Case Report - Business Course

Topics: Cash flow, Investment, Green roof Pages: 11 (2822 words) Published: May 26, 2013

This report’s purpose is to examine the internal and external environments in which GWL Roofing Ltd (GWL) operates. It identifies and analyzes the advantages and disadvantages of various strategic alternatives, makes recommendations, and provides an implementation plan to allow GWL to adopt the recommended strategy.

Situational Analysis

Current Mission & Vision
GWL has no official mission or vision statements, however the implied statements are as follows:

To offer superior products and roof management solutions to ICI customers in Central and Eastern Canada and North Eastern US at premium prices. Vision
To be the leading provider of total roof management solutions. External Environment
A thorough analysis of the external environment in which GWL operates has been completed, including an industry value curve, uncovering two key opportunities:

The North American green roofing market is expected to double over the next five years with 10% yearly growth for the following 15 years, and Residential housing starts are expected to increase in 2010, rising 16.2% in Canada and 24.9% in the United States .

Some threats to GWL’s business were also revealed, including a decrease in new construction projects, both residential and commercial, due to the economic slowdown, as well as an increasing trend of American competitors competing in Canadian markets. Appendix 1 contains a detailed analysis.

Internal Environment
High quality specialized products, and the roof management program (RMP) are GWL’s foremost strengths. A heavy debt load, no cash flow, and numerous accounting policy issues remain GWL’s most significant weaknesses. Appendix 1 contains a detailed analysis of the internal environment.

Three constraints were observed:
A line of credit is secured by a bank covenant requiring 75% of accounts receivable (AR) is under 90 days Approximately 20% of incremental sales is required to finance growth in the form of working capital Long-term cost of capital is 11%

Financial Assessment
An analysis of liquidity (Appendix 2) shows that increasingly short term cash management may lead to problems in paying current liabilities. AR turnover is rising due to increased collections time (51 days to 76 days), increasing overall financing costs as this cash is required to fund operations. Issues arising from this turnover increase are compounded as our present credit terms move from 30 to 90 days.

There is a significant dependency on loans as the times interest earned ratio indicates a decline in GWL’s ability to cover interests on outstanding debt, from 100.4 times to 36.6. Other means of financing should be considered as the company is heavily dependent on debt.

GWL’s COGS is comparable to its competitor (Beacon). On average gross profit is higher, due to the exclusion of sales commission from COGS. An analysis of EPS indicates GWL is lower than our competitor; this is attributed to high marketing/training/sales commissions.

Strategic Alternatives

Expand Geographically
GWL could expand geographically by building a manufacturing facility in western Canada. An analysis of this alternative is below:

Preference of Daniel and Pierre Laroche & Annette Michaud •Possible revenues of up to $15M yearly within five years •Larger installed base leading to stable long-term cash flows from the RMP •High-quality, specialized products to cope with Canada’s harsh winters •Economic recession has decreased cost of capital investment •Location in western Canada positions GWL for further expansion into the US •Alberta has the lowest provincial tax rate in Canada at 10%

Further capital investment increases debt load
Difficult market penetration as GWL’s brand isn’t established in the region •New sales and manufacturing staff required
Alberta has the highest average wages of any province ($974/weekly) •Investment returns aren’t...
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