AFM 131 Mike s Bikes Business Report

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1 Entrepreneurs Without Borders Mike s Bikes Final Report AFM 131 Mike s Bikes Business Report E.W.B Corporation December 5, 2014 ABSTRACT Business Report consisting of E.W.B Corporation s yearly forecasts, performance and strategies implemented in the Mikes Bikes business.

2 TABLE OF CONTENTS MISSION STATEMENT... 2 OUR BIKES... 3 EXECUTIVE SUMMARY : THE YEAR OF ACQUISITION : THE YEAR OF MARKETING : THE CONTROL OF FINANCIAL DECISIONS : THE SECOND PHASE OF BIKES : THE YEAR OF REDEVELOPMENT AND REBOUND : FINAL YEAR OF PERFORMANCE...17 CONCLUSION...20 APPENDIX...24 BIBLIOGRAPHY...32 MISSION STATEMENT E.W.B. Corporation is an oligopoly that is located in Waterloo, Ontario, specializing in the production of bikes. Being Entrepreneurs Without Borders, we guarantee customer satisfaction by providing quality service and maintaining high product standards. We are a dedicated team making sure our customers get the variety of bicycles they want, and retailers get the service they deserve. Our business models, manufacturing process and internal controls ensure efficiency and superiority. Our team works for the benefit of customers and shareholders simultaneously because we believe our investors can do well if our customers and retailers are satisfied.

3 OUR BIKES Bike Type Specs Sales to Date Adv1- Original Mountain Style: 44 Tech: 50 $53,362,390 SpeedRacer Youth Style: Tech: $28,506,600 Adv1- Updated Mountain Style: Tech: 50 $23,534,400 Mountain Bike: Adv1 One of a kind Mountain Bike that includes style, quality and affordability. Adv1 features full suspension, wide tires, good traction and disc brakes. Figure 1 Youth Bike: SpeedRacer A youth bike for today s generation, designed with attitude and style. Featuring safety pads, cushioned seats and high grip handle bars. ***** Safety Rating Figure 2

4 EXECUTIVE SUMMARY To the Board of Director s of Mike s Bikes, E.W.B. Corporation specializes in the production of mountain and youth bikes. The main strategy that the team used was to conserve money during the first few years of operation, in order to have more cash to support our future decisions. The main pricing strategy employed was to set an affordable price, ranging in between the set prices of our competitors. The Corporation believes that conservation is one of the main components of succeeding, therefore in the initial years; our expenditures were lower than our competitors budgets. Although our yearly positions varied, we learned from our mistakes and attempted to improve our Shareholders Value (hereinafter SHV). In 2013, instead of introducing a road bike, our final decision was to redevelop our mountain bike. The development of the mountain bike resulted in greater production efficiency due to the advancement in technology. In addition, the specifications were upgraded, projecting to our consumers that innovation and improvement is an integral part of our operations. In the final years, a substantial amount was distributed towards the repurchasing of stocks and paying of dividends, which increased the SHV. E.W.B. Corporation placed second in World1, with a final Shareholders Value of $45.82, a cumulative change in Shareholders Value of 393% and a forecasting accuracy of 97%. Throughout the longevity of E.W.B. Corporation, there had been steady increases due to the conservative decision-making style and the innovation and improvements of the bikes. In the future, the forecasting accuracy would ensure steady growth and the fact that the company has the ability to make accurate sales decisions. The shareholders can expect the corporation to be one of the top firms in the industry because in the longevity of the Corporation, we have placed mostly in the top two positions.

5 Affirmation Statement AG-02, World 1, Team 5: E.W.B. Corporation The listed team members below have participated in the preparation of this assignment and no other individuals have contributed to this assignment except as acknowledged. Name: Akash Kapoor ID Number: Name: Agatha Ho ID Number: Name: Kaitlyn Kastelic ID Number: Name: Shirley Li ID Number: TA: Florence Mok Date: December 5 th, : THE YEAR OF ACQUISITION PRIOR TO ACQUISITION Mikes Bikes was a moderately successful business and held an equitable market share of 20% (Appendix 1A). The company was leveled with its competitors in all aspects, such as share price ($9.29) and product sales ($11,000,000), because of a regulated market structure. Recent changes to a free market economy interested E.W.B Corporation in acquiring Mikes Bikes. Prior to the acquisition, the advertising expenditures were divided into three media channels, television ($300,000), magazines ($375,000) and Internet ($75,000), while public relations in these three media channels totaled $250,000. These marketing expenditures were reviewed and compared to an extensive market research report, leading to changes as outlined hereafter. OBJECTIVES AND STRATEGIES After acquiring Mikes Bikes in 2009, E.W.B Corporation underwent a restructuring process in terms of the marketing and production of mountain bikes. We focused on building a reputable and trusted brand image amidst consumers and hence, we directed our focus on marketing this year. We compared the preset advertising expenditures to the market research on

