Alleviating the Difficulties of Liquidity and Capital Structure - Assignment Example

Cyclermate Student number: Course title: Lecturer: Date: REPORT FOR THE CYCLERMATE MANUFACTURING FIRM Executive summary Cyclermate company is bicycle manufacturing firm which had good development record for fifteen years marked by tremendous growth, the company managed to produce one prototype bicycle which was used for marketing, thereafter the company got two orders to sale the bicycles and from there the business was launched which saw the firm with a greater boost of its sales. As a result this great success the company relocated and acquires the following assets; 15000 square feet warehouse with an inclusive of 2000 square feet of an office accommodation valued at £240,000 moreover they had a higher demand for their products with little level of advertisement. Since, their product was of higher quality and the word of mouth reputation was enough to maintain their sales volume. However by 2010 the business experiences a lot of challenges, first the prices had been reduced to maintain the sales but the demand continues to decline, secondly there were an increase number of complaints from the market about the poor quality and faulty products. The working environment became hazardous due to lose cables in the firm resulting into injuries prompting the firm to lose lot of money in compensating the injured parties In attempt to restructure the company, several problems are realized for example high cost of production and increased of overdraft from the bank. The firm still had unsolved problem s which needed attention, the company is assigns multiple roles to employees which in-turn causes ineffectiveness in production, to add on that the workers work extra time without pay, shortage of materials is one of the problems which contribute to the company to run out of the finished products. These troubles compel the shareholders and the managers to hold series of meetings to salvage the company from collapsing and losing its goodwill in the market. The shareholders had different opinions which did not yield good results prompting the stakeholders to look for consultancy services from expertise (Graves, 2008). Introduction Cyclermate is a company that deals with the manufacturing of bicycles. The company is experiencing problems that pertain management, production and even on how to capture and retain their esteemed customers in the market. The findings is to produce a detailed report on how the company is going to be efficient in its management, how to deal with the employees welfare, how to produce quality products and more so lay down strategies on how to regain the lost goodwill from the market. Problem statement The company is realizing some internal troubles which indeed call for some measure; the above problems if not given great attention are going to derail the key objectives and missions of the organization. Therefore the findings try to look for ways for the bankers to attend to these problems. By doing so the firm is expected to regain back its position of operation, retain and win more customers in the market. Approach The report draws the important steps recommended to the bankers to be taken to solve the problems. Although these will be highlighted in the later chapter, it is important to state them; Initially the Cyclermate firm bankers will have to adopt some new strategies of minimizing cost and expenses in the meantime and employ new strategies of increasing sales volume, by carrying out persuasive and informative advertising apart from doing that, more important is to take into consideration the suggestion highlighted by various shareholders and their reliable expertise. The success of the above measure will depend on the following assumption: The cost of materials will not escalate, the shareholders will accept changes to be made in unison, and the finance to implement the required change will be available in the company. Alleviating the difficulties of liquidity and capital structure The most immediate solution to the company is the generation of cash immediately, this can be achieved easily by leasing the underutilized warehouse bearing in mind that the `buildings were big for their needs’. Also, going by the suggestion of the managers and the shareholders in the meeting, Mr. Armstrong has an idea to go by, that is, to persuade his retiring cousin to invest in the company and consequently input his invaluable knowledge in the management of the Cyclermate, Emlyn Morgan likewise in support of the move to solve the liquidity problem seconds, Mr. Armstrong suggestion by recognizing the need to bring in other financiers. In the mean time the firm should seriously follow up debtors to get more liquid assets and possible stop credit sales if any. Any idle land can be sold to generate more finances. Sources of longer term funds The company has the options of sourcing some funds from part of its assets that are idle. The firm should lease part of the unused premises. The firm has 15,000 square feet warehouse which is not fully operational, in addition the company has 2,000 square feet offices accommodation which is underutilized, and these are some of the assets which should be leased so as to generate revenues for the firm. The generated income will then assist to give a major boost to the financial status of the firm. Appendix A shows the value of the non-current assets for the company which could be leased or sold to obtain finances. Regulation on pricing, production levels, expenses and inventory levels. Loses is one of the key issue that the any other firm should attempt to avoid with all cost, but this was not the case for the Cyclermate company, the firm is incurring lots of unnecessary expenses which should be cut down so as to save the capsizing financial status of the company. The company should avoid ordering the wheels from a shop in Cardiff which is exceptionally expensive and instead an expert be trained so as to work on the wheels within the firm, this will be relatively cheaper and cost saving (Bowden, 2004). Focusing on the production cost it is important to note that the cost of materials determines a lot in the price of the end products, it is advisable