Mr Makedama
Macadam case analysis by UCT group of MBA students
Company overview:
Macadams Bakery Supplies Holdings (Macadams) is a manufacturer of oven and other appliances for the baking industry. Their financial statements for 1996 highlight a very strong year. Turnover grew by 59% to R125.3m and profit increased by 81%. An acquisition of Livanos Brothers (February 1996) took place in response to the increased demand in the local market as well as an expansion of market base in foreign markets. Depreciation of the Rand against other major currencies also supported export sales.
The company has entered a phase of rapid expansion, expanding its main factory in Cape Town by 50%. As well as opening new sales and distribution centers in Durban and Bloemfontein in the current year, with further plans to expand in to Zimbabwe in the following year. An analysis of the company’s financial statements will determine whether the company is in a position to leverage its expansion, or whether it is perhaps growing too rapidly.
Detailed Financial Analysis
Profitability:
Macadams experienced a healthy turnover, which increased by 58.5% between 1995 and 1996. This “abnormally” high growth in turnover was due to a surging demand for their products, favorable exchange rates and acquisitions of business’s, which complimented their current product portfolio. They further expanded the operational network to service the growing market they were operating in. It should however be noted that a growth rate of 58.5% per annum is not sustainable or realistic, and although Macadams has extended their products and services to global markets through joint ventures and M&A’s, there would be a point where there growth would become organic, or at least in line with industry standards..
Although operating and net margins have improved since 1995, the net margin remains low at 8.5%. This indicates that despite dramatic increases in revenue, Macadams have only marginally improved the ability to
Company overview:
Macadams Bakery Supplies Holdings (Macadams) is a manufacturer of oven and other appliances for the baking industry. Their financial statements for 1996 highlight a very strong year. Turnover grew by 59% to R125.3m and profit increased by 81%. An acquisition of Livanos Brothers (February 1996) took place in response to the increased demand in the local market as well as an expansion of market base in foreign markets. Depreciation of the Rand against other major currencies also supported export sales.
The company has entered a phase of rapid expansion, expanding its main factory in Cape Town by 50%. As well as opening new sales and distribution centers in Durban and Bloemfontein in the current year, with further plans to expand in to Zimbabwe in the following year. An analysis of the company’s financial statements will determine whether the company is in a position to leverage its expansion, or whether it is perhaps growing too rapidly.
Detailed Financial Analysis
Profitability:
Macadams experienced a healthy turnover, which increased by 58.5% between 1995 and 1996. This “abnormally” high growth in turnover was due to a surging demand for their products, favorable exchange rates and acquisitions of business’s, which complimented their current product portfolio. They further expanded the operational network to service the growing market they were operating in. It should however be noted that a growth rate of 58.5% per annum is not sustainable or realistic, and although Macadams has extended their products and services to global markets through joint ventures and M&A’s, there would be a point where there growth would become organic, or at least in line with industry standards..
Although operating and net margins have improved since 1995, the net margin remains low at 8.5%. This indicates that despite dramatic increases in revenue, Macadams have only marginally improved the ability to