Foing-nova is an IT company located in Varaždin, Croatia, which provides software for users of the state budget. However, Foing-nova remains a small business despite recently changing its location and expanding its headquarters. After consulting RajkoTomiek, who is the CEO of Foing-nova, it was clearly understood that the most suitable method of company’s expansion would be to increase their market share. Although, Foing-nova is expected to gain new customers by entering a new market and thus become more profitable. However, a strategy must be put in place to ease the diversification of the company and to ensure that the moves does not backfire (Dokko et al. 2009). To this end, it is imperative to consider the mobile app market and also factors which help better portray the position of the company regarding the prospective market at the moment.
THE MOBILE APP ENVIRONMENT
The mobile app environment has been a revelation over the past few years, most especially since the explosion of social media access in the early mid-2000s. In spite of the company’s tremendous achievement since 2004, it introduced more mobile apps into various mobile app markets where they are made available to multiple millions of internet users. Danielle Levitas, senior vice president of research at App Annie (App Annie tracks more than a million apps), said in a statement that their latest report leveraged more than 10,000 sources to uncover a variety of insights about the current app market (Annie 2016). Furthering the discourse in another separate report, Peter Warman who is the CEO of NewZoo, a global intelligence mobile market firm, projected that the global revenue from apps would surpass the $40 billion mark in 2016 (Warman 2016). He further asserted that the revenue would, at least hit the $80 billion mark as early as 2020. There also exists reports which have posited their expectation of the revenue by 2020 to be more than the $100 billion mark.
Currently, the mobile app market ensures that hundreds of thousands of people all over the world have a means of income and a job, and the trend is not expected to grow any less in the years to come. Albeit, games currently account for as much as 85% of the trending and most downloaded apps from global the app market. The apps from other industries such as law and legal services, insurance, banking, automobiles, commerce, etc. are expected to increase their penetration into the app market, as more people embraces modern technology and involve in the usage of smartphones. Presenting an overview of the market in a succinct summary, Sasha Zinevych observed that the mobile economy had come a long way from where it was as little as four years ago (Sasha 2016). She observed that every year, the market appears to grow exponentially such that it obliterates the statistics and figures of the previous year. She concedes that despite slight differences and dissimilarities in the various mobile market reports, one thing which shines through in and therefore connects all of the reports is the enormous size of the mobile market and the somewhat positive sign that it is still expanding. She posited that advertisements hosted on apps make earnings, the amount of data consumed, and other app suggested related apps or auxiliary apps which might be needed to boost the performance or output of a certain app. She wraps up her commentary by pointing to APAC and Latin America as the fastest growing markets.
The implication of Zinevych’s revelation is that the mobile market continues to grow at a healthy rate and holds a huge promise of providing decent returns for dedicated players in the industry. Categorically, different forecasts in different reports have put the ceiling of the earnings expected to be accrued from the mobile app market at various figures. The sheer enormity of every single forecast in every single report suggests that at least on one front they are all correct: the market for mobile app creators and users is huge and is not about to reduce.
SWOT ANALYSIS
A SWOT Analysis is a business tool and an analytical framework which is used to help organizations identify opportunities which may be maximized to their advantage in their chosen field as well as those factors which may impede their work and how it can be reduced to the barest minimum. As asserted by Lominé et al. (2014), SWOT Analysis is useful for determining a company’s brightest prospects, irrespective of its size. Below is the SWOT Analysis for Foing-nova:
What the above analysis makes evident is that the company has huge potential to excel in the app making industry and market, if it chooses to follow that path. The interplay of internal and external factors reveal that the company has the trust of their customer base, have a reputation for not compromising quality, is relatively well-known within their local market environment and have workers who are largely motivated to pursue the company objectives along this new line of production. The situation above, in conjunction with the app market condition, increases the vulnerability to new entrants creating apps for different fields, making the potential for impact and profitability considerably high. Added to this is the fact that the company may not necessarily go through the usual challenge of creating a niche which most new entrants have to go through since they already possess an existing client base from which they can narrow their market penetration.
The company, however, must be willing to work on its weaknesses, most especially its understanding of the app market and the economic forces which shape it, as well as in strengthening in the core area of recruiting professional app developers and marketers as a part of the workforce. Paying these adequate attention will ensure that the company further strengthens itself on its core weaknesses while providing necessary conditions for its strengths to shine through. The company can, therefore, afford to keep a mere eye on the interplay of forces which account for its weaknesses without actively focusing on them, since the earlier identified points had been focused solely on, and would do more than enough to counteract whatever weaknesses identified. Therefore, we can safely posit that the internal and external helpful portions of the SWOT Framework for the company can adequately help it project the requisite presence needed for making the most of its proposed foray into the app market as a means of gaining more market share and increasing revenue.
RATIO ANALYSIS
Ratio Analysis is the technical term which covers the quick and easy determination of the financial viability of a company based on its results in selected areas. The Current Ratio is a liquidity ratio which seeks to identify the viability of a company by determining how it fares in the event of meeting existing obligations. The formula for calculating the current ratio or the working capital ratio is as follow:
Working Capital Ratio = Current Assets
Current liabilities
There is a great change in ratio from 1.04 in 2014 to 10.83 in 2015 which is very high and may be an indication that the company is focusing on increasing liquidity at the expense of efficiently investing capital, to grow and expand its business as intended. It was evident that the company, although it is small scale but healthy enough to attempt a diversification of the proportions intended with its foray into mobile app development. It also portends that existing and prospective creditors will have little to fear about the company's liabilities, as the company is in a good position to adequately cover all liabilities and still be able to carry out their day to day activities.
