Producing Of Low Level Of Profit And Incurring Huge Working Capital (Research Paper Sample)

FINANCIAL REPORT
NAME
DATE
PROFFESSOR
INSTITUTION

INTRODUCTION
This paper evaluates the revenue earning rotes and identifies the route that produce low level of profit and incurring huge working investment, the implications of low profit yielding route, it discusses the competition from other countries such as Philippines and Singapore. Will also discuss the factors which influence capital budgeting decisions, the importance of management intentions in reducing too much borrowing through long term bank loan and other external lenders, the advices to the managing director on the reliance of using financial ratio analysis and budgetary control, and the ways I will expect the management accounting function and ethical issues to be re-organized.
PART A
The routes that are producing of low level of profit and incurring huge working capital
Investment
The least revenue is generated in the route between Africa and South America where only 18.1 million dollars are made. The company generates amounts above one thousand pounds in the other routes. This is because it is a new route. The second least profit generating route is Australia and New Zealand with 1514.5 million dollars as revenue collected in 2016 and a slight drop of o.2% in 2015. This implies that the route is doing poorly. The most drop in the revenue collection between 2016 and 2015 was the home country whose revenue dropped by 5%. This implied that the management or government policies might have interfered. The competition is also a contributing factor that may main the production sector of the company. The customer’s choice may have changed as well. The company spent a total of 16,314,775 million dollars only to realise a net profit of 7.7%. The shareholders eventually reap a net dividend of 0.2% per share which is a drastic drop in the share capital. The statistics imply that the economy is slowly improving but still does not reach the normal expected values.
Implications
May airline has received many dollars from the five regional. The competition from emerging sectors such as the Pacific Asia region airline sectors has resulted to low profits from the low yielding routes example South America, Australia and New Zealand. Low yielding from these routes has resulted to less financial returns to general company. The competition also has resulted to fewer profits which have been noticed in the company raising a concern to top management and decision making to improve the profits to the company. From the values obtained in this sectors its clear that routes with fewer revenue are the once that have resulted to low profits and low financial income
PART B
Strategic decision is defined as a process of developing and practicing choices aimed at influencing the long term wellbeing of the organization (Stedry, 2014). The choices include strategic changes of the organization and resources.
May airline managers are therefore required to make strategic decisions for the purpose of long term viability and to analyze the stiff competition raising from the outside countries like Australia, New Zealand and South America. Considering the level of competition, there is various analyses that are required to be studied to ensure effective decision making by management.
New entrants
Considering the five forces of competitive model, May airline may experience low revenues from its routes because of new entrants into the shares of the market. Singapore can rise to be a threat competitor by producing substitutes of the products that are originally for May airline. The existence of new capacity of products with the desire of gaining the market share results to impacts of price reductions or inflate costs in the market. Many barriers are put in place to ensure that new entrants get it tough to enter the market. Singapore can take this as an advantage on the already existing market shares. Improving the quality of their services and reducing their prices in the market, they are at pore position to attract many customers shifting from the May airline to Singapore airline services. A strategic decision to be implemented by May airline from this competitive force is to use its financial power and its economies of scale to produce products of top quality to the markets and ensure reduction of the prices to buyers (Davies, & Crawford, 2011). Since the airline sector require splendid capital to purchase, maintain and operate facilities it should use financial power to provide top quality equipments to fight back to high revenues from Australia, New Zealand and South America routes.
Bargaining power of buyers
Singapore can use this competitive analysis to take advantage in the market. Buyers can demonstrate and down the prices and costs of producers in the market place through their unions. A company with strategic policies and well connected in with customers get first hand information on the grievances of the customers (Hofstede, 2012). May airline can overlook this aspects while the Singapore airline concentrate on the issues and making changes and applying the characteristic that a business should be dynamic to changes of environment and through this attracting much revenues compared to those entities that never shift prices to reach the shifted customers. In the report, May airline should make decisions strategically based on the customer monitoring and evaluating the market complains and resources in an effective manner to avoid shifting of the customers to a competitor. From the above competitive force analysis, May airline should employ diversity of employees to various countries to monitor the customers use of the products and take the role of six stigma duties like ensure customer focus and reducing defects on the products (Porta, et al., 2016). Through this, any information of customer bargain an immediate decision is made to ensure no shifting of customers to other substitute’s product and hence ensuring that in the long term the revenues of these states are increased instead of reducing.
Bargaining power of suppliers
Both May airline and Singapore are suppliers. In order to rule the market shares in a most efficient way is to ensure they bargain their prices in the market by merging and cartelization. The reduction of the revenues from New Zealand, Australia and South America means that the Singapore airline is well merged and cartelized a factor that is helping its bargaining power in the market share. Most customers are using the Singapore airline because its well developed in various countries where smaller airways were merged to branded as the one airway company called Singapore unlike the latter which is operating as a single business and not in many countries. This makes Singapore to be at an advantage in the market and ability to serve customers hence enjoying the revenue a cause of reduction of revenues to May airline. May airline can make this analysis beneficial in that; they can make strategic decision to open new branches in this reducing revenue routes and encourage cartelization for the purpose of bargaining its prices in the market so as to be able to be competent in the market shares.
Availability of substitutes and rivalry among players
Availability and threat of substitutes and rivalry among players is another competitive force that should be considered in making strategic decision. When May airline experiences loss of revenue from the routes which it initially generated a lot of profits its factual to sate the new substitutes has been brought to the market by a competitor. Singapore airline having the economies of scale in the market have the capacity to explore new products and bring them to the market to meet the customer needs just as the existing products can be. Availability of a new product in the marked of the same purpose to the existing does experience cost of branding (Monnikhof, Edelenbos & Van Der Krogt, 2013). The prices can be the same and customers do not experience shifting cost because the product of no difference from those in the market already. This type of competition shows that Singapore is strategically analyzing the market than May airline thus reducing the market shares. A strategic decision can be made through this analysis and therefore ensure that those states routes that revenue is reducing is made a complete overturn. Management should ensure that its advertising strategies are improved compared to the competitor’s styles of advertising. When the need to reduce prices is a concern immediate action to be done and also recruiting skilled manpower to outshine the competitor and in a long term it will increase the revenues from the countries that losses o f revenue was experience.
Low cost carriers practiced in Philippines airline has become a factor reducing the revenue from the three countries. Because of the cost and luxurious pressure in May airline, Philippines airline has shifted to low price carrier methods in which the cost are reduced with provision of less luxury travelling. Since this method has worked by reducing the level of revenue to May airline, management should make a decision to provide both services to the customer and by so doing the company is able to rule the market shares.
In spite of millions generated from these three counties, May airline should discontinue operations in these regions. This is would be a strategic decision to ensure that resources are shifted to other much promising regions. The falling of revenue in these regions will be indicators of weaknesses and threats of May airline and top management will lay strategies to change these threats to be opportunities and strengths to develop performing regions with full commitments of its workforce. By discontinuing operations to this business May airline will be able to retrench inactive units such as underperforming man powe...