Bargaining power of suppliers

The bargaining power of suppliers is high as there are less number of suppliers near to the company’s location and this fact increases the bargaining power of the suppliers.This means that the terms of the suppliers would need to be accepted even if they increase their prices Furthermore, the company assembles the products rather than manufacturing them so they have a high level of dependence on the suppliers and this also increases the negotiating power of suppliers.

Threat of new entrants

The threat of new companies entering the market is low due to technological barriers and cost knowledge which makes if difficult forthe new companies to enter the industry. This acts as a barrier for new companies as those companies would not have the technological advancement combined with the knowledge but the new companies might enter the industry by diversifying or investing a huge amount on the knowledge and technological advancement required

Threat of substitutes

There is a high level of threat of substitutes as there are many things which can be used in the replacement of the Pc such as smartphones, tablets and sometimes the substitute products are cheaper than the pc.Industry rivalry

There is a high level of industry rivalry and the existing companies are fighting over the prices and profit margin ,whereas there is little or no differentiation in the products being manufactured which makes it difficult to compete in the industry. (Dudovskiy, 2015)

Problem identification

The company is experiencing problems in the profitability, liquidity and working capital management. As the company’s profitability is not as good as it used to be and the company has achieved a loss of $36 m in 1994, this shows that the company is not effective enough to generate a sufficient level of profit. The company has further suffered some liquidity problems and it can be said that the company shifted its focus to liquidity because it wants to improve the liquidity position and in addition to this, the company further wants to manage the working capital more effectively than it is currently being managed.


The company has a gross profit margin of 32% in 1992 and 20% in 1996. This shows that the company’s gross profit margin is decreasing day by day and the company’s cost of sales is increasing which means that the company has failed to control its costs. This shows the inefficiency of the company and theinability to convert the sales into the gross profit margin efficiently.

The net profit margin of the company is 6% in 1992 and 5% in 1996, this also shows a decreasing trend.The company’s net profit margin is volatile and hence the profitability nor increasing or decreasing. This is due to the fact that the operating expenses of the company are also increasing in line with the increase in the sales revenue of the company and this leads to majority of the sales revenue being lost by the company as operating expenses rather the company should have a strict control over the operating costs,On the other hand, a budget can control the costs of the company and to compare the performance of the company and the variance can be investigated and improved in the next month or quarter.

Operating expenses

The operating expenses are expressed as a % of sales and the operating expenses are 24% in 1992 and 13% in 1996 which shows that the company’s operating expenses decreased as the sales increased, so the percentage decreased because of the huge amount with which it is compared. (Peavler, 2017) See Exhibit No 1


The liquidity of the company can be evaluated using the current ratio and the acid test ratio.

The current ratio of the company is 1.95:1 in 1992, whereas the current ratio of the company is 2.08:1 in 1996 which shows that the company has a better liquidity position in 1996.

The quick ratio of the company is 1.54:1 in 1992 and the quick ratio is 1.63:1 in 1996 which shows an improvement in the liquidity position of the company over the years.

The cash ratio of the company tells about the cash available to the company which can be used to pay for the current liabilities immediately. The cash ratio of the company is 0.01:1 in 1992, whereas the cash ratio of the company in 1996 is 0.06:1 which does not show a good position of the company overall, However, the company cannot pay for all the liabilities in cash and it will take time to pay for the liabilities, so that the current assets can be converted to cash. See Exhibit No 2

Working capital management

The cash conversion cycle in days was around 48 days in the first quarter of 1993, whereas the cash conversion cycle became 40 days in the last quarter in 1996 this shows a good improvement.

The day’s sales in inventory in the first quarter of 1993 are 40 days, whereas the days have been reduced to 31 days in the last quarter of 1996. This shows the days it takes to convert the inventory into sales and an improvement can be seen here.

The days sales outstanding are 54 days in the first quarter of 1993, whereas the days have decreased to 42 days in the last quarter of 1996 and this shows the average collection period of the company from its customers. (Bragg, 2017)…………….

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