6 consumer habits and accordingly made adjustments. This led us to our basic objective of attracting a high volume of customers, increasing sales and minimizing expenditures. DECISION-MAKING: 2009 MARKETING DECISIONS Our key focus in 2009 was to make marketing decisions that attract a high volume of customers. We chose to implement a medium pricing strategy, so that our bikes were affordable and provided a reasonable profit margin for both retailers and our business. Market research shows that consumers are moderately sensitive to the pricing of mountain bikes. Therefore, our company executives employed a price to advertising to sales forecast ratio strategy, by increasing our product price by approximately 2% to $560 and reducing our sales forecast by 2% to units. Subsequently, we increased our total advertising expenditure by 5% to $787,500 and accordingly increased our forecasts by approximately 5% to 20,500 units (Appendix 1B). An increase in price would generally decrease the demand for a product, while increased advertising should increase sales. In terms of advertising expenditures, our company did not expand its budget by a huge amount mainly due to a limited market demand. Thus, we increased advertising by 5% and focused on advertising mainly through magazines and television, which are the most effective media channels. We continued to advertise through these media channels and did not opt for any other advertising channels to maintain consistency by using the carry-over effect. The carryover effect as applied to our marketing strategy explains how consistent advertising through one medium will continually attract customers. Based on consumer viewing habits, television and magazine advertising were raised by about 3% to $310,000 and $400,000, respectively, and Internet advertising was increased to $77,500. In terms of public relations, we reduced our

7 expenditure by 24%, to $380,000 because of its minimal impact on mountain bike customers. Public relations expenditures on television and magazines were reduced to $150,000 and $200,000, respectively and Internet expenditures were reduced to $30,000. Analyzing the market and conducting extensive research led to the changes made above. OPERATING DECISIONS As mentioned earlier, we determined our sales forecast by averaging the increases and decreases in advertising and product pricing. By applying the ratio strategy, we forecasted sales of 20,500 units. However, we produced 20,550 units, 50 units more than our forecast (Appendix 1B). In the previous year, before the acquisition, Mikes Bikes had lost 32 sales, and this time we wanted to ensure that we do not miss any prospective clients; hence, our production surpassed our forecasts. However, on the other hand, we did not produce a lot more than our forecast, because we believed our forecasts were accurately derived using the resources available to us. FINANCING DECISIONS Financial decisions dealing with loans, shares and dividends were seized, restricting us from making any substantial financial decisions. However, our company s financial officers decided to pay off the initially raised loan of $1,000,000 and offer a dividend of at least $0.50. EXPECTED RESULTS The chief officers of our company concluded that we should build a strong brand image in the market by having the highest sales, meeting our forecasts. Besides having a large market share, we expected our company to show an increase in net income and shareholder s value. We expected a change of 15% in shareholder s value, based on the decisions we implemented in Lastly, we expected our company to surpass all competitors in profitability measures, depicting future growth.

