Stockholder Report for Bike's Nouveau, Thesis of Business Accounting

Download Stockholder Report for Bike's Nouveau and more Thesis Business Accounting in PDF only on Docsity! STOCKHOLDER REPORT – Bike’s Nouveau 1 Stockholder Report for Bike’s Nouveau MBA IT Management Capstone- Task 2 Student Name Student ID: STOCKHOLDER REPORT – Bike’s Nouveau 2 A. Balanced Scorecard 1. Cumulative Balance Scorecard submitted as separate attachment 2. Conscious Scorecard submitted as separate attachment B. Stockholder Report A Stockholder report is essential for corporations of any size as they reflect the achievements, disclose financial well-being, and highlight plans of the company to its shareholders. With a robust stockholder report, shareholders can find information important to them such as the financial health of the company, information on the company’s research and development, and information on the plans for new product releases. Shareholders utilize this valuable information in their investment decisions. The following stockholder report is presented to the board of directors and the stockholders of Bike’s Nouveau. This report justifies the business decisions made throughout the six-quarter business simulation. This report also evaluates the current state of the company in all functional areas. The financial well-being of Bike’s Nouveau is reported as the stockholders have a right to access the information regarding the overall financial state of the company. Included in this stockholder report will also be information on the marketing and products as stockholders are interested in getting information about the company plans to launch about new product launches. This is crucial information since it provides insight into the company’s productivity for future aspirations. The company’s marketing strategy illustrates the capacity to identify potential customers for both new products to launch and the current products offered, identify markets to expand into, and offer products to the newly identified markets. The STOCKHOLDER REPORT – Bike’s Nouveau 5 was made to increase the budget to coincide with the release of new products to the segments and the expansion to new markets. The expenses for intern marketing were $3,000 for Q3 and a decision was made to increase this to $55,000 in Q4 and again to $114,000 in Q5. This decision was made to increase our presence on the internet and to market the release of new products to their respective segments. The goal of the decisions to the advertising and marketing budgets was to improve our Ad and brand judgement, this is reflected in the increase demand and sales for Bike’s Nouveau. Technology Leadership Corporate Strategic Thrust Technology leadership drove the financial decision for Bike’s Nouveau to increase the available products to customer, including Brand Feature R&D Projects, which included Brand Feature R&D Expenses. As indicated in our Tactical Plan, Bike’s Nouveau released three new bikes to their respective segments in both Q4 and Q5. In Q4-Q6 there were Brand Feature R&D Projects to bring new technologies and features to our customers. Furthermore, the technology leadership strategy was the driving factor behind the financial decision to invest in R&D. The Brand Feature R&D Expenses were $872,244 in Q4, $1,524,293 in Q5, and $956,123 in Q6. The total R&D cost was peaked in Q5 with the total being 175% of Q4. The total cost then reduced in Q6 by 37%. The total expenses for last three quarters when compared to the first three is substantially higher but this was due no R&D being performed until Q4. Employee Empowerment Corporate Strategic Thrust Bike’s Nouveau utilized employee empowerment as a corporate strategic thrust that drove non-financial decisions. Prior to its inception in Q4, Bike’s Nouveau had a low satisfaction in its salary and compensation packages with a satisfaction of only 48.1%. A decision was made to increase the packages to that of the industry or above with the goal to STOCKHOLDER REPORT – Bike’s Nouveau 6 remain higher than the industry standards. According to a report in Q4, the worker productivity for the company was below 70% for staff and Bike’s Nouveau felt this was directly related to the compensation and salary packages offered at the time when compared to its competitors. To correct this Bike’s Nouveau made the decision to increase the salary and compensation packages in Q4-Q6 to remain above the industry average. Based on the Conscious Scorecard report for Bike’s Nouveau, we discovered that worker training was also considered a factor needing correction in Q4-Q6. Specifically, for Bike’s Nouveau to empower our employees, we