The firm Ferris with a mission to exceed the customer’s expectations with respect to quality and cost along with developing a specialization and unmatched expertise in creating, producing and distributing electronic sensors is committed to follow a rigorous research and development effort for yielding the innovative and durable products to its customers. It also strives to deliver product excellence with its state of the art manufacturing set up. The firm needs to pursue aggressive endeavors for continuous improvement as well as to enhance the frequency of customer interaction. The company also intends to yield a positive organizational climate to its employees that can harness the potential of its employees to the optimum. The present report accounts for the comparative assessment of the firm Ferris with its main competitors namely Andrews. Baldwin, Chester, Erie and Digby and highlights that why Ferris should be the most strategic choice for making business investments.
Ratio and Trend Analysis
The liquidity ratios are indicative of the fact that how well the firm is equipped to meet its short -term obligations for example the asset management ratio indicates the effectiveness of the firm’s management to handle its assets; the debt management ratios exhibit the use of the debt financing alternatives and finally the different profitability ratios depict the effectiveness of operations of the firm. Of all these ratios, the profitability ratio is most important being the accumulative sum of the effects of all the above mentioned ratios.
As one examines the performance of the above mentioned firms eight years back they all were at par sharing the market equally. The subsequent year was good as the market share exhibited an increment of around 0.74% however in the subsequent year it fell drastically to 12.97 with 4.44% absolute decrease and the trend is still continuing. Most of the financial indicators for the firm do not exhibit a positive trend over the past but that does not mean that the firm is not making an effort to improve. The past few years with strategies focusing on financial indicators have not been helpful to save the dwindling performance of the firm. For example, one of the important financial indicators that has been used widely for assessing the amount of return that has been generated by the firm’s management for its shareholders exhibit that the firm has not been able to yield positive ROE to the investors particularly after the 2019 and the gaps are increasingly sharply (figure 1). In addition to this, the market share of the firm is also declining. The three main components of the return on equity namely (i) the profit margin expressed as the ratio of net income to sales, (ii) asset turnover expressed as the ratio of sales to assets and (iii) financial leverage expressed as the ratio of assets to equity are also depicting a poor financial scenario for the firm.
The poor profit margins are indicative that the firm has failed to control the costs and being able to generate profits on its sales. Then the dwindling asset turnover suggests that the management is not being able to generate enough sales from its assets (figure 2). It takes into account the capital level in the assets and the sales we derived from those assets; as the asset Turnover is small it simply indicates that the firm is very capital intensive and requires huge capital investments for generating strong sales. As one examines the financial leverage ratio (asset to equity) over the past few years it is shown that it has improved significantly. This third but important component of ROE is indicative of the fact that how the management is utilizing the equity and debt for financing its assets and the increase in the value of financial leverage is indicative of the increase in debt. It is usually more desirable for the management to use the equity financing alternatives over the debt being less risky but in the case of Ferris the debt finance is increasing year by year (figure 3).
This directly shows that there is a dire need to invest in the quality control initiatives and have drastic improvements in the operations so as to yield and sustain high profit margins in the long run. The fitting of the exponential trend on the market share data reveals that the rate of the decline is quite sharp (b=-0.227) as well as the corresponding R2 is extremely high (with a value of around 95%), see figure 4.
Analysis of Other Trends
However there are some promising trends as well. Following the year 2019 the size of the organization has decreased while the performance has improved thereby depicting the significant improvement in the firm’s perceived positioning on the map with respect to its competitors (figure 5 and 6). These two needs to be focused in future strategic concerns of the firm as the relative importance of these in determining the buying criteria is 33% among the high tech customers and around 9% among the low tech customers, indicating their importance in influencing the customer purchase decisions.
The examination of the perceptual maps as well as the ideal position expectations reveals some directions for the future. Among the low tech segment it is observed that the price is the most significant determinant for the customer buying decision with relative importance of being 41% followed next by age and reliability (expressed in terms of MTBF). In the low tech segment, the firm is able to deliver the expectations on almost all accounts. However, the problems in the various areas seem to be more pronounced in the high tech segment. The next important concern for the customers following the performance and size ratio is the age with relative importance of around 29%. The analysis of the trends among the high tech customers suggest that the ideal age of the product desired is 0.0 years indicating that the customers seek the most innovative and latest product in this segment. The trends reveal that the products of the firm are lacking in this regard as perceived by the customers. The next important thing is the price which is well in the expected range but with respect to the reliability of product desired (MTBF 17000-23000) the actual reliability of Ferris products is 20000 which means that there is a possibility of improving the product in this regard improving it beyond 23,000 would simply imply a wastage of resources. The firm is also investing more and more in promotions which is particularly need to be done more aggressively as one examines the customer accessibility figures for Ferris with competing firms it is shown that in its case the customer accessibility is extremely poor in high tech segment with the value of meager 6% while the other firms exhibit much higher accessibility. This must have been a significant reason for the poor performance of the firm despite having a customer awareness level of 100%.
There is a need to devise appropriate strategies for capturing the potential in the market, particularly in the high tech segment as one can see that all the competing firms except Andrews doing well in this sector. The firm needs to invest strategically in the quality initiatives which must aim to curtail the mounting costs along with making efforts for fostering the relationship with the stakeholders of the process (Kotler & Armstrong, 2013; Freeman et al., 2010). The poor customer accessibility clearly indicates that the firm needs to improve the quality of relationship it has with its supply chain partners along with making strategic retail partnerships that can help in making the products available to the customers (Hitt et al., 2012). The firm needs to work on R & D initiatives in the high tech segment to deliver the innovative products to its clientele.
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge University Press.
Hitt, M., Ireland, R. D., & Hoskisson, R. (2012). Strategic management cases: competitiveness and globalization. Cengage Learning.
Kotler, P., & Armstrong, G. (2013). Principles of Marketing 15th Global Edition. Pearson.
Figure 1: ROE performance during 2015-2022
Figure 2: Asset Turnover during 2015-2022
Figure 3: Financial Leverage Ratio during 2015-2022
Figure 4: Market Share of the firm during 2015-2022 and the Exponential Trend Fitting
Figure 5: Performance during 2019-2022
Figure 6: Firm’s size during 2019-2022