Group Case:

Timing Is Everything

MEMBERS:

ABELLO, SHERRY MAE

BOTEROS, CHANTELLE
POLANCO, MARIAN
SEVA, PEACHY MARIE

May 24, 2023

I. Brief Background of the Case

 Tom Brampton serves as president and chief executive officer of Advanced
Outboard Motors, a company that specializes in creating outboard motors of various
capacities for small to medium-sized boats. They are widely renowned in the industry
and have been in business for more than ten years. Even though their sales had
increased by 8% over the last year compared to the year before, Mr. Brash was now
worried to find that their net margin and earnings per share had decreased.

The level of monthly output policy, according to vice president of finance Matt
Snow, is to blame for the reduction in net margin and earnings per share. Despite
having a high season from May to August, he continued, their business appeared to be
maintaining a manufacturing rate of 600 motors per month. Inactive inventory consumes
capital, resulting in costly, unnecessary interest payments. Mr. Snow advised them to
give up their level production philosophy in order to align their monthly manufacturing
output with their anticipated monthly sales.

In contrast, Mike Cooper, the production manager, believed that Mr. Snow's
suggestions would have a negative effect on the company's operational effectiveness
and would actually result in additional costs for the training and orientation of employees
that they would hire during periods of peak production since they would have to fire
people during lean periods. Both of them have merit, as Mr. Brash has pointed out in
hindsight, so they need to come up with the greatest alternative that wouldn't jeopardize
the health of their employees and their obligation to their shareholders.

II. Point of View

To address the current problem facing Advanced Outboard Motors, the study
participants will take on the persona of Vice President of Finance Matt Snow. As a
result, we will be in charge of producing the crucial reports to help management find the
best possible answer for how to manage the production level and inventory of Superior
Outboard Motors.

III. Statement of the Problem

To address the current problem facing Advanced Outboard Motors, the study
participants will take on the persona of Vice President of Finance Matt Snow. As a
result, we will be in charge of producing the crucial reports to help management find the
best possible answer for how to manage the production level and inventory of Superior
Outboard Motors.

 If the corporation had adopted a production output policy that matched the
number of units sold each month, how much more would the company's earnings
per share have increased?
 What steps would the corporation take to boost its earnings per share without
lowering its level of output?
  Which solutions are the best for reducing their short-term debt costs and
generating the largest earnings per share?

IV. Areas of Consideration

The Advanced Outboard Motors' degree of liquidity

Liquidity is the capacity of an organization to convert its assets, such as

receivables, inventories, and investments, into cash. Selling assets with little liquidity
can be difficult, especially during the holidays when there is a shortage of inventory.
Because it affects how easily assets may be traded on a market, like a stock exchange
or a real estate market, liquidity is crucial for every firm. Due to the volume of
transactions, there is significant market liquidity on the stock market. Market liquidity
increases as the spread between the ask and bid prices decreases and decreases
when it widens. Compared to stock exchanges, real estate markets are typically less
liquid. Therefore, a company's liquidity should be considered when making business
decisions so that it has a variety of options in case of unforeseen occurrences.

Inventory turnover each month to assess liquidity

A valuable indicator of a company's capacity to shift inventory into sales is the

inventory turnover ratio. This indicator can also show if management purchases too
much or too little inventory, as well as how well it manages inventory costs. In addition,
inventory turnover can show how well a business markets its goods. A greater ratio is
often desired because it shows that a given amount of inventory generates more sales,
whereas a lower ratio may imply a decline in sales or a bad economy. It's vital to keep in
mind, though, that if there isn't enough inventory to fulfil demand, a high inventory
turnover ratio may occasionally result in lost sales. Inventory turnover ratios must be
compared to industry norms in order to assess how well a company is managing its
inventory.

