Cases in Financial Management Essay Example for Free

Cases in Financial Management EssayCase schemaFounded in 1984 Laurentian Bakeries Inc. ope range in the industry of manufacturing a vast variety of frozen baked products within their iii in operation(p) builds in Montreal, Winnipeg and Toronto. The operating plants produce items such as frozen pizza in Winnipeg, MB, pies in Montreal, QC and Cakes in Toronto, ON- with each representing 30%, 30% and 40% of the total revenue stream respectively. The buyers for this social club include grownup institutional clients such dominos pizza, etc. which birth a signifi crouptly high direct of power whereas the seller of the products consists of several provender producers which lay down a relatively low level of power. With the cost of setting up a plant of this scale being high, substitute products allow for excessively remain high in the securities industry causing the general profit margin to be low. With the comp eithers ongoing effort for continuous improvement Danielle Knowles (VP of operations) proposed to throw a fit one of the operating plants in Winnipeg-which was base on the fortune if the company scattered into the U.S. marketplace.StatementThe statement of the problem is how Danielle Knowles will prep be a metropolis project expenditure proposal to expand the companys frozen pizza plant in Winnipeg which is consistent and in line with the companys capital allocation policy. The proposal should in like manner satisfy the companys continuous effort for improvement, identification of lost opportunities, satisfaction of HR and environmental impacts and provide sufficient ROI.Situational compendThe strengths of the company are clearly visible through the companys effective operations and reputable image in the industry. Being one of the top five in the industry, Laurentian Bakeries has established themselves as a dominant player in the market however, with a shortage in capacity it mountainpotentially overpower the strengths due to its negative impact on the company. This includes a reduction in sales and potential decreases in retailer support.Nevertheless, with the acknowledgement of a capacity shortage and an opportunity to expand and grow in the U.S. market the company seems to be in good standing. Moving asunder to a different area amongst the competition, all the products are similar which indicate there is heavy competition. The front line of numerous suppliers makes this industry highly competitive, as a result, there is high aggression amongst competitors. This is a jumper lead factor that indicates this is not an attractive business to be in.SWOT ANALYSISStrengths* Danielle Knowles has experience in the food industry for 13 years. This is a great benefit for the company, because she is able to use her knowledge and experience and wear it for Laurentian Bakeries in order to improve operations or even avoid errors. This in return can potentially save the company from incurring excess expenses. * Dani elle has her Masters in Business governing body which indicates that she is educated and has the credentials to maintain her position as the VP of operations. Also, Danielle is able to use that knowledge and apply it to everyday operations of the company. * Laurentian has above average consideration for human resource and environmental impacts.This benefits the company to the extent that it creates a public awareness which shows their commitment to the community which in return can potentially be use as a marketing tool to attract more sales. * Laurentian company is one of the five full-size firms that produce frozen foods dominating 21% of the market. This indicates that they are a dominant player in the market and have survived many difficulties from various competitions. * Well established and profitable company which indicates that they have survived one entire economic cycle and have withstood their competition. * The company has a diversified revenue stream with three oper ating plants located in major cities which are not as risky as a wizard revenue stream. * All three segments are profitable.* Low cost pizza producer which is helping to expand into the US. Market.* Laurentian Bakeries has an integrated workforce such as sales, marketing, etc. for all of their operating plants.Weakness* Shortage of capacity. If this weakness is not dealt with the company can face losses in their sales because of the shortage. This in return lowers the overall profit of the company and can potentially decrease buyers if they cannot meet the demand due to the shortage. * Class 1 products are too risky and by taking such a great risk any wrong doing can have a negative impact on the company.Opportunities* Arrangement to supply braggart(a) U.S. based grocery chain with private label brand. If the opportunity is taken to its gain the company can potentially see higher figures in sales and profits. * Since U.S. pizza consumption is 3x bigger than the Canadian segment the overall US market is bigger which can potentially lead to a higher market share. * Within N.A. the economy is recovering modestly and is expected to grow. This indicates that consumer spending on discretionary items such as food products will remain strong. holy terrors* Inflation is forecasted to remain between 3-5%. This may cause interest rates to rise causing the cost of capital to increase higher than its current level. Capital projects such as expansion may suffer. * North American growth rate of gross domestic product slowed deck which may lower the company sales. * Threat of new entrants will increase competition and is always a factor that makes the sales aggressive. * Health Conscious consumers will potentially affect sales due to the products offered by Laurentian Bakeries are considered unhealthy. With on-going health awareness the products offered by Laurentian Bakeries might not meet the changing demand of consumers. porters beers Five ForcesBuyers Power* Mixed P ower.* There are two types of buyers large institutional buyers such asdominos pizza pizza pizza as wellspring as large retailers. Thousands of smaller clients have less power because of their current low clientele base. supplier Power* Low Power.* pizza suppliers distribute production to pizza stores, restaurants and grocery chain stores. Since there are numerous suppliers in the market for ingredients such as cheese, flour, vegetables, etc. they have low power.Barriers to Entrant* last* Due to high capital costs, skilled workforces, environmental regulations, high distribution channels, entry into this industry is high.Threat of Substitute* High* The products offered by Laurentian such as their Pizza can be made at home or even purchased fresh from fast food restaurants. Also they can easily be substituted for other products such as calzone, sandwiches, tacos, etc.Competition* High* There is high competition for the items offered by Laurentian Bakers. Competition for their pizz a baked items can easily be substituted through franchised restaurants such as Pizza Pizza, Boston Pizza, Pizza Hut, etc. also competition is high through other companies offering the analogous goods. In addition, this company is also competing against other food products rather than frozen pizza alone.Financial AnalysisFinancial SummaryLaurentian Bakeries is seeing a money increase from $6.2 million in 1993 to al virtually two-fold its value of $13.1 million in 1995. At the same time long term debt for the company has increase by $7.23 million which indicated that Laurentian Bakeries is funded by its long term debt and has not utilized itscash and therefore has incurred additional interest expenses. Moving over to the sales figures, Laurentian Bakeries has seen an increase of 11% from 1993-95 however, net income is flat which indicates that their COGS and operating expenses have also risen almost at the same pace as sales. This setback has no advantage to the shareholders.Altern atives1. Continue original plans to continue expansion in Winnipeg.2. Build a plant in U.S. to add to that market.3. Buy an existing plant.4. Expand the Toronto plant as it is the strongest plant for the company.RecommendationsBy carefully analyzing all the alternatives, we remember alternative one as the best fit solution to this company due to it being most practical at the companys current situation. We strongly believe that continuing original plans to expand in Winnipeg is the beneficial solution for the company as they already produce the same type of products and have the additional land to carry forward the expansion, because this plant is a low cost producer and is paragon to utilize the U.S private label sector. In addition, this alternative is beneficial because it is consistent with the companys overall objectives. Given the discount rate of 18% and a $5.2 million capital investment the NPV of the expected cash flow is positive.Moreover, recommendation one is the best suited for this company because * There is land readily open in Winnipeg. This can save the company some money in terms of the expansion because these will incur less of an expense due to Laurentian owning the extra land space. * Building a plant in U.S. will require a lot of capital, additional expenses for hiring, training, etc., and potential change in production, management or other techniques due to different regulations in U.S. * Expanding in Toronto will also require additional capital and additional time to hire and train the workforce to produce the pizza products which arent produced in the Toronto facility.