that the company research for the cheaper and quality raw materials which will in turn translates to the cheaper prices of the bicycles produced, therefore the rate of stock turnover will be very high resulting into higher income realized It is a normal case for any other firm to incur expenses in carrying out its affairs, the Cyclermate in order to save the cost that they incur, they should consider cutting down the cost they incur in paying out the lucrative salaries to the directors of the company. The company should ensure up to-date inventory records, this will avoid shortage of the inventory. How break- even point will be achieved To achieve the break - even point where the marginal revenue = marginal cost the company needs to revisit its sales volume and pricing. In the year 2009 the price per unit of one bicycle was £760 for direct sales and £456 for shop sales but in 2010 the price per unit for direct sales was £730 and £438 for shop sales this depict a decline in price but contrary to the expectation. The sales volume decreased significantly in 2009 the sales volume was1178 units for direct sales and 1621units for shop sales. In 2010 the sales volume was 1054units for direct sales and 1450units for shop sales this financial analysis depicts a drop in the sales volume and prices but it is important for the company to consider the fact that price and the sale volume for 2009 was the optimum sales and prices respectively and at this point the firm need to increase neither the price nor the production, because profits are maximized at this point of production. Appendix B shows decrease sales and sales revenues between the year 2008 and2010. Production The company uses crude way of manufacturing the bicycle i.e. the special tubes stock is cut to size using an old automated tube cutting saw. Mr. Dai was capable of making eight. The Company has to review its production methods of manufacturing, the firm should abandon the old methods of manufacturing and adopt the modern way which is cost effective, fast and produces quality products. Dai who is also the director is central in the production process, he makes frames alone and because of his tight schedule he is so ineffective and he has already reduce his production per day, Dai lacks specialization ,he is the director of the company and also at the same time the factory manager. Painting is done by Maldwyn Jones, but for a few days a week, and the greatest challenge here is that he employs the “traditional “technology, moreover he is also engaged in the consultation pertaining production and management of the company because of his experience in the manufacturing field. Assembling is done by Fred and Janice, but Fred is inexperience therefore slowing the production process. Packaging is not taken seriously and it is done by anyone with free time especially Mr. Dai and Maldwyn. The uphill is in the manufacture of wheels, since it is in the hands of the experience Idris Pugh but he is ill-health therefore hampering the consistency of production, and the gap created by his irregular supply puts the company to task of making the external orders from Cardiff which increases the direct cost of production. To solve the production process challenges in the shot –run the company may need to avoid the direct cost such as that of buying wheels from Cardiff and more so, reduce the indirect cost, administrative costs and wages and salaries for the company’s directors. But in the long-run the company needs to adopt the modern technology in the production process in order to minimize the cost of production and to improve the quality of the final product. Lastly specialization is highly recommended to enhance efficiency. The suggestion of Ogmore Pritchard, a manufacturing Guru,`to Start pulling work through the system, look at the production scheduling and move toward daily orders with Kanban cards’ should be welcome in the production (Lichtenberger, 2009). Cyclermate Company had a lot of issues to deal with as far as human relation was concern. As much as the company was fighting it`s way to success, the company had some issues with the human relation and welfare of the employees which needed the attention of the management, the welfare of the employees was not effective as should be. The firm does not have the safety of the workers in place therefore exposing them to imminent dangers; worker who deals with paints is not provided with the safety precaution measures, this would in turn slow down the rate of production because of the ineffectiveness. Janice Jones who is Maldwyne`s daughter and Fred Gregory often have to work for an extra time to cover up orders which are supposed to be met on a single day, this becomes strenuous to the employees resulting into slow production and fatigue. Human resource The company employs elderly specialist to deal with some of the manufacturing process, this is not effective because Idris who is perfectionist in dealing with wheels is not the best when it comes to the health, the company has done less to save this situation. The firm is capable of solving all this troubles. Welfare of the employees is important aspect in the organization so to say, to gather for the health of the workers, the firm should provide the medical insurance cover or rather policies to its esteemed employees, this will guarantee with them adequate attention when need be. There is a lot to be done as far as working condition is concern; workers are subjected to dangerous working condition, firm should provide safety equipment to be used by those who work with paints to prevent them from the toxic substances, consequently the company should take insurance policies to cover the employees against any accidents that may arise in duty. It is important also to note that the company need to offering their employees with motivating factors such as good remuneration, offering them with annual leave and also providing them with pension schemes. Work output per worker should be evaluate so that productivity standards can be set, and also manpower requirements Indeed to shade light to the expected good performance of the company and specifically to touch on the workforce of the firm, the number of the employees should be increased