implemented cross-training them to work on multiple tasks within their respective departments and training them to assist with departmental planning such as workflow issues. Bike’s Nouveau also trained employees on developing teamwork sills, including interpersonal skills, communication skills, and negotiation skills. Ensuring that the employees were well equipped with the training provided had an impact on several areas of the company, including the strategic thrust, and providing superior value add to the customer. With the employees having the right skills, they were able to meet the customer demands with quality services, thus increasing customer satisfaction. When a customer is a happy one, they become a high return customer and a top referral agent to the company, and this then influences the marketing strategy for Bike’s Nouveau. Furthermore, on the employee empowerment strategy, we identified that there was an increase each quarter in production with the increase to the salary and compensation packages. This resulted in greater sales and revenue for the last three quarters of the simulation. STOCKHOLDER REPORT – Bike’s Nouveau 7 High Visibility Strategy Corporate Strategic Thrust Bike’s Nouveau fourth corporate strategic thrust that drove non-financial decisions was high visibility. One way for Bike’s Nouveau to b visible in an operating market is through our corporate social responsibility(CSR). CSR implies that the company ethically conducts its operations, does no harm to the community that it serves, and gives back to the community. If a company adopts a good CSR, then the company will establish a long-term positive image and reputation for the company. Bike’s Nouveau utilized CSR standards and engagements to improve our corporate image, reputation, and increase our market visibility. When reviewing the conscious scorecard report you will see that Bike’s Nouveau made a conscious decision to address environmental concerns. The company made the decision to retrofit our production facilities to collect, store, and dispose of all chemicals used in the production of our products. We also implemented the creation of a “clean room” production facility by controlling the airflow with a super clean, reverse-flow, air ventilation and filtration system. Bike’s Nouveau also addressed employee environmental concerns by implementing protective clothing, respirators and gloves for the employees thus separating the employee from the chemicals. In Q5 Bike’s Nouveau made the non-financial decision to provide seed money to create a technical training school and then we would hire the students as employees of the company. In Q6 we made the non-financial decision to setup a grant program to supplement the learning experiences at the local schools. B.2. Decisions Made During Q4-Q6 Reflection Decisions I Would Change in the Simulation STOCKHOLDER REPORT – Bike’s Nouveau 10 Decisions That Had a Positive Impact on the Company Performance Conversely, two decisions that showed to have a positive impact on Bike’s Nouveau’s performance were employee empowerment and the continual increase to the sales personnel. Employee Empowerment Employee empowerment was ensured through increases in salary and employee compensation pages and worker training. Employee training started in Q4 has had an impact in the following areas: employee multitasking, development of teamwork skills, and departmental planning which is reflected in increased efficiency in the workflow. The employee compensation package alongside the training has motivated the employees to be more productive. Per the tactical plan, there were increases to production worker, supervisor, and average salesperson compensations. When comparing the conscious scorecard report, income statement, and cash flow for Q6 employee empowerment did create profitability for the company. When reviewing only the conscious scorecard the net profit reflects the following for Q4-Q6: Q4 $-1,188,763, Q5 $- 877,808, and $2,266,910. Even though for Q4 and Q5 the numbers are negative, they are not related to employee empowerment being the cause of the amounts. The issue was directly related to the company’s expansion, R&D, and system improvements decisions. But with that said, you can see in Q6 after the employee empowerment improvements completed when compared to Q3 before any of the improvements were implemented that there is a substantial increase to the net profit for the company. STOCKHOLDER REPORT – Bike’s Nouveau 11 Increase to the Number of Sales Personnel The decision made to increase the number of sales personnel had a positive effect per store on the demand and to the