Profit Result Sales Strategy

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					Corporation
 -- A Global Business Simulation


     Presented by: John Doe
                   Jane Doe
                   Mary Jane
    Company Background


DEEP BLUE INTERNATIONAL, INC

 A multi-divisional firm operating in
  the highly competitive information
  systems industry
     Company Background


     Deep Blue International, Inc.

 SBU#1          SBU#2            SBU#3
Hardware       Software      Integrated MIS
    Company Background


Two level decision making process
  •SBU: President
  •Parent corporation:
    •CEO
    •Board of Directors
    Mission Statement

To be the market leader in the
information industry through the
establishment of competitive
advantages so as to increase the
value of the company.
               Strategy

 Target on High-end product consumers
 Strategic development on “vertical”
  applications
 Achieve competitive advantages by
  Increasing marketing, operation
  technology new product research and
  HR investment.
           Operation of SBU #1
 Pricing Strategy: High end and keep increasing
  because of market demand and lost sales.
 Constant improvement and moderate more
  expense than industry average in:
      -Marketing Expenses
      -Operations Technology
      -Quality Budget
      -New Product Research
      -Human resource Budget
 Export Strategy : Start export to ASEAN (Area 2)
  in Period 4, based on competitive advantages
  already set up and little competition in ASEAN.
       Final Result (SBU #1)

 Capacity: from 3610 to 3710 units (3% )
 Book value: from $3500 to $3600 (3% )
 Export: area 2, 15.1%
 Sales: from $ 1879 to $ 2518 (34% )
 Cost of sales: $913(49%) to $1053 (42%)
 Profit: $198 to $426 (215% )
 SBU profit/sales: from 11% to 17%
            (All numbers in thousands)
      Operation of SBU #2

 Pricing Strategy: competitive in high end
 Constant improvement and moderate
  more expense than industry average in:
  -Marketing Expenses
  -Operations Technology
  -Quality Budget
  -New Product Research
  -Human resource Budget
        Operation of SBU #2

 Capacity expansion Strategy:
  - Constant moderate expansion based on
    market demand increase
  - Major expansion in Period 6 based on
    competitive advantage, lost sales and
    demand increase
 Export Strategy:
  - Export Area: MERSUR (4)
  - Capacity availability
  - Little competition in the market
      Operation of SBU #2

          Selling Price of SBU#2

600
580
560
540
520
500
480
      1   2       3         4      5   6
        Final Result (SBU #2)
 Capacity: from 4750 to 5225 units (10% )
 Book value: from $4253 to $4775(12% )
 Export: area 4, 15.7%
 Sales: from $2569 to $3239 (26% )
 Cost of sales: $1237(48%) to $1421(44%)
 Profit: $380 to $537 (41% )
 SBU profit/sales: 15% to 17%
            (All numbers in thousands)
      Operation of SBU #3

 Pricing Strategy: competitive in high end
 Constant improvement and moderate
  more expense than industry average in:
  -Marketing Expenses
  -Operations Technology
  -Quality Budget
  -New Product Research
  -Human resource Budget
        Operation of SBU #3

 Capacity expansion Strategy:
   - Conservative expansion from Period 1 based on
      market demand increase
   - sharp expansion in Period 2 based on competitive
      advantages and lost sales
   - moderate expansion in Period 4.
 Export Strategy:
   - Export Area: NAFTA (1) and MERSUR (4)
   - Capacity availability
   - Little competition in these markets
      Operation of SBU #3

          Selling Price of SBU#3

600
580
560
540
520
500
      1   2       3         4      5   6
          Final Result (SBU #3)
 Capacity: from 5415 to 6545 units (21% )
 Book value: from $5762 to $6355 ( 10% )
 Export: area 1 , 12.7%
             area 4, 12.8%
   Sales: from $3376 to $3603 (7% )
   Cost of sales: from $1631(48%) to $1594(44%)
   Profit: $362 to $514 (42% )
   SBU profit/sales: from 11% to 14%
                 (All numbers in thousands)
          Result (SBU level)

                SBU profit analysis

600

500

400
                                          SBU1
300                                       SBU2
                                          SBU3
200

100

 0
      1     2    3        4       5   6
       Result (SBU level)

                COGS percentage

0.49
0.48
0.47
0.46
0.45
0.44
0.43
0.42
0.41
       1    2        3       4    5   6
       Capacity Analysis

8000
7000
6000
5000                               SBU#1
4000                               SBU#2
3000                               SBU#3
2000
1000
   0
       1   2   3   4   5   6   7
                 Capacity Analysis

       Beginning Capacity                    Ending Capacity

            1 2 3                                1 2 3



                     3610, 26%                            3710, 24%
5415, 40%                        6545, 42%



                   4750, 34%                             5225, 34%
      Problem Areas

Cash management
Sales forecasting
Pricing
         Corporate Decisions

 Based on the SBU decisions
     Sales forecast
     Pricing
 Immature market
     Domestic
     International expansion
 Financial management
          Capital Structure

 Capital Needs:
   Expand capacity for each SBU according
    to sales forecast in 1st period
   Aggressively expand capacity of SBU#3 in
    2nd period
   Constantly Increase marketing, operation
    technology and new product research
    budget
   Human resource expenses
   Export & marketing abroad
              Capital Structure

 Decision Criteria:
      Increase shareholders’ value
      Not dilute EPS and stock price
      Keep reasonable D/E ratio
 Plan of action:
      Borrow 1000 bank loan in 1st period
      Borrow 400 bank loan and issue 2000 bond in 2nd
       period
      Pay back bank loan in the following period by using
       internal generated cash flow
                  Ratio Analysis

                         Debt/Equity Ratio

2.50

2.00                   1.94
           1.69                   1.67
1.50                                         1.51
                                                        1.21       1.13
1.00

