Magee Company: A Report to Shareholders
James Magee
BA 411
Report to Shareholders
Business Model
When Magee Company began in 2011, the company had the goal of producing top of the line sensors to customers who demand the newest technologies. The firm would do this by manufacturing its product lines at or above the expectations of customers, while still trying to maintain a competitive price within in the market. To gain market share, the company planned to heavily promote its products, while increasing the number of distributors and sales personnel to make products more available.
Current State
Despite its plan’s, Magee Inc. was unstable from the beginning. With the exception of year one, Magee Comapny was never able to generate net profits from operations. This stemmed from several issues in poor management decisions. First, Magee management incorrectly believed that profits from its traditional segment could provide sufficient cash to invest in plant and product improvements for the other lines. It is now clear that Magee should have financed the operations through long-term debt. Magee believes that investments in automation could have increased productivity and therefore increase margins on products, as they were low relative to Magee competitors (see Appendix).
Magee Inc. was also unable to gain a significant amount of market share due to poor marketing activities. Initially, the firm priced some products too high, which caused an initial decrease in market share. The lack of marketing management was also a factor in the reduced demand, which left the plant running below capacity. To counter act this, management decided to boost production above normal capacity. Prices were then dropped in an attempt to push product out onto the market, but this action proved futile as only two of its four products had positive margins. Because of these decisions, the firm now sits with nearly $100 million in inventories.
BA 411
Report to Shareholders
Business Model
When Magee Company began in 2011, the company had the goal of producing top of the line sensors to customers who demand the newest technologies. The firm would do this by manufacturing its product lines at or above the expectations of customers, while still trying to maintain a competitive price within in the market. To gain market share, the company planned to heavily promote its products, while increasing the number of distributors and sales personnel to make products more available.
Current State
Despite its plan’s, Magee Inc. was unstable from the beginning. With the exception of year one, Magee Comapny was never able to generate net profits from operations. This stemmed from several issues in poor management decisions. First, Magee management incorrectly believed that profits from its traditional segment could provide sufficient cash to invest in plant and product improvements for the other lines. It is now clear that Magee should have financed the operations through long-term debt. Magee believes that investments in automation could have increased productivity and therefore increase margins on products, as they were low relative to Magee competitors (see Appendix).
Magee Inc. was also unable to gain a significant amount of market share due to poor marketing activities. Initially, the firm priced some products too high, which caused an initial decrease in market share. The lack of marketing management was also a factor in the reduced demand, which left the plant running below capacity. To counter act this, management decided to boost production above normal capacity. Prices were then dropped in an attempt to push product out onto the market, but this action proved futile as only two of its four products had positive margins. Because of these decisions, the firm now sits with nearly $100 million in inventories.