Question

Select a company which is located where you live. Briefly describe its business then identify what you believe is its most significant business risk. 
Using the company you selected for the discussion forum, perform a very brief strengths, weaknesses, opportunities, and threats (SWOT) analysis. Please identify what you believe to be the company’s primary strength, weakness, opportunity, and threat.

Select what financial ratios or measures you believe are most useful in identifying this business's risks. What would you look for (in the financial ratio/measurement) to know the business was/is at risk?

Answer 1

I live in Maharashtra and this state is known for its sugar production. One of the major company which is into sugar production in this state is 'Renuka Sugars'. Renuka Sugars buys the sugarcane from the farmers, crush the sugarcane and prepare sugar by processing sugarcane juice. This sugar is then sold in domestic market and also in the international market.

Business Risk: One of the major risk company faces is the availabiiliy of the sugarcane. Many a time it happens that company is not able to buy enough sugarcane due to less production and it result into less capacity utilization for the company which affact its profitability.

SWOT Analysis:

Strength: Renuka sugars is one of the largest sugar manufacuring company in the state of Maharashtra. Beacuse of its large size, company has been able to enter into long term contract with many farmers for purchase of sugarcane which helps company to avoid the price volatility.

Weakness: Company faces very frequent employee agitation primarily beacuse it hires mostly cotract workers who demands permanent status.

Opportunity: Company is very much dependent on farmers for its sugarcane availabilty. It can do backward integration and start producing sugarcane in the states where governement is giving subsidies.

Threats: Major threat company is facing from the global market. Brazil is the largest sugar producing country and if there is more production in Brazil, sugar prices at the global level goes down and it affact company's export earnings.

Financial Ratios: Major financial ratios to look for is Debt to Equity, Current Ratio and Working capital cycle of the company.Sugarcane harvesting season starts from the month of november and lasts till march. So for these four months company has to buy the sugarcane and store it. For buying sugarcane company need to borrow funds and company will have higher debt to equity ratio, lower current ratio and higher working capital analysis.