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Entrepreneurs Without Borders
Mike’s Bikes Final Report
AFM 131 Mike ’s B ikes Bus iness Repor t
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.
TABLE OF CONTENTS
MISSION STATEMENT......................................................................................................................................... 2
OUR BIKES.............................................................................................................................................................. 3
EXECUTIVE SUMMARY ....................................................................................................................................... 4
2009: THE YEAR OF ACQUISITION ................................................................................................................. 5
2010: THE YEAR OF MARKETING................................................................................................................... 8
2011: THE CONTROL OF FINANCIAL DECISIONS.....................................................................................10
2012: THE SECOND PHASE OF BIKES ..........................................................................................................12
2013: THE YEAR OF REDEVELOPMENT AND REBOUND.......................................................................15
2014: 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.
OUR BIKES
Bike Type Specs Sales to Date
Adv1- Original Mountain Style: 44 | Tech: 50 $53,362,390
SpeedRacer Youth Style: 47.17 | Tech: 10.79 $28,506,600
Adv1- Updated Mountain Style: 44.68 | Tech: 50 $23,534,400
Figure 1
Figure 2
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.
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
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.
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: 20331209 Name: Agatha Ho ID Number: 20334939 Name: Kaitlyn Kastelic ID Number: 20333727 Name: Shirley Li ID Number: 20337712
TA: Florence Mok
Date: December 5th, 2009
2009: 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
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 19600
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 carry-
over 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
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
2009. Lastly, we expected our company to surpass all competitors in profitability measures,
depicting future growth.
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 2009. 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
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
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 2011. 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
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 2009. 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
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 2010.
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
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
0.85. 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 0.14. 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
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%
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 2011.
2013: 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%.
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.
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)
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 2013.
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 $33.08. 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
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 2012. 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
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 $45.92. 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 2012.
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.
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 2010. This freed up cash,
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%
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 $12.41. 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.
APPENDIX
Appendix 1A: Equitable Market Share
Appendix 1B: Price to Sales to Advertising Ratio Illustration
Appendix 2A: Shareholders Value (2009)
Appendix 2B: Retail Sales Comparison (2009)
Appendix 2C: Retail Price (2009)
Appendix 2D: Awareness Levels (2008-2014)
Appendix 3A: Highest Shareholders value
Appendix 3B: Sales Revenues (2008-2010)
Appendix 3C: Advertising and Branding Expenditure
Appendix 3D: Manufacturing Capacity
Appendix 4A: Market Share
Appendix 4B: Cash Balance 2008-2011
Appendix 4C: Efficiency Measures
Appendix 5A: Youth Bike Market Share
Appendix 5B: Quality Measures
Appendix 5C: Wastage Comparison
Appendix 5D: Dividends in 2012
Appendix 6A: Forecast Accuracy
Appendix 6B: Sales Revenue Comparison
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. 2009.
<http://www.3dcadbrowser.com/preview.aspx?ModelCode=4734>.
"3D CAD Browser - Bike" 3D CAD Browser - 3D Models - Home. Web. 17 Nov. 2009.
<http://www.3dcadbrowser.com/preview.aspx?ModelCode=27926>.
