From now to the next five years a lot things can happen. In terms of business the company can encounter three possible economic scenarios. The three scenarios are growth in sales, decline in sales, or equal sales. These three…
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The first scenario that will be analyzed is zero growth.
Under the cero growth scenario the company during the next five years will maintain a constant sales level. An economist might state that in reality a company that achieves zero growth loses because during those five years inflation occurred. At the US 2.3% annual rate of inflation the cumulative inflation after five years would be 11.5%. This means that the company lost 11.5% in purchasing power at the end of the five years. If sales stayed the same the company would be worst off after five years because expenses increased due to inflation. The company can offset the detrimental effect on cost inflation has by implementing process improvement that reduce the cost of doing business. To maintain a stable level of sales over a five year period the company must achieve a good customer retention rate.
The second scenario is for Larson Inc. to decrease its sales over the five year period. The world is currently facing the effects of a global recession that started approximately 2008. The US GPD growth for the 2nd quarter of 2010 was 2.4% (Amadeo, 2010). Despite the economy having achieved a positive overall growth there are many problems with the US economy. In the United States the unemployment rate is at a massive 9.9% rate. In the past the unemployment rate in the United States always used to hover below 5%. This means that unemployment is twice as high as it was a few years ago. Larson produces batteries for the regular household consumers. If these people have less money available then they will purchases less batteries. The unemployment rate in Germany is higher than in the United States at a 10.8% rate. If the level of sales of Larsen Inc. decreases for the next five years the company and its managers are going to face some tough decisions. Massive layoffs of personnel are a high possibility. The company might have to sacrifice quality by purchasing cheaper quality materials for
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