Annual Operating Review (AOR)

Posted: August 27th, 2021

Annual Operating Review (AOR)

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Annual Operating Review (AOR)

Question 1

            The company’s planned pre-tax income for the financial year was $668,100. In this case, it managed to achieve the actual amount of $489,200 in the year. There was growth in the income tax of $496,000 for the period. Additionally, the variable costs (VC (1)) increased by $19,500, but (VC (P)) declined by 2,500 over the financial period. The company settled at an interest of $2,500 for the period on the actual amounts of $489,200. This is equivalent to 0.51%. However, the base cost declined by $265,000, leading to a decrease in the market share of $427,900 within the financial period.

            Consequently, the company surpassed the previous year’s pre-tax income. The prior year’s income was $-280, 800 compared to the current year’s pre-tax income of $499,200. The company also had tremendous annual growth in pre-tax income of $2.1 million attributed to an increase in the variable costs (VC (P) by $159,600 and $71,400 in base costs. However, there was a decline in the annual price by $644,800, variable costs (VC (1) by $3,300, and interest by $22 600. This resulted in a decline in the company’s market share by $849 4004 thousand for the period. Therefore, the company exceeded the annual pre-tax annual commitments since the current year’s pre-tax income is greater than the previous year’s pre-tax income.

Question 2

            The company’s strategy was to increase the sales volume by reducing the unit selling price from $550 in 2020 to $475 in quarter 4 of 2021. Consequently, the total market demand increased to 11,674 units compared to the planned 6637 units in quarter 4, 2021. This was an increase of 5037 units’ equivalent to 75.89%. Additionally, the company managed to maintain a unit selling price of $475 throughout the year. However, there was a decline in the units sold by 0.14%, and the planned quarterly sales of 2190 to 2187 in the fourth quarter. Further, the company reduced the processing time by 6.67% from the planned one to the actual 0.84. Thus, the processing period reduction implies that more units would be produced within less time, saving production and labor costs.

Moreover, the raw materials for production based on units and order levels were constant. The company reduced the average collection period by 6.74% form the planned 34.0 days to the actual 31.7 days in the fourth quarter. This implies that the company would convert credit sales into cash within a short period compared to the previous period.  Still, the business controlled its discretionary costs by managing its expenses (Jarvis & Palmes, 2018). Therefore, the company achieved its strategy to improve the profits by reducing unit selling price that would increase the sales volume and reduce business expenditures, which will lead to an increase in net profits.

Question 3

            The company is performing well on its growth strategy, and the major changes would be to increase the business effectiveness form the current actual rate of 67.9% to more than 98% in the next three years. A better effective rate would improve employees’ morale, increasing their productivity to improve the company’s profits eventually. Additionally, the company should increase the sales from the current 2190 units to 5000 in the next three years to increase its market share. The company can achieve this by producing more consumer-focused products, improving quality, and product differentiation to attract and retain more customers (Bernshteyn, 2016). Finally, the company can increase its marketing and advertising budget to create more awareness of the company products to gain market share. Therefore, these strategies will enhance the company’s competitive advantage in improving profit margins in the next two to three years.

Question 4

 The company competitors, Redex and Matek, have adopted a strategy to offer quality products to increase its market share. Therefore, it is important to analyze and understand the competitor’s strength and weaknesses besides assessing for possible opportunities in the market (Jarvis & Palmes, 2018). The strategies employed by a competitor influences sales, product quality and profitability. Thus, the company should increase operation effectiveness, product quality, and be a cost leader to gain a competitive advantage. Hence, the business should employ better strategies adopted by its competitors in order to outperform the market.

Question 5

 Hisco Company is lagging behind its competitors as Redex and Matek offer more superior products than Hisco. Hisco Company is ranked at 34.3% in the unit market share, closely followed by Redex at 33.13% and finally Matek at 32.57%. However, Redex leads with 35.79% on the dollar market share, followed by Matek at 33.33%, with Hisco ranking third at 30.88%. Therefore, there is need to increase the company competitiveness by enhancing customer service and using setting of competitive prices, among other strategies (Jarvis & Palmes, 2018). Additionally, the company should focus on quality improvement to gain and retain more consumers. Therefore, Hisco Company should gain a competitive advantage by using the above strategies to improve its sales volume.

Question 6

            The company has employed numerous strategic measures in business operations, such as reducing the unit price to attract more consumers. Additionally, the company reduced the average collection period by 6.74% form the planned 34.0 days to 31.7 days in the fourth quarter. Hence, the company would convert credit sales into cash within a short period (Jarvis & Palmes, 2018). Althoughthe company expected better rankings based on the above growth strategies, the final team’s rankings were unfavorable. Therefore, it has to improve its effectiveness and product quality to improve its rankings.