8 2010: THE YEAR OF MARKETING OBJECTIVES AND STRATEGIES This year our management was authorized to make distribution and branding decisions, and hence, the company aimed to allocate its cash efficiently towards advertising and branding to create market awareness. The company also aimed towards a conservative marketing strategy, to receive optimum market awareness at the lowest possible expense. By making the following decisions and continuing to sell our bikes at a medium price, we hoped for our company to increase our sales and use our funding efficiently. REVIEW OF THE PRIOR YEAR S RESULTS Unfortunately, we were fourth out of the five firms with a low shareholder value of $9.63, as compared to the market leader, Life on Two Wheels, having a shareholder value of $10.28 (Appendix 2A). In the previous fiscal year, our total advertising was increased by 5% to $787,500, which ultimately allowed us to increase our sales forecast to 20,500 units; however, we fell short of this goal and our retail sales only amounted to $10,479,840, the lowest in our world (Appendix 2B). Our gross margin was $3,288,883, second lowest in our world; however, it accounted for 48% of our sales revenue. The net income increased only by 1.1% due to the lethargic market performance. During this rollover, we missed our sales forecasts by over 18%, due to low market awareness from low advertising expenditures made in Despite our low shareholder value, our assets increased to $7,367,681 from $6,408,074. Consequently, shareholder s equity increased by almost 19% to $5,897,671.The previous year s results highlighted some major flaws in the marketing budget, which were to be corrected this year. DECISION-MAKING: 2010 MARKETING DECISIONS

9 During this fiscal period, we increased the awareness levels of our mountain bike by increasing our branding by 40% to $350,000. We also increased the market price of our mountain bike to $575, the median price of the industry average (Appendix 2C). We believed that a minute increase in price of $15 would not have a great impact on sales considering the other firms would also raise their bike prices for the following year. Our advertising expenditures were increased by $132,500, especially towards magazines and television advertising, while we decreased our public relations costs by $345,000, as mountain bike users are unaffected by this marketing aspect. By increasing our advertising expenses for the mountain bike, our advertising was more in line with the firms we were competing against, giving us a greater competitive advantage. A lack of awareness in our first year of operations encouraged us to provide distribution support to our retailers worth $100,000. At E.W.B. Corporation, we believed it was essential to initially increase our spending on branding, which ultimately led us to a higher awareness level in the following years (Appendix 2D). In this fiscal year, the executives of the company agreed to provide support to the various types of retailers in order to better promote our bikes by displaying it across their stores helping us establish a high market awareness and brand image in the industry. OPERATING DECISIONS In the previous year, we overestimated our sales by 9% and hence, this year we forecasted sales of 19,000 units while producing only 18,000 units, considering we had over 1,500 units remaining units from the previous year. We failed to meet our forecasts last year; however, with our increased advertising and branding efforts, we came to the decision that we should be able to sell 19,000 mountain bikes this year. Due to remaining inventory from the

10 previous fiscal year, we were faced with lower production output and costs this year, leading to a lower production expense, contributing towards a higher net income and shareholders value. FINANCING DECISIONS At this point and time, we did not have the ability to make any substantial financial decisions. In the years to come, we would gain more control and have the ability to instate our desired decisions as outlined earlier. EXPECTED RESULTS We expected this year to produce successful results and continue to mark the potential for future growth in the years to come. We expected our net income to increase by approximately 31% and although we increased our price, our sales were expected to rise due to the additional funding towards advertising and brand awareness. Our decisions led us to expect that we would considerably increase our shareholders value this year, securing one of the top two spots. 2011: THE CONTROL OF FINANCIAL DECISIONS OBJECTIVES AND STRATEGIES After E.W.B Corporation s fascinating performance last year, our objective was to maintain our performance and position in the capital markets in With a new array of financial decisions available to our management, we hoped to accomplish one of our prior goals to pay off our debt, to reduce yearly interest expense and to establish a lower D/E ratio than our competitors. Along with reducing our debt, we aimed to sustain our advertising budgets and market awareness levels to increase sales this year. REVIEW OF THE PRIOR YEAR S RESULTS At E.W.B. Corporation, we were proud to announce an increase in shareholder s value by 13% to $10.55, the highest amidst our competitors, Dunder Mifflin Bikes trailed our company