0.50

0.00
       1           2          3          4          5          6
            Dividend Policy

 In 1st period, we kept the previous dividend
  level
 We decreased the dividend payment in 2nd
  period
 We decided to follow a constant amount plus
  extra payment policy since 3nd period
 We started by paying $.03 and kept increasing
  the level of dividend according to our operation
  profits increase.
           Dividend Policy

0.07                            60

0.06                            50
0.05
                                40
0.04                                 Div P/S
                                30
0.03                                 Dividend Payment
                                20
0.02

0.01                            10

  0                             0
       1    2   3   4   5   6
        Incident Report (E)

 New Advertising Campaign in Period 5
 Emphasizes our presence in the market
  in terms of growth in sales and profits.
 In major business publication and airline
  or-board magazines.
 Response: Key decision makers in major
  corp. are reached, smaller businesses
  are missed.
        Incident Report (F)

 New Business Tactics in Period 6
 Host a party and provide image building
  items in export areas
 Cost: $ 15,000
 Effective promotion
 Legal promotion
Performance Evaluation

DEEP BLUE
 INTERNATIONAL, INC.


Period 1 ----------- Period 6
                   Financial Statement
                                        ----balance sheet
Cash                        909    Accounts Payable             1220
Accounts Receivable        2808    Annual Loan Payment           767
Short Term Investment        0     Annual Bond Payment           190
Current Assets             3717    Current Liabilities          2177
                                   Bank Loans due>12 months     6903
Building & Equipment       21807   Bonds due>12 months          1712
Less Accum. Depreciation   7077    Total Liabilities            10792
Net Fixed Assets           14730   Common Stock                 4000
                                   Retained Earnings            3655
                                   Total Equity                 7655
Total Assets               18447   Total Liabilities & Equity   18447
                 Financial Statement
                                  ---- income statement
Sales Revenue                                 9360
COGS                                          4068
                             Gross Margin     5292
Operation Expenses                            3815
                         EBIT(SBU Profits)    1477
Interest Expense                              363
Other Expense                                  46
Income before Taxes                           1068
Taxes                                         320
Net Income after Taxes                        748
Dividends Paid                                 40
Retained Earnings                             708
                   EPS                        0.94
            Competitive Advantages
                   SBU#1           SBU#2           SBU#3

marketing          168      153    225      184    192      241

operation tech.     91      115    123      135    145      153

new product         79       81     96      135    119      136

sales person       2.5        3      2        2    2.5        3

service person    1.75        2    1.5        2   1.75        3
employee
turnover rate     9.7%     8.4%   9.7%     9.0%   9.7%     7.7%

defective goods   2.4%     2.3%   2.2%     2.1%   2.1%     1.8%
                   Evaluation: Profitability

9500                           800                 57.00%                           9.00%
                               700                 56.00%                           8.00%
9000                                                                                7.00%
                               600                 55.00%
                                                                                    6.00%
8500                           500                 54.00%
                                     Total Sales                                    5.00%   Gross Margin
                               400                 53.00%
                                     Net Profit                                     4.00%   Profit Margin
8000                           300                 52.00%
                                                                                    3.00%
                               200                 51.00%                           2.00%
7500
                               100                 50.00%                           1.00%
7000                           0                   49.00%                           0.00%
       1   2   3   4   5   6                                1   2   3   4   5   6
     Evaluation: Stock Price

                        Stock Price


30

25

20

15                                                    Stock Price
                                              27.56
                                      23.15
10
                14.03     15.34
5
10.01    8.82
0
     1    2       3         4           5       6
             Evaluation: EPS

                   EPS vs. P/E Ratio

40                                     1
35
                                       0.8
30
25                                     0.6   Stock Price
20                                           P/E Ratio
15                                     0.4   EPS
10
                                       0.2
5
0                                      0
     1   2     3      4      5     6
         Evaluation: Returns

12.00%

10.00%

8.00%
                                 Return on Sales
6.00%                            Return on Assets
                                 Return on Equity
4.00%

2.00%

0.00%
         1   2   3   4   5   6
           Ratio Analysis

                    Current Ratio

4000                                1.80
3500                                1.60
3000                                1.40
2500                                1.20   Current Assets
                                    1.00
2000                                       Current Liabilities
                                    0.80
1500                                0.60   Current Ratio
1000                                0.40
500                                 0.20
  0                                 0.00
       1    2   3   4   5    6
              Strategy Adjustment

                       SBU1                 SBU2                 SBU3

  Period      Profit     Expense   Profit     Expense   Profit     Expense

    1          198        1681     380         2189     362         3014

    2          224        1753     222         2631     356         3795

    3          283        1771     395         2535     461         3577

    4          182        2077     423         2736     366         3507

    5          408        2006     549         2543     505         3199

    6          426        2092     537         2702     514         3089

   Total      1721        11380    2506        15336    2564        20181

Profit/Cost          15.12%              16.34%               12.71%
          Strategy Adjustment

 Initially, we wanted to strategically
  expand SBU#3
 Based on the profit/cost efficiency
  analysis, we change the strategy to
  follow a more balance expansion plan
 In the latter period, we reduced the
  capacity of SBU#3 by depreciation, while
  kept the reasonable operation budget
            Management Audit
           Performance Summary
 How many times the team have a zero cash balance,
    requiring an overdraft loan                    1
   How many times was there an excess amount of cash
    that was not invested                          5
   How many period did you have lost sales        6
   Total number of lost sales units               4449
   Total capacity for all SBUs in the last period 15480
   Total amount spent on market research          186
   What are your total profits                    4021
   What was your average stock price              16.49
Q&A




Thanks a lot!
Good luck in the real world!!

				
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