overall demand as well. The number of sales personnel increased from only 5 in Q1 to 52 in Q6. The increase in sales personal is reflected in the overall increases to revenues each quarter and increases to the unit demand of each salesperson. Sales in Q3 reflected a total of $915,450 and peaked in Q6 at $11,058,280 with gross margins in Q3 of $558,220 and Q6 of $5,835,151, with out the additional sales staff the amount of sales revenue in Q6 would not have been achievable. The unit demand of each salesperson started at 158 in Q2 and peaked in Q6 at 221. This unit demand had a direct impact on the projected demands as well as projected revenue for each quarter for Bike’s Nouveau. With the increased number of sales personnel per store it can be implied that the sales staff had enough time to address inquiries from customers and as a result provided high levels of customer satisfaction. C. Financial Projections and Valuation Valuation of the company For Bike’s Nouveau Valuation, a reasonable price multiplier would be between 5 and 10 with us choosing 10 as the price multiplier and is based on the business analysis discussed in the business analysis section of the stockholder report. Bike’s Nouveau has an ability to generate cash flow and profit from its operations. Comparing the Bike’s Nouveau profitability ratio of 52.77 as it relates to the industry ratio of 59.05, we find that Bike’s Nouveau is only 6.28 point below the industry average. Even though currently this ratio is the lowest for the industry, Bike’s Nouveau is the highest in the industry for revenues of $11,058,280, gross profit of STOCKHOLDER REPORT – Bike’s Nouveau 12 $5,835,151, and net income of $2,266,910 compared to the industry averages of $6,926,157, $4,025,332, and $1,926,786, respectively. When comparing the performance of Bike’s Nouveau with the industry financial ratios, we find that the lowest total assets turnover is 1.19 and a high of 2.15 with an industry average of 1.49. With Bike’s Nouveau having its asset turnover radio that the highest of 2.15 it indicates that Bike’s Nouveau is efficiently utilizing the various operating assets in the balance sheet to convert them to sales or cash. This is the justification used when setting the multiplier to the upper limit of 10 for the valuation of the company. When reviewing the Income Statement for Q6 the earning per share is $39. We then simply multiply the multiplier of 10 by the projected stock price in Q6. Projected stock price in Q6 for Bike’s Nouveau = 10 * $39 = $390 The we divide the projected stock price in Q6 by the price investors paid in Q4 to get the estimated gain in value over the four quarters. Referencing the stock history report, we see that the price paid by investors for a share of Bike’s Nouveau stock in Q4 was $100. It then follows that the gain in value is: Gain in value = 100/390 = 3.9 = 390% For this case, the valuation of Bike’s Nouveau is based on the shareholder report where there are 50,000 outstanding shares: 15,000 shares in Q1, 5,000 shares in Q2, 5,000 shares in Q3, 25,000 shares in Q4, and 7,498 in Q5. STOCKHOLDER REPORT – Bike’s Nouveau 15 margin, and the company can cover its short-term liabilities. The liquidity ratio is also an indicator to the financial health of the company and a likelihood to face financial hardships. We start by noting that Bike’s Nouveau had no current liabilities for Q4-Q6 except for an emergency loan that was taken in Q5 and repaid fully in Q6. When calculating a liquidity ratio, such as the current ratio, which is the assets divided by liabilities, we will find that in the calculation we will be required to divide the current assets by zero, which is mathematically not possible. This inference is supported by the industry financial ratio where the quick liquidity test ratio resulted in a not applicable. So, in this case, we can conclude that Bike’s Nouveau simply had no debt obligations in the short term for the duration of the simulation. Activity ratio The activity ratio is utilized to measure Bike’s Nouveau’s efficiency to utilize its various operating assets from their balance sheet and convert them to cash or sales. Through the analysis of fixed assets, accounts receivables, and inventories the activity ratios are a useful tool in evaluating the operating efficiency of Bike’s Nouveau. As such, the activity ratio for Bike’s Nouveau is a financial health measure for the company as well as measuring the utilization of the components of the balance sheet. In simple terms, the efficiency ratio is utilized to measure the current and short-term performance of Bike’s Nouveau. When there is an increase in this ratio it is