Steal Tight Co. Case Study

Executive Summary

Seal Tight Co. is a company of admiration. It has maintained a constant lead in the market for a whole 5 years. The company has worthy competition that should be given the attention that they deserve. An analysis of the company’s performance over the last five years has shown that 2012 was not a particularly popular year as sales declined together with profits. The competitors were not spared either. Otherwise the other years showed strong performance. The company sales and administrative expenses have sustained the same level over the years, something that should be reviewed to facilitate downward revision. Interests expenses have maintained a significant and steady increase. The source of this expense should be reviewed to determine if there is a revision that can be done, the same applies to depreciation expense.  

Table of Contents

Executive Summary. 2

Introduction. 4

Method. 5

Results. 6

Net Sales Growth Analysis. 6

Net Profit Change, Net Sales Comparison. 7

Expenditure Analysis. 7

Competitor Analysis. 8

Conclusions and recommendations. 9

References. 11

Introduction

Seal Tight is a company in the manufacturing industry. Over the period, the performance of the company relative to competition needs to be checked to assure the investors in this company that their wealth is performing as expected and within the market parameters. To do this the income statement of the company has been analyzed together with the sales records of close competitors of the company. The sales performance relative to various periods has been put on the scale as well as expenditure and profits. To be a fair judge, competition has been analyzed to ensure that deteriorating performance is matched with that of external entities to establish if there were uncontrollable forces in the operating environment. Towards the end, recommendations will be given to ensure that Seal Tight Co. is maintained as a market leader.

Method

This market research is a quantitative research design. The study has been structured around secondary data. The data has been extracted from the income statement of the company as well as market information regarding competition. Data regarding competition has been extracted from the respective companies’ annual reports. To effectively analyze the data, statistical software, MS Excel has been used to provide charts that will be probed to a point of making sound conclusions and recommendation.

Results

Net Sales Growth Analysis

From the Seal Tight Company income statement provided, sales data is explicit. According to Djukanovic et al. (2014), the importance of sales data analysis cannot be underestimated especially with regard to estimating sales for future periods as well as identifying inconsistencies in sales and reasons for such degenerative trend. The income statement has generously provided 5-year sales data. Over the years, it can be observed, net sales have been on an impressive and steady rise as seen in the graph below. From the Net Sales Change chart, it can be noted that sales have been increasing. In the year 2009, sales increased by 12.5%, 2010 by 6.67%, 2011 by 14.58%. However, It cannot escape our attention that sales for the year 2012 declined with a 3.64% margin from highs of USD 55Million to USD 53Million. As advised by Schoenberg et al. (2013), declining sales is an invitation as well as an alert to management that the company is slowly turning its course and it is headed for disaster if something is not done. Profits have been changing as follows,

Net Profit Change, Net Sales Comparison

As mentioned there above, sales increased by 12.5%, 2010 by 6.67%, 2011 by 14.58% but declined in 2012 by 3.64%. net profits on the other hand net profits have been behaving quite differently. In 2009, net profits declined by a 10% margin, in 2010 they increased by 33.33%, in 2012 they increased with a 2.3% and finally reduced by a whooping 51.13%. It can be established with a high degree of confidence that the correlation between sales and profits is very small. It therefore means that expenditures are critical in this case and their relationship with profits cannot be underestimated. Generally, a change in profits is moving in the same direction with a change in net sales except for 2009.

Expenditure Analysis

There are three levels of expenditure in the company; selling and administrative expenses, depreciation and interest expenditure. In general terms, it is conspicuous that selling and administrative expenditure has remained the same over the years indicating that it is somewhat fixed. Depreciation on the other hand seems to be increasing over the years, a similar behavior to interest expense. It is an indication of highly ageing assets that are financed by expensive loans. These two expenses are contributing significantly to the profit reduction. Going back to the Net sales and net profit change analysis, it can be related that sales have not been increasing steadily like there is a steady increase in expenses. As such, when there is a significant negative change in sales, the change in profits becomes highly pronounced.

Competitor Analysis

It can be unfair to the management of a firm to be judged solely based in the internal performance. Normalizing the performance of a firm can be achieved through the use of external performance. Competitors are necessary to give this reflection (Zhu, 2014). Metalmax Co.  and Superior Can Co. are fierce rivals to Seal Tight and their performace will indicate with certainty if Seal Tight is pulling its own weight. From the analysis there below, it can be established that Seal Tight Co. is the market leader. Over the period under focus, Seal Tight Co. has maintained a steady and strong lead over its peers. It therefore means that for periods like 2012 where sales reduced significantly, there were significant external forces that impacted the industry and such forces were beyond the control of the industry players. The competitors however seem to be breathing behind the neck of Seal Tight Co. Within time, if the situation is maintained the competition might come in strong and threaten or takeover the dominance of Seal Tight Co. The management of the Seal Tight Co. can be described as efficient in the maintenance of their position. They seem to have been deliberately employing strategies that have kept them floating over the period.

Conclusions and recommendations

Given the various the assessments and analyses that has been conducted there above, it has been established that Seal Tight Co’s performance is fairly good in comparison with competition. However, it does not mean that there are no areas of concern. The company has a wanting expenditure record which is largely fixed and on the upward trend despite the performance of the company in the market. Investors are often not interested in the standing of the company more than they are concerned with how their wealth is being multiplied. It therefore follows that the Seal Tight Co management need to focus on wealth (profit) generation as well as market performance.

To maximize profits, I recommend that the management of the company reign in on expenditures. It seems that the company has an increasing appetite for loans since interest expenditure is rising over the years. To add on that, it seems like the loans are spent on assets that are being depreciated using a method that us not fair to the company. The assets are being depreciated too fast. I would therefore recommend that management should review its depreciation policy. The sales and administrative expenses have maintained an all high position. It would be in the interest of the company to get a lean workforce so that the expenditure on this aspect gets reduced. Computer systems can takeover some of the roles that are done by personnel.

References

Brown, T. J., Suter, T A., & Churchill, G. A. (2014). Basic Marketing Research, (8thed.). Mason, OH: Cengage Learning.

Djukanovic, S., Milic, M., & Vuckovic, M. (2014, June). Data analysis and sales prediction in retail business. In proceedings of the XIV International Symposium symorg 2014: New Business Models and Sustainable Competitiveness (p. 76). Fon.

Schoenberg, R., Collier, N., & Bowman, C. (2013). Strategies for business turnaround and recovery: a review and synthesis. European Business Review, 25(3), 243-262.

Zhu, J. (2014). Quantitative models for performance evaluation and benchmarking: data envelopment analysis with spreadsheets (Vol. 213). Springer.