ESSAY Financial Performance and Health of an Organization Report Essay

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Financial Performance and Health of an Organization Report Essay

Financial Performance and Health of an Organization Report Essay

FINAL PROJECT MILESTONE THREE – Module Seven

Projections  

Projected Consolidated Financial Opportunities

Malibu is in a good position financially showing consistent gains over the last three years.  Historical data shows them growing almost 19% over the last three years for revenues and at almost 20% for gross profit (See Appendix A).  EBIT has also shown health gains and is up almost 27% over the last three year period (See Appendix A).  Using this historical data to show future projections assumes future growth will continue at this pace and does not take inflation into consideration.  There are many factors when projecting future finances and care must be taken to not read too much into one category.  Following historical data, Malibu is expected to increase revenues over the next three years starting with 335,523 for 2018, 398,651 for 2019 and 474,039 for 2020.  With increased revenues come increased costs of sales and we are projecting increases of those as well 245,006 in 2018, increasing to 290,553 in 2019 and 344,567 in 2020.

All of this will still lead to increased gross profits for the future three year span of 90,247 in 18,

108,106 in 19 and 129,500 in 2020.  All of this will be spread out throughout the three brands,

Malibu, Axis and Cobalt.  This will also lead to increases in EBIT with 57,030 projected for 2018, 72,392 in 2019 and 91,892 for 2020.  Please see Appendix A for further growth projections. 

All of these sales will lead to improved financial ratios showing an increase in the Quick Ratio from 1.08 in 2017 increasing to 1.72 in 2018, 2.26 in 2019 and 2.98 by 2020. This is also projected to increase the Current Ratio from 1.87 in 2017 to 2.24 in 2018, 2.81 in 2019 and 3.53 in 2020.  Malibu is also projected to improve on their inventory turnover showing increases from 8.67 in 2017 and improving over the three year period to 8.98, 9.31, 9.65 respectfully for 2018, 2019 and 2020. With increased profits Malibu will be better able to pay down their long term debts showing projected decreases in all three years from 53,403 in 2017 and decreasing to

16,311 by 2020.  They will also be able to decrease their short and current debt from 53,403 in 2017 and decreasing to 29,464 in 2018, 16,256 in 2019 and   Furthermore because Malibu’s philosophy has always been to not pay stock dividends to its shareholders, choosing instead to invest that money back into the organization.  Malibu is showing historical projections to increase investment in property and plant going from 24,123 in 2017 and growing 38% over the next three years to 33,300 in 2018, 45,968 in 2019 and peaking at 63,456 in 2020.  

Projections for best and worst case scenario

As discussed previously, if Malibu is able to include Cobalt in their vertical integration with Malibu and Axis there could be some big gains to be had for Malibu has a whole.  By being able to vertically integrate, Malibu will be able to cut costs on cost of goods sold which will show increased Gross Profit.  Also by vertically integrating Malibu will be able  to cut down on inventory costs.  In late 2016, Malibu announced it had entered into an engine supply agreement with General Motors for the supply of engine blocks, which they will marinize for use in its

Malibu and Axis branded performance sports boats with the agreement, running through 2023 (Malibu, 2016).  In a study done by Robert Buzzell in the Harvard Business Review he concluded that saving on vertical integration was directly related to the amount the company invested in vertical integration (Buzzell, 2014).  By his findings, companies that invested under

40% of their process could expect an 8% increase in net profits as determined by 267 companies

(Buzzell, 2014).  As the investment percentage goes up, so does the net profits reaped up to over 70% vertically integrated leading to 12% increases in net profits as polled by 314 companies in his study (Buzzell, 2014) (See Appendix for full breakdown). Using these figures for less than 40% integration which is where Malibu currently lies it would show an 8% increase in it’s net profits and using that figure an 8% decrease in cost of goods sold and inventories.  That would take the cost of goods sold from 206,599 in 2017 to 184,720 down from 245,006 for 2018 in our initial projection and for the three year period showing a decrease from 344,567 in 2020 to 147,668.  This would also have a positive on gross profits showing an increase of 150,553 in 2018 from the initial projection of 90,247 and for the three year period showing an 326,371 from the initial forecast of 129,500.     

Consequently, there is a strong case that without vertical integration that cost of goods sold will rise dramatically over the next three years due to President Trump’s recently enacted tariffs on chinese goods.  A lot of the electronics, aluminum and small cosmetic goods that go into building a boat are currently being sourced from China. Because of this there is a strong case that the cost of goods sold could go up.  Using a conservative figure of 3% increase in the cost of goods sold, there would be a dramatic effect on gross profits.  Initially projected gross profits of 90,247 in 2018, these would decrease to 84,048, in 2019 the decrease would be from 108,106 down to 93,212 and for 2020 from 129,500 decreasing to 102,656.  

Discussion of finding

Every effort has been made to make these forecasts as accurate as possible.  Using historical data to help predict future and trends and using real world based research to help predict changes in future innovations and how they would affect the organization.  While every effort has been made to make these forecasts as accurate as possible, the world is a mysterious place and anything is possible.  While we wholeheartedly agree with the forecasts, changes in consumers tastes could have an impact on future revenues.  Even a simple 2% decrease in total revenues would have a drastic impact on the company’s bottom line. That would amount to still posting a profit in 2018 but showing a loss in 2019 of 19,781 and in 2020 79,210.  All within the realms of reason as we continue to fight for consumers discretionary dollars.  We have seen since 2008 recession that first time boat buyers are down.  Discover Boating, a public awareness effort managed by the National Marine Manufacturers Association on behalf of the US recreational boating industry has done a study that shows there are approx.a million fewer first-time boat buyers today than in 2008 (Haynes, 2018).  This amounts to a loss of $138 billion in lifetime value to the marine industry as a whole and show a 30 percent decline in first-time used-boat buyers and a 54-percent drop in first-time new-boat buyers (Haynes, 2018).  While we have seen increases industry wide, there is still quite a bit of work to do.

FINAL PROJECT SUBMISSION – Module Nine

Business Opportunities

Likely Investment Opportunities for the Organization

Based on your knowledge of this organization, what is a likely investment it would consider and why? Be sure to describe the basic features of the investment as a foundation for considering its potential financial impact.

Cost and Benefits of the New Investment

Evaluate the approximate costs and benefits of the investment you identified, explaining how they would affect your spreadsheet projections and business decisions. Estimates are sufficient but should be grounded in common sense and insight into the organization.

Impact on Budgeting Decisions

How does the potential investment affect budgeting and related business decisions? For example, does the investment involve significant cash spending this coming year, followed by benefits in the following year? How might that affect short-term and long-term spending priorities? Does the benefit outweigh the cost?

Executive Summary

Clearly and concisely summarize your principal findings, projections, and recommendations as a manager with an eye to persuading busy executives to support your ideas and to read further. Provide your intended audience with a solid but brief sense of the parameters of your analysis and who you would consult in refining it further, and why. Remember that your goal is to convince readers of the validity of your observations while recognizing limitations that affect business decisions.

Financial Performance and Health of an Organization Report Essay