11 with a shareholders value of $9.99 (Appendix 3A). Our marketing decisions proved to be beneficial for our firm and showed how our management had quickly learned from its mistakes made during the first rollover in Although our awareness levels did not change from the previous year, we made a higher profit because our sales dropped by less than 1%, whereas we had increased our price by almost 3% (Appendix 3B). A reduction in public relations expenditures, led to a 28% increase in net income of $263,004. Life on Two Wheels and Dunder Mifflin Bikes operated at a higher than average advertising and branding budget of $2,500,000 and $2,300,000, respectively, limiting their income prospects (Appendix 3C). Accurate forecasting and decision-making resulted in a profitable year for E.W.B Corporation. DECISION-MAKING: 2011 MARKETING DECISIONS Our management decided to maintain a relatively similar budget due to the previous year s success. Due to the relatively low elasticity to change in price, we increased our price by about 1% to $580/bike. The low elasticity indicated that a 1% price change would lower our sales by under a percent, or would stay unaffected considering we expanded our marketing budget. To support our price change and to further increase our product awareness, we increased advertising by 8.7%, while increasing branding by $50,000. Public relations were eliminated from our budget due to its unimportance, and distribution support was maintained from the previous year. The distribution support was divided such that 60% of it funded sports stores, our largest retailers, followed by an even split between discount and bike shops. OPERATING DECISIONS In this upcoming year, E.W.B. Corporation had the opportunity to tweak its production capacity and manage its quality and efficiency expenditures. We decreased our production

12 capacity by 30% to 14,000 units to uphold a healthy capacity level (Appendix 3D). Our management decided to lower its factory capacity levels to match its sales forecasts, hence, saving over $1,000,000 in production costs. In terms of quality, we decided to maintain a quality of 75%, which we were able to sustain despite a decrease in quality expenditures by almost 27%. Due to increased branding and advertising spending, we came to the conclusion that we would benefit most by keeping our forecasted units the same at 19,000 units. We were once again able to produce less than our sales forecasts, due to over 1,000 closing units from FINANCING DECISIONS Standing by our objectives, we came to the agreement to pay off 50% of our debt in order to reduce it to $500,000. Although we wanted to completely wipeout the debt, we didn t do so due to restricted cash, which we were accumulating for the following rollover to launch a bike. EXPECTED RESULTS Our company, E.W.B. Corporation entered this rollover with satisfying results and high expectations. We planned to establish a greater awareness in the market and were keen on having a higher volume of bikes sold. By managing our debt efficiently and with the increased advertising and pricing of our bike, we expected our sales and SHV should dramatically increase. 2012: THE SECOND PHASE OF BIKES OBJECTIVES AND STRATEGIES Our basic strategy for this year remained the same as we decided to continue to sell our product at a medium price. However, with the added option of buying back shares, our company decided to incorporate buying back large numbers of shares as a part of our basic strategies. In addition, we planned on launching a new bike that would boost our sales in the following years. REVIEW OF PRIOR YEAR S RESULTS

13 In 2011, we sold 19,040 out of a total of 101,346 mountain bikes, or roughly 18.79%. We had the third highest market share, trailing Firm4 with 22.89% and Dunder Mifflin Bikes with 24.52% (Appendix 4A). Our bike price was the second lowest at $580, and although our awareness increased to 0.21, it was still the lowest in our world. The quality of our bike remained at 0.75, compared to Dunder Mifflin Bikes with 0.76, Firm4 with 0.80, and Tokyo Drift with Our income was $153,957 higher than our forecast, and our SHV increased from $10.55 to $12.41, a cumulative change of 34%, placing us in the lead for the second consecutive year. Our gross margin increased by 9% and expenses increased by only 1%, increasing our net income by 19%, or $228,730. Partial repayment of our loan led to a D/E ratio of Our cash balance increased by $1,979,208, helping us facilitate our decisions this year (Appendix 4B). DECISION MAKING: 2012 MARKETING DECISIONS Our company decided to increase our mountain bike price from $580 to $590, in the hopes of increasing our revenue for the next period. We also decided to decrease our mountain bike TV and Internet advertising by $40,000 each and our magazine advertising by $50,000. Seeing as how our product had already been in the market for a few years and was well established by now, we figured we could afford to save some money on advertising and allocate the money towards our new bike. We decided to launch a youth bike, called the Speed Racer, because of a higher market demand in comparison to road bikes. We decided to set a starting price of $270 and allocated $800,000, $100,000 and $100,000 for TV, Internet and magazine advertising, respectively, mainly focusing on TV based on the market research. In addition, we increased our brand advertising by $250,000 and public relations by $50,000, to obtain a high level of awareness for our new product. In terms of distribution, we decreased our funding

