The Paper Talks About An Economic Analysis Of The Company (Essay Sample)

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Institution
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Economics
Capital budgeting is a managerial planning process that is used to determine whether long term investments like new plants or machinery are worth the funding. This is achieved by forming different capitalization structure. The strategy adopted by the management in allocation of scarce resources to the huge capital investment is crucial in management planning. Capital budgeting seeks at increasing the value of the company by the wealth of the shareholders. Different project evaluation techniques are used to examine the viability of each project before deciding on which project to invest and which to forego. Some of the project appraisal techniques include payback period, net present value measure, profitability index, internal rate of return, accounting rate of return and annuity method. Microwavable frozen meals examples are Kashi and Lean Cuisine and offer diet solution to many busy individuals and are the leading producers of these types of foods (Aldred et al, 2012). All the companies have a similar trait of the product type, the nutritional value of the meals produced, and the product’s price. Recent research indicates that the two companies have been suffering from a decline in the market share thereby a reduction in the overall sales. A decline in sales has reduced the overall revenue made by the companies thereby affecting their annual cash flow. To avert this problem, the companies may be forced to change the approaches used in the sales department by selling their products on a competitive pricing model (Aldred et al, 2012).
Lean cuisine producer, The Nestle Company, is experiencing a decline in the overall profit due to market contraction experienced in the industry. To avert this, the company started a new product that had natural ingredients and little preservatives. The contraction of the market in the industry has been attributed to the production of products that contain high levels of preservatives with little or no natural ingredients. Opting to produce more natural products will reduce the use of preservatives resulting to a fall in the cost of production. The strategy coupled with increased investment in the line of production of the brand will avert the detrimental effects on the market. The investment in the line of production will ensure that the customers who shied away from the previous product are reached and access the new product. When all these strategies are fully implemented, the companies will experience a performance boost and an increase in the profits.
The two companies are predominant in the market and this indicates characteristics of a monopolistic market. It is therefore prudent to adopt different measures to increase the overall profit in the market. The strategies to be adopted include product differentiation. In order to maintain the current market share, strategic planning is essential in both companies. In the planning the management should seek to reduce the overall price, providing unique product different from the normal in the market and product differentiation. To ensure the success of the new product, the company should invest heavily in research and development plan. The product should be produced cheaply and at the same time offer maximum utility to the consumers. Reducing the cost of production should not in any way compromise on the quality of the product. Price reduction in monopolistic competition market may be detrimental to the firm due to the homogeneity of the products in the market. Managers should opt increasing the scope of product reach by distributing in many stores. This can also be achieved by massive investment in advertisement and creating product awareness. Lowering the price of low-calorie foods is a viable option for the firms without the financial muscles. (Chandon, Wansink, 2007). To assist in the case analysis, lets us the US foods market. There has been an increasing popularity in healthy menu, but the people are not necessarily eating healthy foods. For example, despite the numerous efforts to campaign to eat healthy, there have been numerous cases of obese Americans. According to Chandon and Wansink (2007), from 1991 to 2001, obese adults’ proportion in the U.S increased from 23% to 31%. Consequently, increasing the prices of the low-calorie foods might cause diminished demand, irrespective of other control measures (Chandon, Wansink, 2007).
Whenever companies do their business, they are always influenced by the government policies. The policies affect the business directly or indirectly on the production and employment. The impact of the policies is felt on the supply and prices of the products. when the prices are affected, there is an impact on the dietary patterns of the individuals. Cost of production is directly related to the cost of raw materials and the government taxes on production. These production costs directly relate to the retail prices that determine the response of the community due to price sensitivity characteristic of the customers thus influencing the consumers’ preferences. Though the changes in the production pattern, the impact may not be felt on the dietary choices of the individuals. “These regulations include federal pricing, marketing orders and minimum quality standards usually carried out through extensive inspections.” (Piketty, Ganser, 2014). The policies that the government formulates directly the types of production by the companies. The quality management, and production requirement may be affected by the policies. Setting standards for the product may increase the cost of production. When a company wants to bridge the gap between the expected sale and the projected amounts can be achieved by marketing orders. Quality management is a key role by the government and every business should seek at maintaining a favorable environment. The set quality fuels the businesses to constantly improve that can be achieved by research and product development. “This aspect then increases the cost of operations and capital investment which depicts the stability of the company.” (Dobbs et al, 2010)
Government involvement in ensuring the quality of low-calorie microwavable products is essential since the products are under highly regulated food processor. Food safety can only be assured by regulating the technology used. All the attempts by the government are aimed at protecting the public from manipulation. The packaging and branding of the products should ensure that the information available is clear and precise about the safety. Aggressive inspection by the government agencies in all the companies ensures fairness to all the parties involved. The regulation should ensure there is proper food handling techniques. Due to the increase in the companies offering microwavable products, there has been a price war. While the price war goes on, the government should be in the centre of all as the regulator to protect people from inferior products. “With this fast growing sector, the Food Standards Agency has contributed significantly in governance by use of stringent policies and regulations.” (Aldred et al, 2012). The government is involved in the production sector to ensure that companies conform to the set standards. Food security will be achieved by checking into the production techniques by firms. The government wants to protect the consumers from exploitation by the producers. All companies are required to give correct details regarding products and not to compromise on quality. (Chandon, Wansink, 2007)
Many low-calories microwavable companies are experiencing fast growth and therefore there is need to adopt the use of technology. Some of the complexities include capital appraisal. The ever changing technology requires constant funding from the cash flows. In order to protect the company from losing revenue, it is prudent to utilize low capital technologies and at the same time maintaining the quality of the food. (Dobbs et al, 2010). The pricin...