an indication that there is improved performance of the company. For Bike’s Nouveau we will consider the total assets turnover for Q4-Q6. The formula used is: Total assets turnover ratio = total sales / total assets STOCKHOLDER REPORT – Bike’s Nouveau 16 Below is a breakdown of the total assets turnover ratio for Bike’s Nouveau: Q4 Q5 Q6 Total Assets $ 3,751,328.36 $ 3,630,001.00 $ 5,147,159.15 Total Sales $ 2,804,030.00 $ 5,749,990.00 $ 11,058,280.00 Total Assets Turnover Ratio 0.75 1.58 2.15 When reviewing the above stated results, it is observed that there is an increase in the activity ratio, total assets turnover, from Q4-Q6. This indicates that Bike’s Nouveau had improvement in their performance through the quarters. When compared to the performance of the industry we find that the lowest asset turnover ratio is 1.19, the highest is 2.15, and the industry average is 1.43. As such, Bike’s Nouveau’s total asset turnover ratio is the industry’s highest with a turnover ratio of 2.15, this indicates an overall positive performance for Bike’s Nouveau in the market. With Bike’s Nouveau having the highest asset turnover ratio, it can be conferred that the company if utilizing its various operating assets efficiently in the balance sheet to convert them to sales or cash. Leverage ratio The leverage ratio for Bike’s Nouveau will determine the amount of capital in the form of the company’s debt and the company’s ability to fulfil its financial obligations. The leverage ratio is a measure of the debt for the company as it relates to its balance sheet. When a lower leverage ratio is indicated, it reflects that the company has few loans and that the company will be able to service debt using future cash flows. Companies often will utilize a combination of both equity and debt to finance their operations and firms must decide on the amount of debt to take on and evaluate their ability to repay those debts. A lot of debt can be harmful to the company and its investors if the company it not able to generate high rates of return on the loans when compared to the interest rates that STOCKHOLDER REPORT – Bike’s Nouveau 17 are accrued by the loan. A company having few debts may also raise alarms with investors as it may present the company with an inability to borrow money and would be an indication of tight operating margins for the company. For Bike’s Nouveau, we will use the debt ration as our leveraging ratio. For this, the formula utilized will be debt ratio = total debt / total assets Below is the table for Q4-Q6 debt ratio for Bike’s Nouveau: Q4 Q5 Q6 Total Assets $ 3,751,328.36 $ 3,630,001.00 $ 5,147,159.15 Total Debt $ 0.00 $ 0.00 $ 0.00 Total Debt Ratio 0.00 0.00 0.00 When reviewing the above table, we can conclude that the debt ratio for Bike’s Nouveau is zero, and asset purchases made by the company were made with stockholder funding and not funded by debt to the company. When reviewing the industry financial ratios, it is indicated that the lowest, highest, and average leverage ratios for the industry is also zero and this implies that Bike’s Nouveau is on par with the industry and in a position to fulfil its financial obligations. This is an encouraging indicator to potential investors looking to invest with Bike’s Nouveau. A second leverage ratio would be to compare Bike’s Nouveau’s debt to equity and this is accomplished by the following formula: total debt to equity ratio = total debt / total equity. With Bike’s Nouveau having zero debt for Q4-Q6, when dividing the total debt by total equity would also yield a zero for the ration total. If there is a higher debt to equity ratio, it would imply that the stockholders are not infusing the company with adequate equity to fund the company and this would result in Bike’s Nouveau having a higher debt amount in the form of loans. In the case of Bike’s Nouveau, with the ratio being zero, it indicated that the stockholders are investing enough capital in the company to run the business operations without the need for additional debt. STOCKHOLDER REPORT – Bike’s Nouveau 20 revenue, and profit generation. The overall performance of the gross profit margin also indicates that Bike’s Nouveau is generating stakeholder returns. Beginning and Ending Cash Position from Cash Flows The cash flow analysis for a company entails the analysis of various inflows and outflows of the company over a specified period from the activities such as investing, financing, and operating activities. Cash flow from operating activities For Bike’s Nouveau the beginning cash flow for Q3 was $1,156,022, in Q4 it was $1,300,091, $1,461,328, and ending in Q6 at $1. From the cash flows