The Acid-Test Ratio is a strong indicator of the capacity of a firm to provide sufficient short-term assets it requires to cover its immediate liabilities in a situation where the inventory cannot be easily converted to cash when needed. The following formula is used to calculate the acid test for the company:
Acid Test Ratio = (Total current assets) – (inventory)
Total current liabilities
The Acid Test Ratio for Foing-nova is 1.03 in the year 2014 and increased to 10.82 in the year 2015. Although, the rate at which it increases is very high, which it suggests that even in the short term, the company is well able to meet its requirements for its daily operational need and also to pay off its liabilities if the need arises. Furthermore, the company will be able to meet the obligations necessary for the diversification and expansion of the production of the mobile app.
The Net Profit Margin (NPM): is used to measure the percentage of net income of a company to its net sales and it shows how good a company can convert its revenue into sales, and is calculated as follow:
Net Profit Margin = Net Profit
Total Sales
The net profit margin for the year 2014 is 2.47 and reduced to 0.08 in 2015, despite the fact that they sold more in 2015 than 2014 the profit is lower than what was made in 2014, this might be as a result of a reduction in price so as to boost sales. There might be a need to diversify so as to increase market share and sell at a more competitive price that will increase net profit margin (Wahlen et al. 2014).
Return on Capital Employed (ROCE): explains how capital employed is used by the business to generate profit, it is calculated as follow:
Return on Capital Employed = Profit
Capital Employed
ROCE for the year 2014 is 2.47 which reduced in the year 2015 to 0.35 which shows that the capital employed was not efficiently used. The drop in the ROCE shows there is a drastic drop in profitability which should be examined to prevent a further decline in the incoming year, and one of the strategies that can be put in place to increase profitability might be to diversify into mobile app production for mobile phone.
DIVERSIFICATION STRATEGY
Following the comprehensive research, analysis and findings, it had been suggested that Foing-nova should proceed with its intention to increase its share of the market via mobile app production for smartphone users. The smartphone market will only increase, with penetration billed to continue rising. In 2016 alone, there are going to be an estimated 1 billion new smartphones. Therefore, the market is huge, and the potential for profit is remarkably high. Foing-nova is best poised to follow a strategy which sees it focus on the helpful component of the SWOT analysis conducted on the company. Given its strengths, the company is urged to work on its weaknesses so as to prime itself to take advantage of the opportunities in the market. While this is going on, the company must take steps to identify aspects of social life where apps would make interaction more meaningful and begin to create solutions in that dimension.
The next step will be the creation of an app for the existing clientele, to gauge their response, perception of the new trend and also to measure their reaction to the new direction of app creation of the company. This app will then be used as a template for obtaining feedback, fine-tuning templates and standards in reaction to user responses, and ultimately launching deeper into the mobile app market. The company must also identify app friendly potential clients and make pitches to them on the intended mobile app, the numerous advantages it would pose to the client and their business or their enterprise, and why Foing-nova is the ideal company to undertake such development on behalf of the company. The earlier pilot project comes into play here as the company can have previous experience to fall back to and to cite with the intention of strengthening its claim regarding versatility, capacity, and competence in the mobile app development field.
Based on the ratio analysis, the profitability of the Foing-nova is gradually reducing, and one of the ways to increase its profitability is to diversify into mobile app production for mobile phone and take advantage of the huge market and high potential for profit. The more these pitches are successfully carried out, the stronger the company becomes in the mobile app market and the more it controls an increasing share of the market. Given the way apps operate and the market situation as well as forecast over the next five years, the company stands to attain a considerable profit margin within a few years and if sustained, can become a force to be reckoned with in the mobile app market locally and globally.
CONCLUSION
Foing-nova may be a small company as of the moment, but the financial performance calculated using the ratio analysis shows that a new strategy has to be adopted to improve the dwindling profit being experienced by Foing-nova and diversification. The gradual expansion is what the company need to gain more market share and increase profit. Likewise, the SWOT analysis results asserted that the direction embraced by the company as regards to increasing market penetration and market share control, if properly followed will be resourceful and immensely profitable and Foing-nova is consequently encouraged to pursue diversification.
Reference List
Annie, A 2016, ‘App Annie Mobile App Forecast: The Path to $100 Billion’, 2016. Available from https://barbanouille.files.wordpress.com/2016/02/app-annie-02-2016-forecast-en.pdf
Dokko, G, Wilk, SL and Rothbard, NP 2009, Unpacking prior experience: How career history affects job performance. Organization Science, 20(1), pp.51-68.
Lominé, LL, Muchena, MM & Pierce, RA 2014, ‘Business Management’, Oxford University Press, Oxford.
Sasha, Z 2016, The overview of Mobile Apps Market: Why you should enter now. Available from http://www.business2community.com/mobile-apps/overview-mobile-apps-market-enter-now-0994728#Qwh6EYvffm8eSz0j.99
Wahlen, JM, Baginski, SP & Bradshaw, M 2014, Financial reporting, financial statement analysis and valuation. Nelson Education.
Warman, P, 2016, Global Mobile Market Report: App Market to Gross $44.8Bn This Year. Available from https://newzoo.com/insights/articles/global-mobile-market-report-app-market-to-gross-44-8bn-this-year/