14 towards bike shops by $5,000 and sports stores by $20,000, while increasing the amount for discount stores by $30,000. We decided to focus on discount stores mainly because they would be the ones selling our youth bikes. Furthermore, we decided to decrease the retail margin by roughly 3% for both bike shops and sports stores, to enhance our profits. OPERATING DECISIONS As a result of our new bike release, our company decided to increase our capacity from 14,000 to 29,000 units. We also decreased our efficiency slightly by $50,000. This, however, caused our efficiency to plummet from 75.9% to 53.9% (Appendix 4C). Likewise, we decided to reduce our quality expenditure by $11,000, in an effort to conserve more cash. This however, also resulted in a huge decrease in our quality, a drop from 75.1% to 59.2%. We produced 16,500 mountain bikes due to remaining closing units, and produced 27,000 youth bikes in accordance with our sales forecast. We concluded upon 27,000 units, because we predicted at least three other firms to enter the youth bike market, making a conservative production decision. FINANCING DECISIONS Due to a stable financial position, our team decided collectively not to issue any more shares, and rather decided to repurchase $1,000,000 worth of shares. In total we paid $83,112 worth of dividends, or $0.09 per share in the hopes that it would help increase our SHV. These dividends would help stimulate a higher market value, attracting more investors. EXPECTED RESULTS As a result of the decisions implemented, we predicted high sales and profits for the following year. Due to the repurchasing of shares and payment of dividends, our company expected a large increase in SHV. Also, we expected our new bike to contribute towards higher sales revenue and net income for the year. The forecasted results for the year predicted a 62%

15 increase in sales revenue, an 84% increase in gross margin, and a 52% increase in net income. Our forecasted income for 2012 was $750,218 higher than our income in : THE YEAR OF REDEVELOPMENT AND REBOUND OBJECTIVES AND STRATEGIES E.W.B Corporation was now able to make all sorts of decisions, including the opportunity to launch another bike. However, we decided to stay in line with our strategy of selling our bikes at a medium price, buying back shares and issuing dividends. After a disappointment from last year s results, our management planned on redeveloping our mountain bike and capturing a higher market share of youth bikes in an attempt to increase profits. REVIEW OF PRIOR YEAR S RESULTS Although our SHV did increase substantially during the year, we lost our position to Life on Two Wheels, sliding to second place. In the previous year, E.W.B. Corporation sold 17,110 mountain bikes out of a total of 75,084 in the market, or roughly 22.79%. We also sold 27,000 youth bikes out of a market of 83,676, or 32.27% (Appendix 5A). In terms of the youth bikes, we sold 10,484 more than Firm4 and 13,160 less than Life on Two Wheels, our only competitors. Our prediction of having three other firms enter the youth bike market proved to be wrong, resulting in over 16,000 units in lost sales. Our mountain bike awareness increased to 0.23, and awareness for our youth bike was 0.19, the same as Life on Two Wheels. The quality for both of our bikes was 0.59, the lowest in our world (Appendix 5B). In fact our efficiency was extremely poor, resulting in wastage of 44%, highest in the industry (Appendix 5C). Unfortunately, our net income of $1,815,398 was $380,814 less than our forecast, despite of a 26% increase from the previous year. Due to the production costs associated with our new bike and repurchase of share, our cash fell by $1,534,702, while increasing our SHV to $16.79, a cumulative change of 81%.

16 DECISION MAKING: 2013 MARKETING DECISIONS In terms of pricing, we decided to increase the price of our mountain bike by $10, thus, making it $600. We decided to leave the price of the youth bike unchanged, mostly because we lacked some confidence regarding the awareness of our youth bike. We reduced our total advertising for our mountain bike once again, by $120,000. We noted our high expenditures and negative cash flows from 2012 and decided to cut back on as many unnecessary costs as possible, hence, reducing our youth bike advertising by $250,000. Continuing with the trend of reducing costs, we also decreased our branding slightly, by $150,000 and eliminated our public relations expenditures. We felt, however, that these reductions in advertising expenditures would not have a very large effect on our sales, as we had overspent in the past year. We did not change our distribution support; however, decreased our retailer s margin, averaging at 28%, in an attempt to increase our profit share. OPERATING DECISIONS Due to our under production of youth bikes, we decided to increase our capacity from 29,000 to 39,000 units. Seeing that our efficiency and quality were both exceptionally low, we decided to increase our efficiency expenditure by $100,000 and our quality expenditure by $200,000. We also decided to produce more of both bikes this time, noting how the market for both bikes had expanded. Also, considering that the road bike was clogged with two firms with the potential of another competitor to enter that market, we decided to redevelop our mountain bike. This redevelopment cost us $1,000,000, but improved our bike style and technology, attracting a greater number of buyers. Our executives felt that this decision would help increase mountain bike sales and capture a greater market share.

