Inner-City Paint Corporation (Revised) Essay

Alternatives 1. Management Improvement – Mr. Walsh should take up management degree. He needs to learn employee empowerment and delegation. He needs to learn employee empowerment and delegation. The plant manager needs to be trained on leadership since he has no experience in management. He should also start hiring a public relations specialist and a marketing specialist to improve on these two aspects of the business. 2. Facility Improvement – Equipment at Inner-City Paint is three large mixer, two smaller mixers, machines in the lab and the trucks. Mr. Walsh should buy more equipment so that his consumers won’t have to worry about their order not being ready. He has enough transportation Equipment. But he should buy some new mixer and more lab equipment. In order to acquire all of this he should take the loan. Recommendation I would recommend the first alternative which is to improve management. Mr. Walsh wasn’t trained and didn’t understand management. He could handle the company when it was small. He got lost as the Inner-City paint grew. If Mr. Walsh did some training, then the company probably wouldn’t be in such a mess. He did understand how to expand the business and add employees were they are needed but he lacked giving trust to other people. With employee empowerment training he should be able to trust new employees. So with this alternative we can see that the company will grow favorably. METHODS OF ANALYSIS S.W.O.T Analysis Strengths – Competitive prices of its products. – Steady growth in its market. – The company’s reputation had been built on its fast service; it frequently supplied paint to contractors within 24 hours. Weaknesses – Customers view Inner City as a company that negotiates on price and payment out of desperation. – His plant manager’s only experience has been that of a painter. – Operating without management controls or financial controls. – Inability to pay suppliers on time – Poor condition of facilities – All records are processed manually – Inventory records are not kept. – Lack of proper delegation of authority. Employees take turns making paint and driving the delivery trucks. – Unskilled employees. Opportunities – Considering a purchase of a computer to organize the business and reduce needless paperwork. – Consultants who are able to quickly spot problems in business. – The production of color paints Threats – The slowdown in the housing market combined with the slowdown in the overall economy caused financial difficulty for the company. – Walsh manages the corporation today in much the same way that he did when the business began. – Walsh lacked on giving trust to other people. – Rumors abound that the company is in difficult financial straits, that it is unable to pay suppliers, and it owes a considerable sum for payment on back taxes. – Paint contractors are hesitant to give larger orders. Larger orders usually go to larger companies that have demonstrated their reliability and solvency. – No audit has been performed. This could lead to penalty by the Internal Revenue Service (IRS). Porter’s Five Forces Industry Analysis Threat of New entrants There are low entry barriers in the paint manufacturing industry. This is because it is based on the low costs to enter the market and product unanimity. This is due to an easy and cheap development stage. As for capital requirements, firms need to invest small financial resources before entering this market. Rivalry Between Competing Firms Inner-City Paint is confronted by aggressive competition in its business. There are small paint manufacturers in Chicago that supply the immediate area. The market for paint is highly competitive. It doesn’t compete with giants such as Glidden and DuPont. Competition among the giants isn’t that fierce, but they lose their large orders to them. Bargaining Power of Suppliers There is a high bargaining power of suppliers since the industry is highly dependent on component suppliers, a powerful supplier could exert pressure on the market, by supplying components at a higher price to increase his profits. their products are the primary raw material for the paint manufacturing companies. They could also erect high switching costs. Since Inner-City Paint is working only with few selected suppliers, the company is running at a higher risk than the average. Bargaining Power of Buyers There is a low bargaining power of buyers this is due to high number of other paint manufacturers in the area in the industry and the customer has the options to take the cheapest and the best. Threat of Substitutes There is a high threat of substitutes because there are larger companies that have demonstrated reliability and solvency that paint contractors can choose. There are also other small paint manufacturers in the area. FINANCIAL ANALYSIS Inner-City Paint Corporation’s revenue for the year is $1,784,080. It experienced a Net Income of $ 17,610. Profitability Ratios Return on assets = $ 17,610 = 5.98% ;$ 294,565 This shows that Inner-City Paint is not providing an adequate return on the firm’s investment. Net Profit Margin = $ 17,610 = 0.987% $ 1,784,080 This ratio indicates how much money Inner-City Paint makes with each incremental dollar in sales that they experience, meaning that a higher ratio would result increased profit with each additional dollar in sales. Liquidity Ratio Current Ratio = 262,515 = 0.92 285,030 This ratio shows that Inner-City Paint is currently in trouble meeting its financial commitments because its current ratio is below 1. Leverage Ratios Debt Ratio = 300,030 = 1.02 294,565 This measures the portion of total assets provided by the company’s creditors. In conjunction with other ratios, this ratio indicates the degree to which operating losses may be â€Å"cushioned† from adverse actions by creditors. Common Size Financial Statement Analysis INCOME STATEMENT % to Sales Sales $ 1,784,080 100.00% Cost of Goods Sold 1,428,730 80.08% Gross Margin 355,350 19.92% Expenses Selling expenses 72,460 4.06% Administrative expenses 67,280 3.77% President’s salary 132,000 7.40% Office Manager’s salary 66,000 3.70% Total expenses 337,740 18.93% Net Income $ 17,610 0.99% BALANCE SHEET Amount % to Total Assets Assets Current Assets Cash $ 1,535 0.52% Accounts receivable (net of ADA of $63,400) 242,320 82.26% Inventory 18,660 6.33% Total current assets 262,515 89.12% Non-current Assets Machinery and transportation equipment 47,550 16.14% Less accumulated depreciation 15,500 5.26% Total non-current assets 32,050 10.88% Total Assets 294,565 100.00% Liabilities Current Liabilities Accounts payable $ 217,820 73.95% Salaries payable 22,480 7.63% Notes payable 6,220 2.11% Taxes payable 38,510 13.07% Total current liabilities 285,030 96.76% Non-current Liabilities Long-term notes payable 15,000 5.09% Owners’ Equity Common equity 12,400 4.21% Deficit (17,865) (6.06%) Total liabilities and owners’ equity $ 294,565 100.00% With all of this information we can point out that most of the expenses is attributable to Walsh’s salary. His six-figure income is not the average salary of a president in such a small company. He might try taking a small pay cut to invest that money in the business. He should also make set selling prices. Next, he should check into finding cheaper suppliers to bring his direct materials cost down. Financially ICP needs a financial account manager to start investing money and watch finance closer.