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Key financial problems
The company is producing its goods at a very high cost that contributes highly to the low values in the amount of profit that is recorded. Over the past few years, the company has manufactured its products at a high budget; for example, in 2008 the total cost of the goods produced was 10,190 in contrast to the company’s sales, which were 14,162. As a result, the corresponding cash dividend amount has remained low within the consequent year, namely the amount of dividends issued with the gross profit of 3972,000 was 753,000.
There have been changes in the borrowing policy. The regulations that govern the rate of borrowings have been made tighter and more conducive for the borrowers (Cowan & De Gregorio, 2005). The company involves making technically complex industrial components and valves. These goods require high-level engineering technologies to achieve the required high quality. For this reason, the company’s production requires a great amount of investment to achieve the necessary conditions. Since the company might not be able to raise the needed amounts of money, it will settle on borrowing. The tight borrowing conditions are a challenge to the company since it is limited in terms of production due to the limited amounts of funds. The company’s financial strength also depends on the customers’ purchases.If purchases are high, the company is more stable; though, during the recent years, due to the tighter borrowing standards the company has not been in a position to sell many of its products as the consumers cut on their rate of spending.
Key issues or factors that need analysis
The type and range of goods that the company produces are a major problem that requires attention for determining the number of expected customers and the number of sales units the company offers.
The target consumers of the products are also an important issue to focus while analyzing the possible environment that could enhance the company growth.
The company should pay attention to manufacturing the variety of products in both design and quality aspects (Harvey, McLaney & Atrill, 2013). Different users of the products will be attracted by either the price or the quality of the products. Thus, the company should delve into making high-quality expensive products and low-quality cheap products. The labeling of these products should clearly show a difference between the two. The customers attracted by the product due to its high quality should have other product line than the customers attracted by low-priced products with lower quality. The variation in quality will make it posssible to reach all consumers who require both long-lasting equipment and short-lived equipment.
The company should increase its dependence on the local consumers. In the past years, the company has depended on 40% on aerospace and defense industries. Although these markets constitute a large percentage of the profits, the company should also widen its products range to incorporate more chain-end customers and retailers rather than the industries. The main reason the company should widen its market is a high amount of investments that it requires for manufacturing products of aerospace industry. If the company is able to vary its goods to focus more on the end customers, it can cut costs used for the production. The probable cut of the costs spent would reduce the amount invested in production while at the same time would cause producing cheaper products. The inexpensive goods would increase the market demand consequently increasing the profits.
The company should focus on cutting down its costs. Moreover, it should focus on other means of reducing its spending to make sure that the declared company dividends could be higher. The company should aim on measures such as acquiring raw material in bulk or reducing the operations cost (Bragg, 2010). Higher amounts of dividends would increase the investors’ trust in the company and, as a result, it would increase the market value of the company shares.