | Investment| $7,200 | $11,200 | $3,600 | $4,800 | $4,800 | $0 | $0 | $0 | $31,600 | Workforce| Last year| Needed| This Year| 1st shift| 2nd shift| Overtime|  | Max Invest| 32,694 | Completement| 700| 820| 820| 705| 115| 0%| A/P Lags| 30| (days)| 3. Proforma Financial Statements a. Balance Sheet PROFORMA BALANCE SHEET| ASSETS| | Cash| 28034| Accounts Receivable| 10240| Inventory| 1055| Total Current Assets| 39328| Plant & Equipment| 145400| Accumulated Depreciation| (47626)| Total Fixed Assets| 97774| | Total Assets| 137102| | LIABILITIES & OWNER’S EQUITY| Accounts Payable| 7699| Current Debt| 20341| Long Term Debt| 60694| Total Liabilities| 88734| | Common Stock| 32060| Retained Earnings| 16308| Total Equity| 48368| Total Liabilities and Owner’s Equity| 137102| b. Cash Flow Statement PROFORMA CASH FLOW STATEMENT| Cash Flows from Operating Activities| | Net Income (Loss)| (13274)| Adjustment for non-cash items| | | Depreciation & Writeoff| 9693| Change in Current Assets and Liabilities| | | Accounts Payable| 1116| | Inventory| 7562| | Accounts Receivable| (1933)| Net cash from operations| 3165| | Cash Flows From Investing Activities| | Plant Improvements| (31600)| | Cash Flows from Financing Activities| | Dividends Paid| | Sales of Common Stock| 13,700|

Purchase of Common Stock| | Cash from long term debt | 18994| Retirement of long term debt| | Change in current debt (net)| 20341| | Net change in cash position| 24600| | Starting cash position| 3,434| Closing cash position| 28034| c. Income Statement PROFORMA INCOME STATEMENT| Product Name| EAT| EBB| ECHO| EDGE| EGG| Total| Sales| 42385| 39600| 16770| 12075| 13757| 124587| | Variable Costs| | Direct Labor| 16227| 18156| 4043| 3284| 3748| 45458| Direct Material| 21632| 16771| 6682| 5403| 5279| 55768| Inventory Carry| 0| 33| 18| 75| 0| 127|

Total Variable Costs| 37859| 34960| 10743| 8761| 9028| 101352| | Contribution Margin| 4520| 4640| 6027| 3314| 4729| 23235| | Period Costs| | Depreciation| 3120| 3173| 1320| 1040| 1040| 9693| SG&A: R&D| 269| 0| 1000| 1000| 1000| 3269| Promotions| 3000| 3000| 1500| 1500| 1500| 10500| Sales| 2200| 2200| 1500| 1100| 1100| 8100| Admin| 365| 341| 145| 104| 119| 1074| Total Period Costs| 8955| 8715| 5465| 4744| 4759| 32637| | Net Margin| (4429)| (4075)| 562| (1431)| (29)| (9402)| | Other| 1635| EBIT| (11037)|

Interest| 9384| Taxes| (7147)| Profit Sharing| 0| | Net Profit| (13274)| d. Cash Budget CASH BUDGET| | Total| Beginning cash balance| 3,434| Cash from operations| 3,165| Total Available Cash| 6,599| Less:| | Capital expenditures| (31,600)| Interest| (9,384)| Dividends| 0| Debt retirement| 0| Other| (1,635)| Total Disbursements| (42,619)| Cash Balance (Deficit)| (36,020)| Add:| | Short-term loans| 20,341| Long-term loans| 18,994| Capital stock issues| 13,700| Total Additions| 52,035| Ending Cash Balance| 16,015|

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Digibyte – What is Digibyte?

The financial world has been changed once and for all with the appearance of the first , Bitcoin, in 2008. The very idea of digital money created, stored, and used digitally altered the core principles of commerce positively all over the world. After Bitcoin, a lot more cryptocurrencies were developed. They all use a blockchain technology, which provides a reliable platform to store information plus conduct transactions.

The big family of digital currencies was expanded in 2014 by the creation of DigiByte (DGB). It is rooted in  Bitcoin with a couple of adjustments made. They enhanced its functionality, security, and transaction time. Its founder, Jared Tate, is a businessperson and a programmer that has helped him to understand which amendments need to be made to create a fast and secure way of digital money transfer. What is DigiByte exactly? And what makes it so outstandingly that it is enlisted in the top five digital currencies to invest?

It is a worldwide famous decentralized digital payment system and open source cryptocurrency that used Bitcoin as a starting point for development. Using a blockchain technology it allows its clients to transfer money to any place they intend to safely and without any fear of fraud. Clients can move their money on the Internet without practically any limits using several enhancements.

Two main characteristics the company is proud about are the faster transaction that in case with Bitcoin and low transaction fees. The primary focus is on security and providing a protected method of the peer-to-peer communication. The trading price of DigiByte is very low – it is the technology it provides that is being praised by the whole community of cryptocurrencies users. The team of developers working on Digibyte has already been credited for their remarkable support and dedication to the company.

The company claims that their primary mission is to explain plus share the real and plausible benefits of DigiByte cryptocurrency.  They reveal the method of digital payment to the consumers, retailers, entrepreneurs, and businesses all over the world. The total amount of DigiByte is 21 billion that is going to be spread over the next 21 years. Due to such an extensive number of coins, the transactions and money purchases are happening every 30 seconds.

They appear in the network similarly to all other cryptocurrencies – the mining process takes place. The mining process is possible if you have the computer with necessary software programs installed to mine coins.  DigiByte can handle up to 560 transactions per second, and the company plans to increase that number to 280,000 transactions by 2035. DigiByte has made a big present for all miners. It is a multi-algorithm platform that allows miners to choose from a variety of mining procedures to find the most suitable one. The company has elaborated a tool to cope with multi-mining pools and inflation risks when new coins are mined called DigiShield.

If the question “How to buy DigiByte?” arises, the answer will be similar to all other digital currencies purchases. To get a bit of DigiByte coins, the client should register a digital wallet. This is a personal place where information about the transactions will be stored. There are different types of wallets that can suit all investors needs. It is important to preserve the information about the address and private key to your wallet. With this address, you can buy DigiBytes on trading exchange websites. This digital currency is supported on nine different exchanges including Bittrex, Cryptoria, Yobit, and other.

DiGiBytes is a rapidly developing software that has a strong business ethic and determination to make the digital payments the world’s everyday reality. If you intend to gain a quick profit, you should not invest in this currency. It is a long-term investment so be ready to wait for your earnings a bit. The usage of this cryptocurrency is getting bigger with time opening new possibilities for both the company and its clients. The Digibyte coin is widely used in eSports commerce connected with various online game platforms, and the client can earn one playing different games, for instance, League of Legends.

Being one of the most popular digital currencies in the world, the prospects of this currency look very bright and optimistic. If the company doesn’t relax and will stick to its principles of development as it has done before, one day it will become the essential part of our financial routine. It is more than possible! The commercial industry can only win from the close cooperation with Digibyte but the time will show, whether these predictions are correct or not.

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