Question

1. The age of the warehouse is concerning. Replacing, renovating and/or updating would mean investing in the company. What type of financial management strategies should the CEO consider when obtaining financing for such a project? Who should they consider?

Spencer’s Outfitters: All Kinds of Clothing for All Kinds of People

As described in the introduction of the Spencer’s Outfitters case, there are many issues with the company as it learns to adapt to the changes and your team is busily working on business strategies to address these issues. Having completed Chapter 8 on Accounting and Chapters 9 and 10 on Finance, review the case preliminary information provided here and answer the questions below.

Sales: The sales curve of the division has started to flatten. Sales grew 27 percent in the five-year period prior to our purchase and only 14 percent in the last two years. This partly reflects heightened competition in the area.

Profits: Profits have been declining and are now in the lowest 20 percent of the industry. Last year the operation approached the break-even point. There are serious questions as to how to handle pricing.

Warehouse: The warehouse is the oldest in the company, and it is inefficient. It is a multistory building, which requires a great deal of elevator trips to fill any order. It is also 20 percent below the recommended size for the volume of business it handles. It would take $2 million to replace it.

Finance/Accounting: The accounting department is only now adjusting to our accounting policies. The division is solvent, but with declining profitability. Without an addition of funds to purchase new computers and software soon, the ability for them to come on-line with our accounting system will be totally impossible.   They are utilizing book and hold; assets are in excess of liabilities. But, with declining sales there is a lower cash flow. Payroll has not been cut; thus, the net income is lower.

Answer 1

financial management strategies to consider;

sales & profit ; sales is declining,as seen in the scenerio sales have fallen from 27% to 14% .

if the change is due to the increased competition in that particular area , certain strategies can be applied to increase sales . it includes reducing price compared to the competiters, introducing discount offers, introducing additional features etc... target pricing strategy can also be considered .in target pricing,price is set as the first step then a margin is decided , and then the cost is adjusted according to the requiremnts.

company may also consider pricing strategies like complimentary pricing, marginal costing,cost plus pricing etc...but the most suited pricing strategy to adopt at this situation is target pricing, thus the company can set a price above the breakeven point...

the company have recently reached the breakeven point, and this fact should not be avoided during setting the price, as this indicates the poor situation of the company.

obtaining finance;company may approach public by issuing shares , or may take loan from financial institutions and must consider its capacity to pay off interests and dividends.venture capital is also a good form to acquire finance in these critical situation.

finance/accounting; assets are in excess of liabilities , reason behind this may be assets are valued at book value .book values will always show higher amount than its real current price, so proper accounting management techniques should be applied to posting transactions.

warehouse;warehouse is in a poor condition.and it seems like the company cannot afford to or improve warehouse in this critical situation.so, proper inventory management is needed .different methods like FIFO,JIT,,prioritize with ABC,accurate forecasting can be used to proper inventory manangement.