Name:Professor:Course:DateFinancial AnalysisThe company commenced business operations in 2001.
However, after its commencing, it was faced with a financial crisis because the firm’s sales dropped from $48 million to $18 million over a period of 6 months. However, from the case study, it is evident that the company has been performing well. This is attributed to the sales margin that the company recorded in the year 2014 as compared to 2013. A snapshot of the financial statements in the case study shows that the company had been experiencing significant growth. This is evidenced by the notable difference between some of the key metrics such as gross margin, inventory, sales, net profit, and expenses generally. From a theoretical perspective, a company that portrays such level of growth is normally a good buy for investors. It is also considered a heavy investment with complex financial leverage, hence higher expected utility return.
This lead to investors expecting a risk premium. It means that the company has invested a lot in the complex business cycle and therefore investors should expect higher returns at the end of the financial year. Cameron Auto Parts increased their sales margin from $105 million to $150 million between 2014 and 2013.
The increase was attributed to good management effectiveness. Besides that, it is also prudent to argue that one of the other reasons that accelerated the increase was an increase in the sales of automobile in the American market. It is also evident that the company net assets increased from $65.3 million to $50.
3 million in 2014. The increase was attributed to an increased and improved business cycle, therefore leading to efficient utilization of assets of the company. Over the years since inception, the company has been learning ways of cutting costs and reducing expenses.
This includes the use of a $5 million credit line to reinvest back into the company by modernizing and investing in computer systems that would assist increase manufacturing efficiency. The total equity had also increased in 2014 as compared to 2013. It implies that the company was able to issue more stock to shareholders and more investors found the company an attractive business venture. The return on assets ratio in 2014 was 18.4%, an increase of 6.5% compared to 2013. This is an indication that the company was using its assets well in ensuring that the firm generates economic growth for the company’s future prospects.
On the other hand, the ROA also shows that the management effectiveness was fair and the board of management was able to implement decisions that would drive growth into the company. However, the financial leverage of the firm increased between 2013 and 2014. This was attributed to heavy financial investment in order to promote growth in the company. The company’s distribution channels had been improving for the last three years with France being the largest consumer of the products produced by the company.The net profit after tax doubled in 2014 to $12 million from $ 6 million in 2013. This was a good indication as it implies that the firm was able to maximize their revenues and minimized their expenses hence resulting in a positive outcome.RecommendationThe case study shows that the company is good place to invest. Some of the key drivers is that the company has a large presence in the international automobile market.
Besides that the company has been showing positive incremental growth since inception and this is a major factor to consider while investing in a company. Cameron should do a joint venture with Michealand. One of the advantages is that the Australian market is a completely new move for the company. This is because it has never been involved in such before. The joint venture will see to it that the product is sold with a lot of ease. Having a plant in Australia is an advantage because Michealand knows the market well enough and sells some flexible coupings to other lines. This implies that their market source is powerful and hence a joint venture could come in handing. It has always been was one of the key goals penetrating into the international market and have the company’s presence felt in the automobile industry all over the world especially Australia.
This means that the Joint Agreement t would accelerate the business strategy. The firm was in a superior position to get into the international market because of the good cultural understanding and also the close proximity to customers and consumers. In addition to that Alex also mentioned that the company has been growing really fast and this exponential growth would make a significant impact on Cameron. With this business strategy coming into place, Cameron Auto parts would be in a position to form other similar partnership agreements with other multinationals and therefore expand their market and increase their customer base. The French agreement was proving to be a viable business with potential market of the entire European market. Its previous license agreement with McTaggars was attributed to the company being reputable for excellent credit, best manufacturing practices, good market contacts and 130 years of service delivery to its clients. Similarly, the French agreement involved a company that has long been in service and a reputable one for that matter. Embarking on the strategy would reduce and eliminate the prohibitive cost of developing and maintain sales in a foreign country.
In addition to that, orders would be placed easily as the products and goods would be made locally available and this would reduce the costs of shipping and also reduce on the travel time in order for the product to get to the consumer. This would also reduce on the tax rates. It was also a good decision for administrative and economic distance reasons. Due to the fact that the product would be manufactured outside UK, it would be less subjected to taxes such as import duty and also encourage tax waivers, freight insurance and a reduction in the value added tax. In as much as misleading statements were found about the company’s capability to sustain in the market, it was reported that in France, tax reasons lead to the low sales in Germany and Holland and therefore the cause for the sporadic sales in these two countries. Pierre argued that the company was also already familiar with the product and had was willing to reduce the price by 25% in order to make sales worth 9.6 million euros. The firm was able to sell the product as fast as it could be shipped into France.
Besides that, the production experience that Cameron may benefit from would increase production capacity by a huge percentage. Lastly, the value of the dollar fell during the original five year contract and the percentage of sales in euros produced a higher dollar income for Cameron without changing the price of the products sold. The disadvantages of continuing to export are loss of profits due to shipping costs, currency values, taxes and tariffs. The five year contract allows Cameron to evaluate the effectiveness of the joint venture strategy and determine whether this is a profitable venture for the company. It is important to point out that the royalty rate was reasonable for both companies.
Cameron was able to get into the French’s market using Michealand sales, force, save on tax duties, cut down lead times and freight insurance. He 4% royalty rate was effective as Michealand was in a position to sell a product that already was in demand and this helped increase sales and gain valuable insights into the firm’s manufacturing process. Both companies would benefit from the shared knowledge they could provide each other, thus make the licensing agreement valuable for everyone involved.