Financial Analysis of the Company - Essay Example

?Newproject_ Zipcar_SB_#740699 Table of Contents Table of Contents 2 Item 3 Item 2. 4 Item 3. 4 References 6 Item The financial analysis of thecompany has been done in terms of horizontal and vertical trend analysis of key financial statements (Figure 1). It revealed that the revenue has grown significantly over the years. The calculation of the compounded annual growth rate revealed a significant rise of over 30% for revenue of Zipcar over the period of 3 years. However, it needs special focus to mention that the total operating costs have also grown over the years for the company. It also has to be taken into account that the fleet operational costs of the company have grown over the company. It can be easily ascertained that the significant rise of fleet operational costs has contributed significantly to the growth of the total operating costs for the company. From the industry analysis view, it can be said that the car rental is a popular business in the US. Several competitors are present in the car rental market ranging from various well established organizations like Enterprise, Hertz, Avis, etc. (Arn.com, 2012). It can be apparently said that in the US car rental market, as per 2011 statistical records, revenue touched a record high with the process of generation of over $1000, per unit for the entire US market, thereby bringing into focus the various levels of efficiencies that has been achieved by the players in the particular market (Arn.com 2012). However, it can be said that the entire market for this business is highly vulnerable to various factors of macro and micro economic nature (IbisWorld.com 2012). Item 2. The young car rental company Zipcar has increasingly focused its forward approach on various strategies with regards to capitalizing on the various prospects that are associated with the growth of the company as well as its sustenance in the car rental market in the presence of big competitors and tremendous competition and market pressure in the long term. For the purpose of attaining significant growth and business edge, Zipcar focused on effective segmentation and targeting. By the focusing on the opportunity of targeting college crowd for its rental services, it developed a unique market to serve and thereby developing an edge over the others. It can be said that while this certainly provided an edge at the beginning, but it may not be sustainable in the long term as competitors may increasingly target the same market. Also, from the damage point of view, the cost of maintaining the resources while catering to the target market is also significantly high. The financial analysis also supports the fact of high operating expenses for the company. The evaluation of the financial performance over the 3 year period shows that thought the company had an increase in revenue yet the cost related to fleet operations also went up. It also revealed that the operating expenses also increased over the period. So, it can be said that servicing the college student are coming out as a little expensive over the years. Talking in terms of the company’s long term prospects, it can be said that the company is yet to get established in a secured manner. The reason behind that is because though the company has achieved a significant growth in revenue yet its operational expenses are also increasing. Despite the high growth rate, it is not very effective for a new company to have high operating costs as the chances of maintaining profits will gets reduced with the company’s attainment of capacity as well as market saturation by other car rental companies. Apart from this, it also has to be taken in to account that the company’s main competitive edge of servicing the college students can be targeted by well established rival companies, thereby reducing the company’s standalone advantages. The company should focus on increasing the efficiency in terms of economies of scale by reducing cost of operations for the purpose of securing itself over the long term. Item 3. It can be said that the car rental industry has its roots in the early days of 1918, when the company Hertz triggered and ignited the idea of car sharing by the process of renting out a small fleet of Ford cars (Hertz.com 2012). With the passage of time, the company having weathered a series of merger and acquisition bids has significantly grown as the world’s largest car rental company with a massive fleet of cars at various countries around the globe. Also, founded in the year 1957, the Enterprise Rent a Car company has significantly scaled great heights in the car rental market existing in the North American region and foreign locations (Enterprise.com 2012). However, it can be noticed that both the companies have a high expertise, in the process of handling the car rental market in the American as well as the global scene, besides having a large fleet of cars. It can also be said that the companies Enterprise and Hertz have been successful in gaining significant economies of scale by the process of catering to the customers, with a large fleet of cars in the domestic and international arena. Yet there existed a series of unique advantages that benefitted the growth of Zipcar’s car rental business. The most important factor is the process of targeting of individuals in the highly congested urban markets in the US region, and thereby providing a major cost benefit advantage in regards to owing a personal car. Zipcar’s ability to meet the consumer demand in the urban market who have low personal needs to the fact of owning a car and don’t want to pay exorbitant parking fees catered to the demand. The second factor is the targeting of college students by the process of lowering the age limit for availing their services. The process of attracting and maintain a captive audience by having them avail annual memberships significantly contributed to the growth of the company. The third factor that catered to the smooth entry in the rental market is the fact that Zipcar formed collaboration with corporate sector by leveraging both way benefits related to vehicle utilization. Another extremely important factor is that Zipcar provides high priority to customer satisfaction besides increasingly targeting customers looking for safe, environment friendly, and ready to use cars. It can be easily said that Zipcar is a new company with comparatively smaller fit size as compared to its rivals like Hertz and Enterprise. Because of their long history of doing business in the car rental market in the US and around the world, these established competitors have achieved a significant competitive advantage. Because of their extensive presence in various locations, they are in a better position to effectively optimize the level of utilization of their cars and parking spaces. Talking in terms of counter attacks from the established companies, it can be said that the established rivals are in a better position to initiate a loss leader pricing tactic and thereby offering the services similar to that of Zipcar at a much reduced price. Also, due to their large presence, the rival companies can significantly target the specialized audience comprised of college students and can pose a significant threat to the growth and prospect of the company in the long term. Talking in terms of competitive advantage for Zipcar, it can be said that the company’s focus on providing customer satisfaction and not comprising on it is the most important point. Zipcar provides its customers with eco-friendly vehicles, which are safe and are ready to use. This can stand provide a lot of mileage to the company with regards to the rival’s offerings. References Hertz.com. Hertz Firsts. Web. 1 Nov. 2012. Enterprise.com. About Enterprise. Web. 1 Nov. 2012. IbisWorld.com. Car Rental in the US: Market Research Report. July 2012. Web. 1 Nov. 2012. Factbook 2012. Market Data – US Car Rental Market. 2012. Web. 1 Nov. Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. Strategic Management: Competitiveness and Globalization, Concepts and Cases, 10th edition NY: Cengage Southwestern Publishers. 2009.  Appendix Figure 1: Trend Analysis Read More