17 FINANCING DECISIONS Once again, our executives did not pay off the outstanding debt and rather focused on the repurchasing of shares. We decided to purchase the maximum number of shares possible, worth $1,540,000. In addition, we decided to increase our dividend payout this year, seeing as how it would definitely have a positive effect on our SHV and noticing how Life on Two Wheels gained the market edge by paying out dividends of $3.65/share last year (Appendix 5D). Consequently, we chose to pay out $3.00 of dividends per share, for a total of $2,507,589. EXPECTED RESULTS The results we decided to implement this time led us to expect better results than last year. Once again, due to the repurchasing of shares and the significant increase in dividends, we expected our SHV to increase by a large amount, hopefully enough to surpass Life on Two Wheels. Our forecasts predicted that our net income would increase by $1,935,817 this year, due to our huge reductions in expenses and increase in sales forecasts. Accordingly, we also expected our sales revenue to increase by 30% and our gross margin to increase by 34%. 2014: FINAL YEAR OF PERFORMANCE OBJECTIVES AND STRATEGIES The main objective of this year was to have the highest SHV because we wanted to prove to our investors that our business had the competitive market edge compared to our rivals. In the past, we proved to have the best allocation of financial resources towards marketing, debt payments and had one of the highest sales and profit figures; yet, we failed to achieve the highest SHV due to lower dividend payments. Hence, we planned on increasing dividend payments and repurchasing a high amount of shares, in an attempt to raise our shareholders value. REVIEW OF PRIOR YEAR S RESULTS (2013)

18 We corrected our forecasting flaws from 2012 and came up with accurate estimates for 2013, resulting in sales revenue of $15,231,677, just 4% below our forecasts (Appendix 6A). Our net income was also up 80% from $1,815,398 to a whopping $3,261,947. Our financial success proved our ability to learn from errors that were previously made. Compared to our main competitor, Life on Two Wheels, we had a higher net income, sales and cash balance in On the contrary, our company failed to sustain high quality and efficiency standards, generating the most waste at 47% and having the lowest quality measure of 0.56, compared to the industry average of 18% and 0.81, respectively. On the financial end, our company s dividends did not match up to those paid by our competitors, especially Life on Two Wheels, who once again beat our shareholder s value solely on the basis of higher cumulated dividends. Our company maintained its position as the second best firm with a shareholder s value of $28.27, up 204% from 2012, trailing Life on Two Wheels with a value of $ Tokyo Drift and Firm4 trailed behind by over $10, standing at $19.39 and $18.70, respectively, while Dunder Mifflin disappointed again with a shareholder s value of only $9.63. DECISION-MAKING: 2014 MARKETING DECISIONS Our company continued to market our recently updated mountain bike Adv1, and our youth bike Speed Racer through this year. We did not launch any new bikes this year because we already had a steady market share in mountain and youth bikes. Moreover, launching a road bike would require substantial start-up costs and advertising costs, and would not be as profitable or maybe even a loss-taking venture due to the existing firms, which have a greater awareness. Reflecting upon our inaccurate sales forecasts for Adv1, we lowered our forecast to 20,000 from the previous year s 22,000 units and maintained the same price. In addition, we lowered our

