Cases in Financial Management Essay

Case SynopsisFounded in 1984 Laurentian Bakeries Inc. operates in the industry of fabricating a huge assortment of frozen adust merchandises within their three runing workss in Montreal. Winnipeg and Toronto. The operating workss produce points such as frozen pizza in Winnipeg.

MB. pies in Montreal. QC and Cakes in Toronto. ON- with each stand foring 30 % . 30 % and 40 % of the entire gross watercourse severally. The purchasers for this company include big institutional clients such domino’s pizza. etc.

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which have a significantly higher degree of power whereas the marketer of the merchandises consists of several nutrient manufacturers which have a comparatively low degree of power.With the cost of puting up a works of this graduated table being high. replacement merchandises will besides stay high in the market doing the overall net income border to be low. With the company’s ongoing attempt for uninterrupted betterment Danielle Knowles ( VP of operations ) proposed to spread out one of the operating workss in Winnipeg-which was based on the chance if the company expanded into the U. S. market.StatementThe statement of the job is how Danielle Knowles will fix a capital undertaking outgo proposal to spread out the company’s frozen pizza works in Winnipeg ; which is consistent and in line with the company’s capital allotment policy.

The proposal should besides fulfill the company’s uninterrupted attempt for betterment. designation of lost chances. satisfaction of HR and environmental impacts and supply sufficient ROI.Situational AnalysisThe strengths of the company are clearly seeable through the company’s effectual operations and reputable image in the industry. Bing one of the top five in the industry. Laurentian Bakeries has established themselves as a dominant participant in the market ; nevertheless. with a deficit in capacity it can potentially overmaster the strengths due to its negative impact on the company. This includes a lessening in gross revenues and possible lessenings in retail merchant support.

However. with the recognition of a capacity deficit and an chance to spread out and turn in the U. S. market the company seems to be in good standing. Traveling aside to a different country amongst the competition. all the merchandises are similar which indicate there is heavy competition. The presence of legion providers makes this industry extremely competitory. as a consequence.

there is high aggression amongst rivals. This is a taking factor that indicates this is non an attractive concern to be in.SWOT ANALYSISStrengths
* Danielle Knowles has experience in the nutrient industry for 13 old ages. This is a great benefit for the company. because she is able to utilize her cognition and experience and use it for Laurentian Bakeries in order to better operations or even avoid mistakes. This in return can potentially salvage the company from incurring extra disbursals. * Danielle has her Master’s in Business Administration which indicates that she is educated and has the certificates to keep her place as the VP of operations. Besides.

Danielle is able to utilize that cognition and use it to mundane operations of the company. * Laurentian has above mean consideration for human resource and environmental impacts.This benefits the company to the extent that it creates a public consciousness which shows their committedness to the community which in return can potentially be used as a selling tool to pull more gross revenues.

* Laurentian company is one of the five big houses that produce frozen nutrients ruling 21 % of the market. This indicates that they are a dominant participant in the market and have survived many troubles from assorted competitions. * Well established and profitable company which indicates that they have survived one full economic rhythm and have withstood their competition.

* The company has a diversified gross watercourse with three runing workss located in major metropoliss which are non every bit hazardous as a individual gross watercourse. * All three sections are profitable.* Low cost pizza manufacturer which is assisting to spread out into the US. Market.* Laurentian Bakeries has an integrated work force such as gross revenues.

selling. etc. for all of their operating workss.
Failing* Deficit of capacity. If this failing is non dealt with the company can confront losingss in their gross revenues because of the deficit. This in return lowers the overall net income of the company and can potentially diminish purchasers if they can non run into the demand due to the deficit. * Class 1 merchandises are excessively hazardous and by taking such a great hazard any incorrect making can hold a negative impact on the company.Opportunities* Arrangement to provide big U.

