StratSim Group Audit Report
Smit Chotai, Darius Demello, Jason Hylton, Yudav Rambali, & Aya Younus
MGMT40000D: Strategic Management
Feb 22, 2022
Executive Summary (Aya)
Performance to Date (Smit)
The performance has been changing in the past 3 years, in different segments such as market share, sales, net income, inventory., etc. Let’s focus on each segment individually, there was a significant growth in the sales of the company, though it dropped below 22.5k in year 1 it ended up at 32.5k in year, which is in sync with that of the competitors. Talking about the market share we lost it in the year 1, however coming over to the year 3 we were 2nd in the race to earning high market share, which is due to fact of offering high number of cars that were of high quality. We sold 1925 units in year 3 compared to year 1 of 1300 (approx.), this shift was due to the improvement in the production capacity and opening up more dealerships, reasons to the decision are mentioned in the below segments. Due to these reasons, there was a negative shift in the net income as we spent more towards the improving the car quality i.e., safety, design, etc., and plant capacity, results to which will be showed in the future years. To add to these expensing was the production to the new car in the market in the following year. Furthermore, we had a high debt to equity ratio from year 2 to year 3 meaning that we got more debt to fund our expansions and new production that was worth much.
Decisions: What and Why (Darius)
Year One
During the first year, our group was willing and able to take risks. As a group we decided to issue 3 million shares at a rate of $32.99 which totalled approximately $89 million in additional cashflows in addition to the $1.2 billion made in the fiscal period. The reason we made these decisions was to increase our liquidity in case we needed to make any large capital expenditures in future periods. The second decision the group made was to build 30 new dealerships. This increases our geographical footprint in all directions in order to sell more cars. The third decision the group implemented was to focus the safety aspect of our economy car, the Cameo. All the members in the group found safety to be important and wanted to take advantage of that attribute. The group also decided to do a full refresh of the Cameo. The reason we decided to implement this decision was because we identified an opportunity in the economy space, and as such we decided to focus on creating the best car in the segment.
Year Two
In the second year, the group reviewed the previous sales and noted that they were selling more than we can produce. This information was useful to us because it showed us that we could increase our prices and still be able to sell our cars.
The second decision was an addition to our previous year’s decision. Since the addition of the dealerships had a positive effect on our sales in the last fiscal year, in this year’s decisions we also decided to increase the number of dealerships so we could continue to grow our coverage.
The third decision in the second year was to build a new luxury car. This decision will help the company to enter the luxury market industry. The reason we made this decision was because there was an opportunity in this market and no other company had entered the luxury market. Since we were constructing a new car in the fiscal period, this required us to construct a new Research and Development center for the new luxury venture that we were pursuing.
Year Three
In the third year, our company decided to entyer the electric vehicle industry. The reason this decision was made was because the group was thinking about future gas prices. Per the past years’ analysis, gas prices were increasing on a consistent basis. One other competitor had introduced the electronic vehicle and our company saw this as a good opportunity to enter into the electronic vehicle (EV) market. The second decision in year three was to increase our overall manufacturing capacity by 500,000 units as we were experiencing a shortfall in our ability to manufacture enough cars to meet demand.
SWOT Analysis (Jason)
STRENGTHS WEAKNESS
Plant Utilization: Our firm has the best manufacturing turnover in the industry.
Marketing and Reach: Strong marketing and precise dealership development led to a strong market presence and a significant market share in the industry.
Innovation:
Preference: A low firm preference in the industry may affect future sales.
Stock Price: Our firm has the lowest stock price in the industry, which will affect our investors’ confidence, deterring them from investing.
Product – Economy Car Cameo: Our firm invested in developing our economy vehicle. Though we have the strongest product in the economy market, it’s shown to have a small revenue turnover.
OPPORTUNITIES THREATS
Luxury Market: Our firm will be introducing a luxury vehicle to capitalize on the unexploited market. Our introduction into the market means we are the sole product provider.
Electric vehicle: Introducing this new product to a new market shows our firm is proactive. Our long-term plan predicts this vehicle will replace our economy vehicle Cameo. Dealership Ratings: Low dealership ratings could be from poor service and product quality. This may discourage customers from returning in the future.
Market Value: A low market value and shareholder return will discourage investors from investing in our firm.
Strategy Moving Forward (Yudav)
Moving forward there are a number of changes our company will be making to in effort to change the company’s trajectory. Firstly, from a financial perspective we will better our leverage ratios. In year 3, our company took on more debt in effort to expand our production capacity and develop an electric vehicle. As such, out debt to asset ratio was 1:1, which means we were able to meet our debt obligations, however, we endeavour to increase this multiple to 3:1 it would mean we can better leverage our use of debt to expand the company whilst making the company more attractive to potential stockholders as our assets outweigh our long-term debt. We plan to achieve this over the next 3 years. To do this, we will keep out vehicle production in line with our capacity limits so that we are not using debt to meet our production goals. Additionally, as of year 4 we will be initiating a stock buyback program as our current stock price is undervalued. This initiative is designed to help boost the short-term stock price of the company and we will prepare to sell a large number of shares in either year 5 or 6 to boost our assets. Moreover, we will immediately begin instituting moderate price increases throughout our product lines, as we strive to concentrate our business on higher margin vehicles and moving away from our previous strategy of relying on solely on sales volume.
Looking at our opportunities in sales and marketing, we are excited about the unveiling of two new vehicles to our lineup. In year 4, we will be launching the Caviar, our luxury flagship car. Our market scan shows that we will be alone in this space, and we are looking forward to serving the currently neglected market of high earners. In year 5, we will be launching the Cesla – our electric vehicle. The Cesla will cater to our customers that our becoming more environmentally conscious and sensitive to the ongoing increase in fuel costs. To support both of these launches, we will continue to increase our marketing spend by 10% year over year. As well, we will continue to increase the budget for the training and support of our dealership network by 10% ever year. We are committed to creating the best dealerships augmented by the best staff in the industry.
Projected Performance (Aya)
– Less units sold, but higher margins per unit, overall higher net profit margin
– Increase in cash flow
– Increased efficiency in manufacturing
– Increase in earnings per share/net income/dividends per share
– Increase in stock price by 100% over 3 years
References
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