oReynolds American Incorporated (RAI) was founded as and by RJ Reynolds in1875. oUS Corporation headquartered in Winston-Salem, North Carolina. oIt manufactures tobacco related products such as cigarettes, additive free tobacco, smokeless tobacco, and cigars that contain nicotine replacement therapy products. oIn the 60’s they began diversifying into food and other non-tobacco business and became well known for RJR Nabisco. oIn 1987, Kohlberg, Kravis Roberts& Co. (KKK) won control of the company and they turned it private. oIn 1997, they withdrew its advertising cartoon character Joe the Camel. oIn 1999, the company spun off from Nabisco.
oIn 2004 RAI was created
oSecond largest tobacco company in the US cigarette market
oRevenue contributes approximately 85% of RAI’s total sales oSix of the ten best-selling cigarette brands in the US
oInnovative leader in the tobacco industry
oMarketing of tobacco to children
oResearch and development expenses
oDiversifying food and non-tobacco products, such as cookies oLimitation to US market only
oAcquisition of American Snuff
oGovernment influence on producing and trading tobacco
oOpportunity to trade internationally
oResearch and development Threats:
oFederal regulations and ongoing litigations
oIncrease of sales tax on tobacco products
oFDA unprecedented control over the manufacture, sale, marketing, and packaging of tobacco products oRestrictions of smoking in public places
oCompanies like Google and Microsoft to ban advertising of cigarette products on their networks Trends:
oSmoking or not
oSocial acceptance of smoking
oNew advances in technology for nicotine delivery
Profit Margin:Net income 1,113/8,551= 13%
During 2010 their profit margin was 13% which means the company earned 0.13 of each dollar translated into profits.
Return on Assets:Net income1,113/4,802= 6.5%
On 2010 their return on assets was 6.5% meaning that the company is using its assets which generate earnings as well.
Return on Equity:Net income1,113/6,510= 17.1%
Their return on equity was 17.1% which is good because
Average collection period:accounts receivable118/00= 5.0
Average daily credit sales
Their average collection period was 5.0 which are the days the company took to collect its receivables.
Current ratio:Current assets4,802/4,372= 1.1
Their current ratio was 1.1 to repay its short term obligations.
Quick ratio:Quick assets3747/4,372= .86
Their quick ratio was .86 which did not include their inventory.
Debt to total assets:Total debt0000/4,802= 61.9%
Their debt to assets was 61.9% which means that their debts were higher than their assets. This could be a problem because they need to be able to have enough assets to pay off their debt. 2,192+232/232=10.45
Times interest earned: EBIT+ Interest expense
Their interest earned for the year 2010 was 10.45 which indicate that the firm’s earnings can cover their interest payments on its debt.
Some of obstacles the firm faces include the following; a growing competitive base, slow economic recession, and substantial societal difficulty. A central problem the company faces is a severely tightened government.
RAI must develop a focused strategy to overcome some of these obstacles. Three strategic alternatives they must consider to focus on their central problem are, 1.Abide to the governmental restrictions
2.If possible, headquarter the company in another country 3.Continue to develop smokeless products for consumers
A. Evaluation criteria:
1.Follow the US regulations and restrictions...