S. based food market concatenation with private label trade name. If the chance is taken to its advantage the company can potentially see higher figures in gross revenues and net incomes. * Since U. S.

pizza ingestion is 3x bigger than the Canadian section the overall US market is bigger which can potentially take to a higher market portion. * Within N. A. the economic system is retrieving modestly and is expected to turn. This indicates that consumer disbursement on discretional points such as nutrient merchandises will stay strong.

Menaces* Inflation is forecasted to stay between 3-5 % . This may do involvement rates to lift doing the cost of capital to increase higher than its current degree. Capital undertakings such as enlargement may endure. * North American growing rate of gross domestic merchandise slowed down which may take down the company gross revenues.

* Threat of new entrants will increase competition and is ever a factor that makes the gross revenues aggressive. * Health Conscious consumers will potentially impact gross revenues due to the merchandises offered by Laurentian Bakeries are considered “unhealthy. ” With ongoing wellness awareness the merchandises offered by Laurentian Bakeries might non run into the altering demand of consumers.Porter’s Five ForcesBuyer’s Power
* Assorted Power.* There are two types of purchasers: big institutional purchasers such as domino’s pizza & A ; pizza pizza every bit good as big retail merchants.

Thousands of smaller clients have less power because of their current low patronage base.
Supplier Power* Low Power.* Pizza providers distribute production to pizza shops. eating houses and food market concatenation shops.

Since there are legion providers in the market for ingredients such as cheese. flour. veggies. etc. they have low power.
Barriers to Entrant* High* Due to high capital costs. skilled work forces.

environmental ordinances. high distribution channels. entry into this industry is high.
Menace of Substitute* High* The merchandises offered by Laurentian such as their Pizza can be made at place or even purchased fresh from fast nutrient eating houses. Besides they can easy be substituted for other merchandises such as calzone. sandwiches. greaser. etc.

Competition* High* There is high competition for the points offered by Laurentian Bakers. Competition for their pizza baked points can easy be substituted through franchised eating houses such as Pizza Pizza. Boston Pizza. Pizza Hut.

etc. besides competition is high through other companies offering the same goods. In add-on. this company is besides viing against other nutrient merchandises instead than frozen pizza entirely.
Fiscal AnalysisFiscal Summary:Laurentian Bakeries is seeing a hard currency addition from $ 6. 2 million in 1993 to about duplicate its value of $ 13.

1 million in 1995. At the same clip long term debt for the company has increased by $ 7. 23 million which indicated that Laurentian Bakeries is funded by its long term debt and has non utilized itshard currency and therefore has incurred extra involvement disbursals. Traveling over to the gross revenues figures. Laurentian Bakeries has seen an addition of 11 % from 1993-95 ; nevertheless. net income is level which indicates that their COGS and operating disbursals have besides risen about at the same gait as gross revenues.

This reverse has no advantage to the stockholders.
Options1. Continue original programs to go on enlargement in Winnipeg.2. Construct a works in U. S. to provide to that market.

3. Buy an bing works.4. Expand the Toronto works as it is the strongest works for the company.

RecommendationsBy carefully analysing all the options. we recommend alternate one as the best fit solution to this company due to it being most practical at the company’s current state of affairs. We strongly believe that go oning original programs to spread out in Winnipeg is the good solution for the company as they already produce the same type of merchandises and have the extra land to transport frontward the enlargement. because this works is a low cost manufacturer and is ideal to use the U. S private label sector. In add-on.

this option is good because it is consistent with the company’s overall aims. Given the price reduction rate of 18 % and a $ 5. 2 million capital investing the NPV of the expected hard currency flow is positive.Furthermore. recommendation one is the best suited for this company because: * There is land readily available in Winnipeg.

This can salvage the company some money in footings of the enlargement because these will incur less of an disbursal due to Laurentian having the excess land infinite. * Constructing a works in U. S. will necessitate a batch of capital. extra disbursals for engaging. preparation. etc.

. and possible alteration in production. direction or other techniques due to different ordinances in U. S.

* Expanding in Toronto will besides necessitate extra capital and extra clip to engage and develop the work force to bring forth the pizza merchandises which aren’t produced in the Toronto installation.