Anuj Rawat Aiim Mc 2

8/8/2019 Anuj Rawat Aiim Mc 2

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Assignment

Stans Sound

A report

submitted to

Prof Mukul Vasavada

On

10 Oct 2010

By

Anuj Rawat

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Stans Sounds

Lakeview Shopping Center

Westville

Texas

10 Oct 2010

To, Mr Stanley Kramer

From, Anuj Rawat

Subject: Evaluation of Business Proposal for opening of showroom at

Wardlow

1. Refer your directions on exhaustive evaluation of business proposal receivedfrom shopping mall developers at Wardlow.

2. Report on the subject is attached herewith for your perusal.

Anuj Rawat

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Executive Summary

1. Stans Sounds had received a business proposal for opening up of store, by

mall developers at Wardlow.

2. In depth analysis of following available options were carried out:-

(a). Accept mall developer offer.

(b). Accept mall developer offer but, store to be run under a franchisearrangement.

(c). Decline the offer of mall developers and concentrate on Westvillemarket instead.

3. Option 2 (a) is best, as gains accrued from same outweigh other two otheroptions.

Word Count : 80

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CONTENTS

S.No HEADING PAGE No

1. Situation Analysis 5

2. Problem Statement 5

3. Criteria for Evaluation 5

4. Evaluation of Options 6

5. Recommendation 8

6. Action Plan 8

7. Exhibits 10-13

Situation Analysis4


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1. Stans Sound is operating three stores dealing in sound systems, audio

components and accessories in Westville, Texas. Two stores with name of Stans

Sounds sell medium priced sound equipment and related components, while Cen

Tex Audio sells customized sound systems.

2. Cost Incurred. On perusal of comparative balance sheet of all three stores from

1972-77 it is evident that initial cost of opening a showroom is US $ 30,000-

35,000/-which includes inventory of approx 25-30,000 US $ and various assets at

shop like furnishing etc of approx US $ 5,000/- (Exhibit I ).

Problem Statement

3. To select best of the following options:-

(a). Accept mall developer offer.

(b). Accept offer of mall developers but, store to be run under a franchisearrangement.

(c). Decline the offer of mall developer and concentrate on WestvilleMarket instead.

Criteria for Evaluation

4. Above mentioned options were evaluated on following criteria for arrivingat a rational recommendation:-

(a). Return on Assets. To measure how well an enterprise has used

available funds. It is calculated by dividing total income by total assets.

(b). Product mix at new store.

(c). Availability of Capital.

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(d). Operation of store.

Evaluation of Options

5. Accept Mall Developer Offer

(a). Return on Assets. On perusal of data tabulated in Exhibit II it is

evident that so far funds management by firm is good. Although mark up

varies from 20-50%, but after paying recurring expenditures like salaries,

stationary, electricity, rental etc and despite some poor management of

inventory, firm has achieved 25% return on assets. Mall developers must

have carried out a study feasibility study of mall clientele prior to a huge

investment. Also mall developers have come all the way from Wardlow with

offer it is evident that there is a market for stores dealt by firm.

(b). Product mix of new Store. As of now due to inadequate information

about customer choices and preferences at Wardlow, it is proposed that

product mix of new store should include complete range of fast moving

stores of both type of stores located in Westville. Same can be modified

after analyzing sales record of new store after three months or so.

(c). Availability of Capital. As long term liability of firm is periodically

reducing (Exhibit III refers). It is evident that firm must be regularly

paying outstanding loan installments and maintaining a good credit rating

with financial institutions. Also three stores of firm has made a net earning

of US $ 25078 in year 1977 and said amount can be reinvested in opening of

new store at Wardlow.

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(d). Operation of New Showroom. Daily commuting between Wardlow

and Westville is not possible due to 140 miles distance between them. As Mr

Karmer is not in good health and Mr Porter have small children, both cannot

run store at Wardlow. Hence Mr Howard, Operating Manager and an

experienced hand can be tasked to move to Wardlow for setting up and

running of upcoming new store.

6. Open a store under franchise at Wardlow

(a). Return on Assets. As per data tabulated at exhibit II firm has

achieved 25% return on asset. However when same is given under

franchise , net earnings will go down due to profit sharing but Return on

Asset will go up as firm inventory will remain same.

