Firm 5 Mikes Bikes Business Project Simulation Hayley Barile & Jennifer Kerr

Overview of Firm High cost, low volume strategy Sales of over $5,000,000 Profits just over $70,000 Share Holder Value of $8.43 Earnings per Share of $0.07 Our firm’s sales, profits, share holder value and earnings per share all came in lower than both the industry average and our main competitors firm results.

Vertical Analysis of Income Statement 16.7% decrease in net income to 1.3% of sales revenue 24.1% increase in expenses to 66.0% of sales revenue –increase in short term debt of 6.5% of sales revenue –increase in warehousing costs to 27.8% of sales revenue Profits at 1.3% of our sales revenue, 43.5% lower than our biggest competitor Michaels Bicycles –Profits lower than the industry average of 15.1% of sales revenue.

Horizontal Analysis of Income Statement 93.9% decrease in net income from previous year Result of the 12.9% decrease in sales revenue and 499% increase in selling, distribution, administration, and financial expenses from previous year Finished goods warehousing costs went up 65.9% With the increasing costs and decreasing sales and profits, Firm5 is the worst performing firm in the industry.

Ratio Analysis of Balance Sheet Highest debt to equity ratio, increased to 0.61 from previous year. Debt to equity ratio above the industry average of 0.18 and Michaels Bicycles ratio of 0.29 Earnings per share decreased in the past year to $0.07 in 2018 –Michaels Bicycles had highest earnings per share at $14.07, that is $14.00 above our earnings per share. –Firm5 was also below the industry average of earnings per share of $5.98. Solvency decreased from in 2015 to our current lowest in 2018 of 2.53

Marketing Analysis: Price and Sales Mountain Bike Sales decreased 11.5% from 2017 to 2018 Price remained at a high $860 being the highest price in the industry Price was $121 over the average industry price of the mountain bike Michaels bicycles is our greatest competitor going for the same high price strategy to sell their bikes They had the second highest price at $775 They had an 8.2% increase in sales from 2017 to 2018 and a larger sales number of 22,866 bikes, They sold 14,042 more mountain bikes than our firm sold

Road Bike Sales decreased significantly by 25.6% from 2017 to 2018 Price remained at a constant $2,050, this price was $80 under the industry average The high price strategies were unsuccessful Michaels Bicycles had an increase in sales in the past year of 10.8% from 2017 to 2018 putting them at 7,117 road bikes sold in 2018 They sold 6,760 more road bikes sold than our firm Marketing Analysis: Price and Sales

Market Analysis: Promotion Mountain Bike 5.6% decrease in the awareness rating in past year leaving it at PR rating went down 33.3% in past year This decrease in our awareness rating and public relations rating reflected upon our sales decrease Michaels Bicycles had the third highest awareness rating at 0.26 and a lower PR rating at 0.01

Market Analysis: Promotion Road Bike Swift_2016 was at its highest awareness rating in 2018 at 0.12, 0.02 below the industry average. Had the lowest PR rating at 0 in 2018 Michaels Bicycles had the second highest awareness rating at 0.19, 0.05 above industry average. They also had the second highest PR rating for their road bikes at 0.48, twice the industry average. In conclusion, our firm should have put more money into awareness and public relations in order for customers to know about or product and widen our market.

Market Analysis: Place Mountain Bike Lowest distribution rating at 0.17, 0.28 below industry average Michaels Bicycles came in second for the distribution rating with a rating of Road Bike Swift_2016 had the lowest distribution rating of 0.1 which is a 47.4% decrease from the previous year, and is 0.35 below the industry average. Michaels Bicycles also came in second for the road bikes with a distribution rating of 0.71 Along with the awareness and public relations more money should have also been put into distribution in order to get our bikes into the market.

Operations Analysis: Production Capacity and Inventory Capacity relatively high for the past three years Firm5 was the third highest capacity in the industry at 29,937 Michaels bicycles had the second largest capacity at 37,068 Unfortunately, our firm did not take full advantage of our capacity as we sold the least number of bikes out of all the firms and had the rest of our capacity held in inventory.

Operations Analysis: Quality Performance Firm5 had the lowest cost of goods sold at 32% which decreased by 2% in past year Our cost of goods is lower than the industry average of 46% and Michaels Bicycles cost of goods at 47% Had the lowest quality rating at 0.66, lower than Michaels Bicycles at 0.91 and the industry average of % increase in quality in past year, yet we remain at the bottom of the firms Would have to spend a significant amount of money to match the quality rating of our competitors. Our lack of quality was reflected in our sales because customers were more attracted to the better pricing and quality of the competitors bikes, in the future more spending should be put into this area.

Operations Analysis: Efficient Operations (Wastage, Idle Time) Largest wastage percentage of all the firms at 37%, which is above the industry average of 18%. Wastage decreased by 3% in the past year Largest wastage due to the lack of product sales and efficiency in our firms operations Michaels Bicycles came in with the lowest wastage at only 7% We had the second highest percentage of idle time at 15%, which remained constant over the past three years Percentage of idle time over the industry average of 8%, and also over Michaels Bicycles idle time percentage of only 4% Wastage and idle time percentages reflect lack of efficiency in our company and the need for more spending in these areas

Analysis Conclusion Main Problems: Put our pricing too high which resulted in very small sales and profits Did not spend enough on quality, distribution, advertising, product awareness, or public relations Most money was lost from interest payments and warehousing costs for bikes that were not sold

SWOT Analysis: Strengths Considering our profits and the cost it took to produce our products, our debt to equity ratio was very low. Our greatest strength was the quality of our bikes. We had a great strategy of having high quality and high prices which theoretically would benefit out company in the long run

SWOT Analysis: Weaknesses Our firm’s greatest weakness was our marketing strategy Too little money was put towards marketing, and the results were clear in our sales. The cost to produce our product was very high Our production management could have been improved Our prices may have been too high for most customers Our awareness level and PR rating was very low

SWOT Analysis: Opportunities Change in business strategy; lower quality for lower prices Drop prices Allocate more money for marketing and PR Market to people that may be looking for an eco-friendly alternative (i.e young adults) Undercut the competition Sell surplus inventory

SWOT Analysis: Threats Threats include the many substitutes for transportation Substitutes for exercise equipment Firms that offer lower prices Firms that capture more of the market with better advertising Our greatest threat is Michaels Bicycles, having the same business strategy as our firm