Reynolds American Incorporated (RAI) was founded as and by RJ Reynolds in1875. o
US Corporation headquartered in Winston-Salem, North Carolina. o
It manufactures tobacco related products such as cigarettes, additive free tobacco, smokeless tobacco, and cigars that contain nicotine replacement therapy products. o
In the 60’s they began diversifying into food and other non-tobacco business and became well known for RJR Nabisco. o
In 1987, Kohlberg, Kravis Roberts& Co. (KKK) won control of the company and they turned it private. o
In 1997, they withdrew its advertising cartoon character Joe the Camel. o
In 1999, the company spun off from Nabisco.
In 2004 RAI was created
Second largest tobacco company in the US cigarette market
Revenue contributes approximately 85% of RAI’s total sales o
Six of the ten best-selling cigarette brands in the US
Innovative leader in the tobacco industry
Marketing of tobacco to children
Research and development expenses
Diversifying food and non-tobacco products, such as cookies o
Limitation to US market only
Acquisition of American Snuff
Government influence on producing and trading tobacco
Opportunity to trade internationally
Research and development
Federal regulations and ongoing litigations
Increase of sales tax on tobacco products
FDA unprecedented control over the manufacture, sale, marketing, and packaging of tobacco products o
Restrictions of smoking in public places
Companies like Google and Microsoft to ban advertising of cigarette products on their networks Trends:
Smoking or not
Social acceptance of smoking
New advances in technology for nicotine delivery
During 2010 their profit margin was 13% which means the company earned 0.13 of each dollar translated into profits.
Return on Assets:
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:
Their return on equity was 17.1% which is good because
Average collection period:
Average daily credit sales
Their average collection period was 5.0 which are the days the company took to collect its receivables.
Their current ratio was 1.1 to repay its short term obligations.
Their quick ratio was .86 which did not include their inventory.
Debt to total assets:
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.
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
If possible, headquarter the company in another country 3.
Continue to develop smokeless products for consumers
A. Evaluation criteria:
Follow the US regulations and restrictions...
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