(b). Product mix of new Store. Coordination of inventory with franchise

may pose problems due to 140 miles distance between two towns. Also

franchise partner may not have adequate experience when compared with

Mr Karmar. This may lead to information asymmetry about producers

information and product quality, which may lead to stocking of wrong

product mix thus resulting in dead stock.

(c). Availability of Capital. Capital for setting up of showroom will be

arranged by franchise partner.

(d). Operation of New Showroom. As day to day running of showroomwill be vested with franchise, lack of experience and inefficiency may

adversely affect firms goodwill and credibility.

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7. Turn Down the Offer

(a). Return on Assets. As per data tabulated at Exhibit IV firms net

sales, gross margin and net earnings for year 1977 are showing a downward

trend. It may be due to market saturation and more competition. Thus it is

advisable to avoid infusion of more capital at this juncture and explore new

areas.

(b). Product mix of new Showroom. Not relevant.

(c). Availability of Capital. Additional capital for enhancing the

inventory of existing stores can be made available from net earnings of three

stores in 1977.

(d). Operation of New Showroom. Not relevant as existing setup will

continue.

RECOMMENDATION

8. Stan Sounds should accept the offer of mall developer. Thereby apart from

no competition in mall, 15% discount on lease rates and choice of interior dcor

will result in reducing cost of establishing new store to a great extent.

ACTION PLAN

9. Stans Sound can improve their Return on Assets by adopting following

measures:

(a). Improving their inventory management of stores, wherein Inter store

transfer of stores can be carried out for better productivity and reducing

response time.

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(b). Coordinate purchase of all stores there by reducing expenditure

incurred in logistics.

(c). Visit Wardlow to get first hand feedback on mall location and demand

survey for stores dealt by firm in forthcoming 60 days.

Word Count : 890

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Exhibit I( Refers to para 2 )

Fixed Assets and Inventoryof

Stan Sounds and Cen Tex Audio Center

10

S.No Year /

Details

1972 1973 1974 1975 1976 1977

a Fixedassets

(in US $)

4634 5112 10632 10777 12902 1874

b Inventoryof store

(in US $)

24060 45078 60012 72885 69122 66923278809481

Only onestore is

functional

Only onestore is

functional

SecondStan

Soundstore

becamefunctional

Twostores arefunctional

Twostores arefunctional

Cen TAudiCentebecam

functioin anafflue

area


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Exhibit II( Refers to para 5a)

Return on Assetsof


Exhibit III( Refers to para 5c )

11

S.No Year NetEarnings( in US $)

(a)

Net Assets( in US $)

(b)

Return onassetsratio

(c = a/b)

Remarks

a. 1972 -1206 53445 -0.042 a). Net Asset for year 1977 otherthan individualstore inventory hasbeen divided in 7/3ratio among StanSound and Cen-Tex Audio Center.

b). Reasoning

behind said actionis that Cen TexAudio is located inan affluent area,hence cost ofestablishing toinclude rental etcwill be more.

b. 1973 8204 72698 0.11

c. 1974 15788 83418 0.189

d. 1975 14291 102777 0.139

e. 1976 28607 102209 0.279

f. 1977

(i) For Stansounds

(ii) ForCent exAudio

22816

2262

89908.2

37730.8

0.253

0.059


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Long term liabilitiesof


Exhibit IV( Refers to para 7a )

12

Year 1972 1973 1974 1975 1976 1977

Long termLiabilities( in US $)

22000 19800 27820 25198 22678 20410

Difference

from previousyear( in US $)

-- - 2200 8020 - 5398 - 2520 - 2268


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% YOY Change in EarningsS.No Year Net

sales(in US$)

Percentage change

from

previousyear

GrossMargin

(in

US$)

Percentage change

from

previousyear

NetEarnings(in US$)

Percentage change

from

previousyear

a 1972 25062 6566 -1206

b 1973 208052 7.3015 64496 8.8227 8204 -7.8027

c 1974 288058 0.3845 93619 0.4515 15788 0.9244

d 1975 340270 0.1813 102081 0.0904 14291 -0.0948

e 1976 394983 0.1608 130034 0.2738 28607 1.0017

f 1977 381229 -0.0348 120087 -0.0765 25078 -0.1234

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Anuj Rawat Aiim Mc 2