Net Working Capital of the Company

A company's net working capital is something that you should always be aware
of since it shows how healthy its finances are and how well it can handle its immediate
financial responsibilities. A corporation must have sufficient net working capital to run
efficiently and prevent cash flow issues. For instance, a business can be forced to use
its working capital to meet costs and settle debts if it encounters unforeseen costs or a
delay in client payments. Lack of working capital may force the company to borrow
money or sell assets, which can be expensive and have an effect on the company's
long-term financial stability. It's critical to understand a company's net working capital in
order to evaluate its financial standing and make sure it has enough liquidity to satisfy
its immediate financial obligations.
Factors Regarding the Production Plan of the Company During Lean Months

To prevent the accumulation of extra inventory and to make the most use of
available resources, it is crucial to reduce production during the lean season. The term
"lean season" describes a time of year when customers are often less interested in a
company's goods or services. The risk of obsolescence or spoilage is increased if
production is maintained at the same level as it was during the busy season, which
would tie up working capital and storage space.

A business can avoid these problems and maximize the use of its resources by
reducing production during the lean season. In order to avoid overproduction and waste,
it might adapt its production capacity and staff to match the lower demand. This may
result in a more cost-effective utilization of resources sources by reducing production
during the lean season. In order to avoid overproduction and waste, it might adapt its
production capacity and staff to match the lower demand. This may result in a more
cost-effective utilization of resources. Additionally, by reducing output during the lean
season, a business may concentrate on other crucial tasks like streamlining procedures,
creating new goods, and training staff, all of which can make it more competitive in the
market once the high season resumes.

V. Alternative Courses of Action

Alternative Course of Action 1: Changing the production policy of the company

The largest net working capital over the aforementioned months was in
November, totaling $5,931,400, while the lowest was in February, totaling just $70,000.
A business usually has the financial resources necessary to meet all of its immediate
financial obligations if it has a sizeable amount of net working capital. A company's
overall operational efficiency is significantly influenced by its working capital, and a
higher level of working capital typically translates into higher operational efficiency.

Adapting the production strategy to the weaker seasons might assist a

corporation in a number of ways. It can aid in lowering the need for short-term
borrowing to fund idle goods, decreasing inventory build-up during slow months, and
raising overall productivity and profitability for the business. A corporation can also
optimize its use of resources and reduce waste by matching production output with the
number of units sold each month, which can lead to cost savings. Additionally, the
company can better control its cash flow and lessen its reliance on outside financing
sources by preventing an excessive build-up of inventory. Overall, adapting a
company's production strategy to the lean seasons can help it become more
competitive, perform better financially, and provide better customer service.

Alternative Course of Action 2: Advanced Outboard Motors could attempt to

reduce its Cost of Goods Sold, and other costs such as Manufacturing Overheads
to aid in the growth of Earnings per share.

A reduction in hiring and layoffs during months with lower forecasted revenues
may be necessary for the company in order to synchronize its manufacturing output with
expected monthly revenues. This plan may run counter to the company's usual policy,
but it is crucial to the company's health, according to analysts, to synchronize its
manufacturing output with expected monthly revenues. This plan may run counter to the
company's usual policy, but it is crucial to the company's health, according to analysts.
Spending out of control could lead to business closures and layoffs, which would be bad
for the staff. Stakeholders also use the financial accounts to evaluate the success of the
business. Their choice to invest in the company could be influenced by its low
profitability. The alternative technique comprises determining peak sales months,
increasing inventories during those months, and compensating for weak peak sales by
introducing new products. The profit margin and earnings per share should increase as
a result of this strategy.
 There are various benefits to lowering production and the cost of products sold
that might boost earnings per share. The company's gross margin may rise as a result
of improved gross margin, a lower cost of goods sold (COGS), and lower production
costs. In turn, this might increase the company's profitability and raise earnings per
share. Increased Sales Volume: A corporation may be able to increase sales volume if it
can lower its prices by lowering its COGS. Higher revenue and earnings per share may
result from this. A corporation can become more competitive in the market by increasing
its competitiveness and reducing its manufacturing costs. A corporation may be able to
expand its market share and boost its earnings per share if it can provide products at a
lower price point than its rivals. Efficiency Gains: Cutting manufacturing expenses can
increase the effectiveness of the production process. Increased productivity, decreased
waste, and decreased downtime can all lead to increased profitability and earnings per
share. Cash flow can be increased by reduced production costs, lower costs of products
sold, and increased cash flow. As a result, the company may have better financial
standing and have more chances for expansion and investment, both of which may
eventually result in increased earnings per share.

