Investment and Cost Savings

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To: The Board of Directors of Coast4Life

From: Pat Brown

Re: Strategic issues and Recommendation

Date: January 18, 2013

Please find the attached report addressing the key strategic issues, analysis and recommendation.

Sincerely,

Pat Brown
Controller

Introduction
The purpose of this report is to address the key strategic issues facing Coast4Life with the expected downturn ahead. Included is a financial analysis, identification of major issues, analysis of alternatives and a recommendation.

Financial Analysis for the Year Ended 2012 (Appendix 1)
* Current ratio of 1.6 indicates that the company can meet its short term obligations. There is a 46% improvement versus last year’s current ratio of 1.1. Quick ratio of 1.8 shows a 50% improvement. * Total debt- to-equity of 1.5 shows a 12% improvement over prior year’s ratio of 1.7 indicating that the firm is relying less on debt. Times interest earned ratio of 6.4 improved by 30%. * Profitability ratios indicate overall earnings growth. Net margin of 15.2% grew by 18% compared to 12.9% in 2011 while Return-on-Equity (ROE) of 27.4% grew by 16%. Return on Investments (ROI) of 11.2% shows a significant 28% growth from 8.7% and posted a 14% favourable variance compared to target. * Revenue and net income grew by 13.4% and 33.3%, respectively.

Major Strategic Issues
With the expected estimated 30%-35% decline in the overall booking, the expected impact is a decline in income by $7M (Appendix 2). The proposed alternatives to generate additional revenues and or/ cost savings are evaluated using a required after tax rate of return of 16%.

Alternative 1 – Change Customer Mix
Objectives: Maximize Repeat Customers from 20% to 40%
Maximize Age Group 40-60 years old from 30% to 38%
Pros:
* Incremental Income of $721K in 2013; $2.1M for the 3 years ahead combined (Appendix 3) * Opportunity to expand extra-services
* Maximizes capacity/resources
Cons:
*...
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