STERLING HOUSEHOLD PRODUCTS COMPANY Case Solution
Hence, this step would increase Sterlingâ€™s sales and will also benefit the extension in Sterlingâ€™s product line of household goods.
All the financial information related to both companies have been provided. However, there are many other non-financial impacts on the company. Major non-financial information that would be required are the following:
- Rate of inflation and its impact on the current product line as well as the new product line has not been available. This information is needed to take the necessary steps that would save the company and its sales to be precautions before being taken to fight inflation.
- Which phase of economic cycle is running and in what phase the economy is surviving. If the company is facing loss in recession period, it will be retrieved after this phase but if the loss is in the boom period, the company has major threat and problem and itâ€™s very important for the Sterling to get out of this problem in the same phase.
- The benefits of acquisition are provided, but the risks included in this sector, especially in the company along with the costs related to the acquiring department are not provided. Hence, after the acquisition, many cost and risk related problems would be faced by the company.
The answers of the first two missing information will be provided by Sterling Company as the information is related to economy phases and its impact on the company, which will also determine the future of company. The last answer will be provided by the proposed company, Montagne Medical Instruments Company about the risks and cost related to the products and how to maintain their quality and growth.
These answers would impact Sterlingâ€™s analysis, its future growth and strategies that are being applied by the company. Also, the acquisition of Montagne will also be affected indicating whether the acquisition is worthy or not.
PLAN OF IMPROVEMENT:
Currently,company is facing financial issues that are making the company less profitable than before. Therefore, company has to take some major steps to improve this situation. Company should take the following steps:
- Company should focus on cost-cutting methods. The cost of goods is decreasing the companyâ€™s profit and therefore company is facing loss in respect with other competitors.
- Rather than focusing on acquisition, the current product line must be made better with increase in productâ€™s quality and costs, that will help the company to increase its sales and therefore, there will be no need of acquiring other companies.
- Company should focus on making its operations better and for this its operating costs must be minimized in order to make profits.
- Company should enhance its marketing strategy to fight its competitors. Due to aggressive marketing of competitors, Sterlingâ€™s products and its marketing is seen nowhere.
- Although acquiring a less risky and growing unit is a great opportunity for Sterling,however, company should focus on getting a permanent solution to this problem so that in the future, company wouldnâ€™t face this problem again.
EXHIBIT 1: STERLINGâ€™S HORIZONATAL ANALYSIS
|($ in millions except per share amounts)||2010-2011||2010-2012||.||2010-2011||2010-2012|
|Cost of goods sold||9.00||118.00||0.52%||6.77%|
|Â Gross profit||-11.00||23.00||-0.79%||1.65%|
|General, selling & administrative expenses||14.00||43.00||1.93%||5.92%|
|Research & development expenses||5.00||11.00||7.46%||16.42%|
|Â Income before interest and income taxes||-30.00||-31.00||-4.96%||-5.12%|
|Â Income before income taxes||-17.00||-24.00||-3.26%||-4.60%|
|Income taxes expenses||-7.00||-3.00||-3.93%||-1.69%|
|Â Net income||-10.00||-21.00||-2.91%||-6.10%|
|Earnings per share||0.01||-0.02||0.24%||-0.61%|
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