Question 7

            The business will improve organic growth in the next two to three years. The strategies that will be adopted by the company include research target clients to improve quality products, focus on a well-defined business niche, and develop robust product differentiation.The company will also use digital marketing tools in conjunction with traditional tools to create more customer awareness (Jarvis & Palmes, 2018). The digital marketing tools that the company will use include the use of social media platforms such as Facebook, Instagram, and the company website to reach more consumers, especially the younger generation (Jarvis & Palmes, 2018; Bernshteyn, 2016). Equally, the company will make expertise available to increase sales as the company will build its resources and capabilities. The potential opportunity in organic growth will involve several techniques. The notable one includes business expansion in new geographical locations such as Texas and California, and international markets in the next three years. Hence, this is poised to improve the ability to attain its objectives.

Question 8

            Hisco Company will also create a customer’s economic value based on the perception that customers only purchase products if its value outweighs the closest alternative, either a substitute or complementary product. Additionally, the company will have an intensive analysis of its utilities as the product utility depends on its value to the consumers less its cost (Jarvis & Palmes, 2018). Equally, the customer’s economic value will be achieved by low product prices, producing high-quality products, and offering after-sale services (Bernshteyn, 2016). Likewise, the company will define and value its product’s usefulness and worth to its consumers in improving their economic value. Therefore, the customer’s economic value will help the company gain a competitive edge by attracting and retaining more consumers to enhance business profitability.

Question 9

            Hisco’s business risks are inherent to its growth strategies as the company plans to expand to new geographical locations such as Texas and California and international markets in the next three years. The business risks will include ineffective management, instability, and financial loss, as business growth will pressure the systems and operations from increased production (Bernshteyn, 2016). Additionally, timing on receivables and payables may create financial strain leading to customers feeling underserved. Likewise, expanding the business to international markets will reduce operational inefficiency, political and legal risks. The business should mitigate these risks by increasing the company workforce, employ effective management, and conduct adequate feasibility research before engaging in international business (Jarvis & Palmes, 2018). Therefore, with effective strategic measures, Hisco Company should continue its growth strategy as the risks are controllable to expand its operations.

Question10

            The company used role play in the financial year to create value in its businesses. The total market demand increased to 11,674 units compared to the planned 6,637 units in quarter 4, 2021. This was an increase of 5037 units’ equivalent to 75.89%. Additionally, the company achieved 2190 units in the 4^th quarter of the year, a gradual increase from the first to the fourth quarter (Bernshteyn, 2016). The business projects growth in business operations using role play by using strategies such as set manageable business objectives,produce consumer-focused products, and creates specific business scenarios. More so, it will improve efficiency and productivity by enhancing the management-employee relationship in a serene work environment (Jarvis & Palmes, 2018; Wallner, 2012). Equally, the business foster business growth in the future by offering quality products and reducing business expenditures using crucial negotiations and information.

Question11

            The hardest business decisions in the year were reducing unit sales price, decreasing the collection period, and reducing business effectiveness. The company reduced the unit selling price from $550 in 2020 to $475 in quarter 4 of 2021, which may incur company losses if sales volume does not increase. The company reduced the average collection period by 6.74% form the planned 34.0 days to the actual 31.7 days in the fourth quarter, representing a short credit to the cash conversion period. However, this may harm the company suppliers as they seek lenient credit terms(Wallner, 2012; Jarvis & Palmes, 2018). Finally, business efficiency has declined from 92.0% to the current actual rate of 67.9%. It may lead to reduced workers’ morale, decrease in productivity, and reduced profits.

Question12

            The year’s major business learning is competitive analysis, business risks, organic growth, and creating economic value to the consumers. The company should employ competitive advantage strategies like price and customer focus, differentiation, and cost leadership to gain a competitive edge(Wallner, 2012; Jarvis & Palmes, 2018). Simultaneously, it should focus on quality improvement to gain and retain more consumers to improve its sales volume. Equally, the business should create economic value to the consumers by conducting research targets to improve quality products, focus on a well-defined business niche, and develop robust product differentiation(Wallner, 2012). Likewise, use digital marketing tools with the traditional tools will create more customer awareness of the business in building its resources and capabilities. Finally, this can be achieved through low product prices by lowering the unit selling price, improving product quality, and offering after-sale services to gain a competitive advantage.

Question 13

            The company’s major adjustments would be on its operations and growth strategies on production, business efficiency, and sales. The company should enhance its effectiveness to approximately 98% to improve employees’ morale, increasing their productivity to improve their profits(Wallner, 2012). Additionally, the company should improve its sales levels to increase its market share and profitability. It can achieve this by producing more consumer-focused products, improving quality, and product differentiation to attract and retain more customers(Wallner, 2012). In conclusion, the company can increase its marketing and advertising budget to create more awareness of the company products, produce quality customer-focused products, and enhance business efficiency to improve its competitive advantage and improve profit margins.

References

Bernshteyn, R. (2016). Value as a Service: Embracing the Coming Disruption. United States: Greenleaf Book Group Press.

Jarvis, A. & Palmes, P. (2018). Business sustainability: going beyond ISO 9004:2018. Milwaukee, Wisconsin: ASQ Quality Press.

Wallner, B. (2012). Competitive Strategies of Foreign Original Equipment Manufacturers in the Indian Passenger Car Industry an Analysis of Competitive Advantage in the Small to Mid-Size Segment. München: GRIN Verlag GmbH.