Florida Gulf Coast University INTEGRATION ASSIGNMENT Elena Guro, UIN-815260879 Accounting major GEB 4890 CRN 84401 Craig Randall, PhD (Assoc. Prof.) December 8, 2023 2 Company C – On the Run Return on Sales (RoS) Analysis and Proposal for the Years 18 – 20 1. Competitive analysis of the RoS problem Operating profit margin (RoS) for company C is calculated using the following formula: EBIT/ Net sales = Return on Sales $209,978,000 / $1,244,642,000 = 0.1695 ⁓ 17.0% Return on Sales in year 17. The higher this ratio is, the more effectively the company is doing its operations. For example, the main competitors of company C on the market have substantially higher operating profit margin: company E has RoS = 31.0% and company A has: RoS = 23.8%. This indicates that their costs and expenses are lower than the ones of company C and their operating profit is higher. Analyzing the operating profit margin of company C by region and by channels, the lowest RoS is in North America - Wholesale: 2.4% compared to 16.7% industry high which is at risk of being non profitable after the tax expense is subtracted. The second lowest RoS compared to the industry’s best performers, is Latin America Wholesale: 12.8% vs 38.6%. 2. Possible solutions for increasing RoS When the operating profit margin ratio is low, it indicates that the company is not getting enough revenue or that its COGS and expenses are too high. There are a few possible solutions to increase profitability for the company. One option is to increase the sales by raising the price and increasing production of units. In this case, the revenue increase should be substantial so that the rising costs did not offset the result. 3 Another possible option is to decrease the expenses and/or COGS. Expenses on marketing and advertising, administrative support, or distribution and warehouse expenses could be reduced. Costs, which are directly tied to the production of the shoes, could be decreased. 3. Proposed solution The best solution for company C would be to focus on decreasing the costs/expenses since the competition in the industry is intensified and the demand starts going down. In year 17, the company produced more shoes than was demanded by the market, that is why substantially increasing production is not reasonable in the upcoming years. The primary regions for cost/expense reduction should be North America and Latin America Wholesale segments. Production cost in North America is close to the industry top: $36.63 per pair produced vs $38.25. To reduce production costs, it is proposed to decrease supervisory compensation, which is the highest in the industry ($68,220 vs average $65,742) and decrease total regular compensation ($49,610 vs average $47,043). These measures will decrease the production labor cost (top highest on the market). It is also advised to slightly decrease superior materials use, enhanced style, and the number of models in the North America region. In the Latin America region, production costs are at the industry average, but marketing expenses are much above it. The company spends $17.06 per pair produced on marketing compared to the average $10.11. A possible solution is to stop increasing marketing expenses while at the same time increase production in the region since it is the most growing and successful market for the company. The proposed actions will increase RoS in the North America and Latin America regions as well as for the whole company and will make business operations more profitable.