report for Bike’s Nouveau we observe a continual increase in revenues for Q3-Q6. However, in Q4 and Q5 we observe a decline in the net operating cash flow. This decline indicates that Bike’s Nouveau was operating under stress caused by managements decisions to increase R&D funding, increases in funding for system improvements, and advertising. The investments in Q4 that lead to the decline in net operating cash flow was an increase in R&D to $962,244, system improvement increase costs of $651,550, and advertising increasing to $620,152. The investments in Q5 that lead to the decline in net operating cash flow was again an increase in R&D to $1,614,293, system improvements increase costs of $729,963, and advertising increasing to $935,739. These investments for Q4 and Q5 were crucial for Bike’s Nouveau to increase the number of products to the market, encourage innovation, and increase the company image to the community, shareholder, and employees. STOCKHOLDER REPORT – Bike’s Nouveau 21 These investments in Q4 and Q5 did result in an increase to net operating cash flow in Q6 to the highest level of all quarters to $2,426,910 despite increasing disbursements such as production, rebates, and advertising in the same quarter. The increase in net operating cash flow for Q6 can be explained in the terms of the previous investments to the company in Q4 and Q5, increase of sales personnel, and the increase in revenue that was almost 50% higher in Q6 compared to Q5. The cash outflows for Bike’s Nouveau are justified since rebates on the products encourage customer new and returning to make a purchase nor and in the future. The outflow for production is justified as it was increased because of an increased in demand and the advertising increase is justified as it increased product demand and sales for Bike’s Nouveau. Cash flow from investing activities The beginning cash flows from investing for Bike’s Nouveau is as follows: for Q1 it was $720,000, Q2 was $0, Q3 was $480,000, Q4 was $1,200,000, Q5 was $1,440,000, and Q6 was $1,440,000. The cash flow from investing for Bike’s Nouveau resulted in a single activity, investing in the fixed production capacity for the company. In Q3, you will note that the cash flow from investing is zero, and this can be explained as the company felt that there were adequate resources to meet the demand. This was realized to not be the case and resulted in lost sales, this caused the company to then invest in fixed assets in Q4 and was understated which again resulted in lost sales due the failure to invest in Q3 compounded the issue in Q4. In Q5, Bike’s Nouveau was able to recover from this and ad invested enough to not have lost sales for this quarter. In Q6, Bike’s Nouveau, again had lost sales but I feel that it is due to a limitation in the simulation to no allow an increase in in fixed asset capacity above 48, which was the maximum STOCKHOLDER REPORT – Bike’s Nouveau 22 chosen for Q6 and the maximum available in the simulation. I feel that if in Q6 the fixed capacity was able to be increased above the limit of 48, there would not have been any lost sales for that quarter. Cash flow from financing activities The beginning cash flow from financing in Bike’s Nouveau was $1,500,000 in Q1, $500,000 in Q2, $500,000 in Q3, $2,500,000 in Q4, and in Q5 in the form of an emergency loan of $749,752. The cash flows in Q1-Q3 were in the corm of common stock from the executive team, in Q4 there was an increase from a venture capitalist investment in the form of a common stock purchase, and in Q5 an emergency loan from a financial institution. In Q6 Bike’s Nouveau did not have any cash flow from financing from the shareholders or the executive team. With there being no cash flows from financing in Q6 there were no further recorded transactions to cash flow from financing. When revieing the cash balance for Bike’s Nouveau from Q1-Q6, there is a steady increase in the cash balance up to Q5 and this is where the company decisions overexerted the funds available and resulted in an emergency loan of $746,752 having to be taken out. But as shown in Q6 the ending cash balance is again positive at $237,159 all while repaying the emergency loan in full. This reflects that in Q6 Bike’s Nouveau was once again working towards earning a profit for the shareholder. Three Decisions on Conscious Scorecard that Affected Company Performance The first decision to have a positive impact on Bike’s Nouveau profitability was to increase the salary and compensation packages for the employees. The increases for the salary and compensation packages start in Q3 and continued until Q5. In each quarter Bike’s Nouveau