An analysis of the financial situation of baldwin bicycle company

But it could be disastrous in the long run if the risk factors identified above turn the wrong way. Risk analysis Financial risk Although the Challenger deal will bring attractive profit, Baldwin may have financial troubles to execute its responsibilities to Hi-Valu contract.

The above calculation is done by considering the proposed data given by Hi- value for 25, bicycles for a year before escalated price. The fixed overhead costs are irrelevant to the decision making, as they will occur in any case.

If the existing distributors also want the Challenger products, or the Challenger prices, Baldwin will face the risk of either eroding regular sales or losing existing distributors. Whereas return on sales is computed by taking net income before interest and taxes to sales which states the efficiency of an entity on generating its profits.

It is provided that the inflation escalation will take place after first year hence the prices are taken before the escalation adjustment. Thorough market demand forecast As a market upturn in the future will make the Challenger deal unnecessary, an accurate market demand forecast is extremely important for making the new business decision.

On the other hand, return on assets indicated on efficiency of profitability in terms of total assets and return on equity indicates earnings to the equity shareholders of the company Dugar and Tripathi, Profit is the earnings of a company from the sale of its products considering recurring and non- recurring expenditure.

Further, there are some costs, which are one time yet to be included for measuring operating expenses Hanlon, Lester and Verdi, For example, fixed overhead costs, onetime costs for a particular parts of products, registration costs etc.

Apart from this cost, Baldwin is required to record estimated non- recurring cost on new range of bicycles i. Thus the existing relationships may suffer when the company selling the similar product at two different prices in two different sales channels. As the cash ratio is merely 9.

Cannibalization in the marketing strategy means the decrement in the sales volume or sales turnover of existing product due to the production or trading of new product range.

Baldwin Bicycle Company Harvard Case Solution & Analysis

Hence, in case of Baldwin, the overall impact of earnings in various financial terms is as follows: The impact on this existing income structure will be against the existing product if we consider Gross income i.

To make an informed decision, the company should exam a blending of financial, marketing, and strategic implications of the Challenger deal. To meet the increased annual production, Baldwin should invest at leastin working capital including such as inventories and accounts receivable.

In accounting, the most important aspect for a company in the financial statement is assets, liabilities and inventory. While the additional funding is not impossible, with an already high Debt to Equity ratio, the company would bear a high cost for debt or equity financing, aggravating the potential insolvency.

The return on investment of the Challenger deal is Profit to be earned a-bHi- Valuwhich operated discount department chain stores in the Northwest. The high Debt to Equity ratio of 1. On the introduction of new range of products, Baldwin would incur additional assets at related carrying cost which effects the financial position of the company for the year To avoid being fascinated merely by the short run profit, Baldwin would better first conduct a thorough demand forecast and then negotiate a better deal with Hi-Valu before accepting the offer.

In that case, the lost contribution margin, although it may very well occur, will not be a relevant cost of accepting the Challenger offer. Proposed project will incur asset related costs in the form of annual variable cost as a percentage of dollar value for pretax cost of funds, record keeping costs, etc total valued at On taking new production of products by an organization maximum impact falls on the overall profits of the company as well as earnings on assets and equity.

The low inventory turnover of 2. For purely profit maximization purpose, the deal is attractive. Before investing substantially in this business opportunity, the company will be better off if it invests in market data collection and analysis.

On the other hand, introduction of new products enable a company to grow and develop its business and sustainability in the market structure provided the new product range match as per the quality of the existing product.Baldwin Bicycle Company (BBC) is a midrange full-line bicycle manufacturing company with 40 years¶ experience BBC produced units for the next three years.

Distributed exclusively through independently-owned retailers and specialty bicycle shops. with an expected Baldwin Bicycle Company Essay Sample.

The whole doc is available only for registered users OPEN DOC. Financial analysis. Current financial situation.

Baldwin’s current financial situation is not favorable at all (see exhibit 3 for ratio analysis). First of all, the company had poor assets management. Baldwin Bicycle Company Robin L. M. CheungExecutiive SummaryExecut ve SummaryBaldwin Bicycle Company (BBC) is a mid-range full-line bicycle manufacturingcompany with 40 years’ experience.

Baldwin Bicycles - PowerPoint PPT Presentation

BBC produced 98, units accouting forover $10MM in revenues inwith an expectedunits for the nextthree years.

Essay about Baldwin Bicycle Company Case Words | 3 Pages. seminar Strategic process and strategic analysis (Baldwin bicycle company case) Required questions: a. On the basis of Michael Porter’s () competitive strategies, how does Baldwin currently compete?

Justify your answer.

Recent Topics

As per the given case study, in the strategic deal between Baldwin Bicycle Company and Hi-Value, there are some risks and rewards available to both Baldwin as well as Hi-Value. In case of Baldwin, the company needs to sale the bicycles to Hi-Value at a lower price if it enters in to the deal/5(14K).

Based on the income statement for and the information in item 5 of exhibit 2 that the company sold 98, bicycles forhow much was the average per unit sales price, average per unit cost of sales, and average gross margin per bicycle 2.

An analysis of the financial situation of baldwin bicycle company
Rated 4/5 based on 6 review