Alternative Course of Action 3: Advanced Outboard Motors will continue its prior
operation as it was.

The relative liquidity metric evaluates a company's capacity to meet its immediate
obligations. The following is a list of absolute liquidity measures supplied by Advanced
Outboard Motor:

• Cash Reserves of $918, 280

• Net Working Capital Current Assets - Current liabilities = $5,107,880 - $1,680,000 =
$3,427,880.

Relative liquidity measures of Advanced Outboard Motors are as follows:

• Current ratio = CA/CL=5,107,880/1,680,000= 3.04 times

• Quick ratio = (CA-Inventory)/CL = (5,107,880-4,060,000)/1,680,000= 0.62x
• Cash ratio = Cash/CL = $918,280/1,680,000 = 55%
• NWC to TA = (CA-CL)/TA = 3,427,880/18,260,000 =18.77%
• Interval measure = CA/Average daily operating costs = 5,107,880/(Cost of goods
sold+Overheads) = 5,107,880/(24,969,600/365) = 75days

Despite the fact that most of the company's current assets are locked up in inventories,
it appears to have adequate liquidity. Being able to meet current obligations is implied
by the company's ability to have a sizeable quantity of working capital. In the event of a
strike, the business can resume regular operations without endangering its financial
situation within 75 days. The corporation can nonetheless satisfy its obligations despite
its limited ability to pay creditors with cash-generating assets. The company's current
and cash ratios show this. As a result, it is anticipated that the corporation will continue
to run similarly to earlier eras.

V. Conclusion, Recommendations and Action Plan

CONCLUSION

Because timing can have a big impact on a company venture's success or

failure, it is important in business. Getting the timing right can often mean the difference
between success and failure. It might be claimed that achieving the perfect rate of
advancement requires more than just measuring time or speed; rather, it necessitates
identifying the ideal period when available resources and market conditions coincide.
High inventory levels during sluggish months and high interest rates brought on by
short-term borrowing to finance idle goods hurt the company's profitability. The
regulatory amount of monthly output, which led to surplus inventories, was the basis of
the issue. Even if it has an impact on the workplace and employee mood, the company
can increase profitability and decrease the need for financing inventory by matching
production output with the number of units sold each month. Although a change in
policy will be necessary, the organization will ultimately benefit from it. Only from May to
August does the company's product reach its peak; thus, they must change their
production levels to find a solution.

RECOMMENDATION

In order to increase the company's earnings per share (EPS), the group chose to
employ ACA 2, which contends that the best course of action may be to reduce the cost
of goods sold as well as other costs like manufacturing overheads. Even if the company
sells the same amount of stuff, paying less for the goods could result in higher gross
sales and more profits. Additionally, lowering overhead ratios helps business owners
stand out from the competition. The company will be able to sell its goods for less as a
result, making it a more alluring choice than its competitors. A business may be able to
increase earnings per share with less overhead, which would result in a bigger profit
margin. The bottom line is that a company's perceived profitability increases with its
EPS. A higher EPS indicates more value since shareholders would pay more for the
company's stock if they thought it had better earnings in comparison to its share price.
ACTION PLAN

The group's action plans contain a variety of alternatives. Utilizing less expensive
materials, reducing waste in the production and supply chain, and researching ways to
reduce the price of material storage and transportation are the initial steps. The second
piece of advice is to persistently negotiate over the cost of any supplies you buy. If the
business is unable to negotiate a price reduction, it should then strive to get further
benefits like free or reduced shipping. Creating purchasing cooperatives with other
companies in the same industry is an additional choice (larger orders, better prices).
Moreover, outsourcing manufacturing to a country with cheaper labour and material
costs than ours is the company's last-ditch effort to reduce the cost of goods supplied.