Merrill Electronics Corporation, founded by Thomas Miller in 1950 and a major distributor for the Global Electrical Company (GEC), is one of the largest manufacturer of electrical and electronics products for consumer and institutional markets. Over the years, it has expanded its operations with its noncompeting lines of electrical appliances, records, compact discs, and cassettes and through importing from and distributing to Taiwan and Japan.
However, Merrill is faced with steadily severe declining margins in the electrical distribution business in recent years. This worsens its poor financial condition and inability to meet payments to suppliers and the current $3 million debt to its principal bank.
Merrill needs to evaluate the sustainability of its current market strategy to be at par in the electronics distribution business and consider if it can stay in the business or not. As Merrill’s new president and largest shareholder, what is the necessary action that Patricia Miller should do that would be the most effective and beneficial to the company and its shareholders? Should she choose to retain interest in the company or sell out?
1. Analyze the financial statements highlighting operating efficiency, profitability, financial leverage, and liquidity. Do a trend analysis and compare the company ratios to its industry peers.
2. Evaluate the current strategy implemented by Brown.
3. Suggest and test the feasibility of other alternative strategies to maintain healthy margins and levels of profitability.
4. Recommend the best course of action to ameliorate the current problem.
The alternative courses of action shall be evaluated using cost-benefit analysis.
I.Areas for Consideration
Suitability to the Business Environment
Merrill’s suitability to the industry it belongs should be considered for this will be the basis in deciding for the perfect strategy Merrill should partake. These external factors include competition, economic condition, market health and market share, and customer base. Market penetration
This should be considered specially that Merrill belongs to a competitive market. It should consider market penetration in terms of its depth of sales of its particular product division. This could involve cutting prices or discounting on its obsolete products, increasing advertising and promotions, obtaining better warehouses for their products, or innovative distribution strategies and efficient delivery system. Because the deeper the market penetration, the higher the volume would be in product sales. Sustainability of the Strategy
Whether or not a new strategy shall be implemented, a strategy shall depend on its general sustainability until future uses. A sustainable strategy is a strategy that can be used in the long-run and adaptive to internal and market changes. Failure to fulfill this prohibits the effectiveness of any alternative strategy. Financial Ratios-
Operating efficiency, profitability, and turnovers will be evaluated and strategies for the firm will be tailored with the current state of the company's books. These ratios guide the company in the assessment of its current and projected condition. Implementation of the Suggested Action
The cost of change and the time needed to implement a strategy should be taken into account. Monetary and opportunity costs will be evaluated, and the most cost-effective in terms of these shall be the foremost strategy to consider.
II. Alternative Courses of Action and Evaluation
1. Stay with the current strategy implemented by Brown.
2. Alter the strategy of Brown and implement complementary actions. 3. Register the company and make the stocks publicly-traded. 4. Sell out the company to reduce losses if ever strategies fail to work out.
General Overview: Financial Ratios | As seen on the first...