to specialize on various fields of production. Although this will need lots of cost, it will be great to note that the management agreed to source the capital from the financiers to invest in the company. Specialization will increase productivity and production of quality products Remuneration is the key important factor to employees’ performance. The firm should provide good salary scale to its employees, should also look into the issue of paying replacing overtime with lay offs The company should also consider training the junior staff to reduce dependency on key staff this will in turn take care of productivity issues. It evident that the current staff is ageing, Lewis asserts that he will be happy to retire and to be relieve the burden of competing with “big boys” such as Halfords. In the long-run the employees should be motivated by annual pay increase. Future steps to enhance firms’ survival and profitability The Cyclermate Company should invest in research work to find the most economical sources of raw materials and how to beat the cut throat competition that is currently posing a threat to the firm, consequently if the company will intensify marketing of the product using the best media possible then they will be able to improve sales volume, which will translate to economic stability for the firm. Conclusion The Cyclermate manufacturing company was a reputable company for the last fifteen years this was marked by enormous development of the industry, but currently it is in a quagmire situation to the point of collapsing, the challenges facing the company range from low sales, increasing cost of production, de-motivated and overworked employees, un-conducive working environment, increasing debts and cut throat competition from other modernized bicycle manufacturing firms, their product is deteriorating in quality. A series of meeting held in effort to rescue the company are unfruitful calling for consultation from expertise to solve the financial problem in the short-run. The following problems are address: issues pertaining work schedules, minimization of cost, improvement of working terms and condition. As per the report that has been given in this finding, most of the problems have been addressed including remunerating the employees, offering them with the good working condition, giving them pension schemes and medical covers or schemes. Apart from the employees’ welfare, there is a lot to be done concerning the materials to be used and the kind of products produced at the end of the day. The report has tried to point out solution to this problems, the firm should outsource cheaper raw material and of good quality. This will in turn translate to the cheaper prices of the bicycle. Cheaper prices of the bicycle will see the firm realize lots of stock turnover. The company is experiencing the problem of the capital; the company is running short of the fund s to carry out its affairs, the report suggests that the company looks for the strong financiers who will invest in the company. The report of the findings also raises an alarm of the lucrative salary the directors have awarded themselves while the firm is collapsing, this will force the company to cut down the cost that are incurred in paying up the salaries of the Directors. These will see the company into improving its financial stability. Short-run recommendation i. Reducing the administrative cost, the cost that is incurred in running the affairs of the firm should be cut down, for example, allowances to the managers. ii. Sourcing funds from the suggested financiers. iii. Increasing direct sales to increase the profit margin of the firm and also look into ways of increasing sales in the shops. iv. Using the firm’s expertise to manufacture wheels instead of being supplied wheels which are exceptionally expensive compared to manufacturing from the firm. v. Carrying out advertisement, persuasive make people buy more of the products, informative advertisement to educate customers of improved technology and quality products produced. Long- run solutions vi. The company should review the salary scale of the employees from time to time, this will be a motivation to the employees to work extra hard and ensure constant retraining to be conversant with radical changes in the industry. Employees also should given incentives such as education to their children, teambuilding workshops and annual leaves. vii. Painting of the organization will give a new and exciting look as this is towards giving a new image to the organization. viii. Restructuring the way of production including the strategic direction of the business, the nature of the product, production and so forth. ix. Modernization of the entire manufacturing process, firstly, is the purchase robotic flash butt welding machine, getting a better and more durable finish by changing to a modern “two-pack” automotive paint which involves careful paint mixing, rapid spraying, and then baking in a low heat oven, development of the product range, and the introduction of new ways of working, new materials, and possible outsourcing of manufacture parts of the product manufacture. x. Specialization is a technology worth adopting in the firm to increase efficiency, product quality and meet the required time schedules, consequently employees will require less effort if the y are doing the same job daily. Reference: Bowden, J (2004) Writing a report: how to prepare, write and present effective reports. California: How To Books Ltd. Graves, H F (2008) Report writing Phillipines: Prentice-Hall. Lichtenberger, E O (2009) Essentials of assessment report writing New York: John Wiley and Sons. Appendix A Draft Statement of Financial Position - 30 September 2010 Non-current Assets Cost Deprecation Net £ £ £ Freehold land 160,000 160,000 Freehold factory 80,000 32,000 48,000 Machinery and equipment 15,000 12,200 2,800 210,800 Appendix B Income Statement - last five years (year to 30/9/10 is unaudited draft) year to 9/30/2010 9/30/2009 9/30/2008 units units units direct sales units 1,054 1,178 967 shop sales units 1,450 1,621 1,334 Total units 2,504 2,799 2,301 £ £ £ direct sales price 730 760 720 shop sales price 438 456 432 Total revenue 1,404,520 1,634,456 1,272,528 Read More