19 television advertising by 33% to $200,000 and magazine advertising by 25% to $300,000. This was because, over the past 5 years, our company had built a strong brand image and customer base. E.W.B Corporation s most profitable bike, Speed Racer, was once again sold-out last year, having us increase our forecasts to 45,000 units while keeping the same price, and reducing our television expenditure by $50,000 to $550,000. We retained our branding budget, while lowering distribution support to $10,000 for bike shops and $25,000 for discount and sport stores because we thought we had build a lasting relationship with our retailers over the past few years. OPERATING DECISIONS In order to meet our forecasts, we increased our production capacity by roughly $380,000 to 40,500 units, producing 46,500 youth bikes and 17,500 mountain bikes. Our mountain bike production was lowered this year due to 2,572 closing units from the previous year. Due to financial constraints we maintained our quality and efficiency expenditures at $300,000 each. Due to low efficiency expenditure, our wastage accounted for 47% of our capacity while idle time was allocated to be roughly 3%. FINANCING DECISIONS This year we decided to increase our dividend payments from $3.00 to $6.01, the maximum amount that we could pay to our shareholders. We decided to take this step due to competitive pressure built up by our main competitor, Life on Two Wheels, who paid $3.65 in dividends. Our performance in terms of revenue, net income and cash was much better than that of Life on Two Wheels, however, they paid higher dividends in both 2011and 2012, giving them the market edge. In addition, we bought back shares worth $2,100,000, much like our strategy employed in 2011 and The act of buying back shares was also a tactic to reduce the number of shares in the market, hence, increasing the stock price. Due to limited funds we were

20 unable to incorporate debt payments in our budget. All our financial decisions were made with the common objective of increasing shareholder s value, while maintaining a stable cash balance. EXPECTED RESULTS Our company s executives had high expectations from the final year s performance. We were nervous, yet, confident that we would surpass our main competitor, Life on Two Wheels SHV. As outlined in our mission statement, we work to satisfy our customers and shareholders, and we expected to meet these objectives in our final year. Increased sales forecasts of youth bikes, high dividend payments and repurchasing of shares backed our optimistic outlook on our performance. Moreover, we expected to meet our objectives due to the balanced and justified forecasts we made in terms of marketing expenditures, distribution and branding. REVIEW OF PRIOR YEAR S RESULTS (2014) Despite our efforts to maximize our performance, our company finished second place in our world with a SHV of $ Our company, once again, had higher sales than Life on Two Wheels (our main competitor) totaling $23,644,200 (Appendix 6B). Our profits, however, were lower than that of Life on Two Wheels totaling $4,763,172, compared to their profits of $5,310,458 (Appendix 6C). This was mainly due to higher marketing expenditures on distribution support as well as media advertising than Life on Two Wheels. Our net income was up 46%, mainly due to better sales forecasts that were established for this year. Overall, our results this year were satisfying, however, it was distorted by our poor performance in CONCLUSION After the final year of operations, we placed second in our respective world. The SHV in 2008 was $9.29, and it increased to $45.82 with a cumulative change of 393% at the end of 2014.

21 Our company stabilized its market performance after placing fourth in 2009, first for the following two years and leveling off at second place in the last three years of operations. E.W.B Corporation was forward thinking and made decisions that would favour the company in the long run. Our company s strategy and greatest strength was to conserve cash in the first few years of operations to have enough for future expansions. Our marketing budget of $1,167,500 in 2009, down 7% from the initially allotted expenditures, was the lowest amidst competitors. The lack of advertising expenditures in 2009 not only resulted in lethargic sales and profits for the year, but also impacted our market awareness in the following years of operations. On the other hand, our competitors, Life on Two Wheels and Dunder Mifflin Bikes dominated the market with the highest marketing expenditures of $1,230,000 and $1,850,000 and SHV of $10.28 and $10.15, respectively. Despite our poor sales and a low SHV in 2009, our company cumulated the highest cash for future decisions. Our management had determined our competitors weakness in terms of budgeting, pricing and spending cash, as both Life on Two Wheels and Dunder Mifflin Bikes had an extremely high advertising budgets supporting their sales. Their profits were only marginally higher than our firm, depicting their inefficient allocation of financial resources. Our firm s ability to conserve cash in the first few years and decisions to allocate it towards financing decisions in the latter years proved to be a key strength. Hence, our tactical strategy to issue dividends and repurchase shares, helped accumulate a high SHV in the last few years. E.W.B Corporation s ability to recuperate from flawed decisions made in the past became one of our greatest strengths. Evidently, we analyzed market trends and accordingly allocated our advertising budget in the future. After realizing that mountain bike consumers were least affected by public relations, we reduced our PR expense to $35,000 in This freed up cash,

22 most of which was used towards advertising. These corrections proved to be beneficial for our firm, as we increased our sales and profits in the following years. Moreover, as anticipated by our management, the market leaders from 2009 became the market losers of 2010 because of their massive advertising expenses and inefficient use of finances. In fact, E.W.B Corporation gained the competitive edge in 2010, being the only company to show growth and an increase in SHV. However, after leading the market for two consecutive years, E.W.B. Corporation failed to secure the top spot in 2012, regretting a decision that affected our performance through the last two years in business. Our firm s strength of predicting our competitors decisions turned into our greatest weakness in 2012 as we slid to second due to two main factors: the underproduction of youth bikes and the lack of dividends issued. The underproduction of youth bikes in 2012 led to a high number of lost sales, lower sales revenue and net income. The management had predicted that four of the five firms would launch a youth bike due its high market demand, and its adjusted production levels accordingly. However, only two other firms, Life on Two Wheels and Firm4 launched a youth bike and sold 40,160 and 16,516 units of bikes, respectively. Evidently, Life on Two Wheels captured a higher market share than E.W.B Corporation, resulting in higher revenues and higher SHV, pushing us to the second position. Besides high sales, Life on Two Wheels paid dividends of $3.65, compared to dividends of $0.09 paid by our management. These two decisions caused us to permanently lose our first place position to Life on Two Wheels. Moreover, the fact that our bikes awareness levels was lower than the industry average, posed to be a major threat to our performance. One key determinant of our management s performance was the accuracy of our sales forecasts. Our accuracy was 97% compared to Life on Two Wheels 95% and Tokyo Drift s 91%

23 accuracy rate. Furthermore, the management of finance was also a major determinant of our performance. E.W.B Corporation s decision to repay half of its debt in 2011 led to an unparalleled SHV of $ Repurchasing shares and issuing dividends, which increased the income per share, also maximized SHV. Besides E.W.B. Corporation and Life on Two Wheels, no other firms did this, placing us in second place. E.W.B Corporation was faced with external challenges such as production and marketing decisions. Marketing decisions made by other firms impacted our sales and awareness level. Moreover, their production decisions on how much of each bike to produce also deviated our sales from forecasts. Life on Two Wheels, our major competitor, affected our performance by the means of high production and advertising. The new management of E.W.B Corporation is encouraged to follow some of these recommendations that root from our successes and failures over the past six years. It is crucial to maintain sufficient cash flow to be able to repay the remaining the debt, while making the required operational decisions. It is also important to satisfy investors with dividend payments and to repurchase shares if necessary. Marketing expenditures should reflect the sales forecasts, and be allocated based on consumer preferences. The management should also consider the market demand for bikes before entering a new market. Lastly, the management is recommended to employ an efficient production strategy, which we failed to include in our business goals. These valuable suggestions are an asset to the future management, advice that will help lead towards a profitable and bright future for E.W.B Corporation.

24 APPENDIX Appendix 1A: Equitable Market Share Appendix 1B: Price to Sales to Advertising Ratio Illustration

25 Appendix 2A: Shareholders Value (2009) Appendix 2B: Retail Sales Comparison (2009)

26 Appendix 2C: Retail Price (2009) Appendix 2D: Awareness Levels ( )

27 Appendix 3A: Highest Shareholders value Appendix 3B: Sales Revenues ( )

28 Appendix 3C: Advertising and Branding Expenditure Appendix 3D: Manufacturing Capacity

29 Appendix 4A: Market Share Appendix 4B: Cash Balance Appendix 4C: Efficiency Measures

30 Appendix 5A: Youth Bike Market Share Appendix 5B: Quality Measures Appendix 5C: Wastage Comparison

31 Appendix 5D: Dividends in 2012 Appendix 6A: Forecast Accuracy Appendix 6B: Sales Revenue Comparison

32 Appendix 6C: Profit Comparison *Figure 1 and Figure 2, as presented in the OUR BIKES section, were obtained from the following sources, however, were partly modified using Adobe Photoshop. BIBLIOGRAPHY "3D CAD Browser - Bicycle." 3D CAD Browser - 3D Models - Home. Web. 17 Nov < "3D CAD Browser - Bike" 3D CAD Browser - 3D Models - Home. Web. 17 Nov <

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